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The Corporation for National and Community Service (CNCS) was established by the National and Community Service Trust Act of 1993 ( P.L. 103-82 ). Operating as an independent federal agency, the CNCS oversees all national and community service programs authorized by the National and Community Service Act of 1990 (NCSA) and the Domestic Volunteer Service Act of 1973 (DVSA). The NCSA and DVSA were last reauthorized by the Edward M. Kennedy Serve America Act ( P.L. 111-13 ). Although authorization of appropriations under the Serve America Act expired in FY2014, NCSA and DVSA programs have continued to receive funding through the Departments of Labor, Health and Human Services, and Education and Related Agencies Appropriations Act (Labor-HHS-ED). CNCS programs are funded through the end of FY2018 under the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ). The final enacted appropriations law for FY2018 included $1.064 billion for CNCS. The overall FY2018 funding level for CNCS is 3% above the FY2017 level of $1.030 billion. This report provides a summary of each NCSA and DVSA program and compares funding under Labor-HHS-ED in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ); the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ); the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ); and the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ). The purpose of the NCSA is to address unmet human, educational, environmental, and public safety needs and to renew an ethic of civil responsibility and community spirit in the United States by encouraging citizens to participate in national service programs. The NCSA was enacted in 1990 as P.L. 101-610 and last reauthorized in 2011 by the Edward M. Kennedy Serve America Act ( P.L. 111-13 ). NCSA programs include AmeriCorps State and National Grants, the National Service Trust, the National Civilian Community Corps (NCCC), and Learn and Serve America (LSA). See Table A-1 for NCSA funding information. Program Focus : Created in 1993, programs under AmeriCorps State and National Grants identify and address critical community needs, including tutoring and mentoring disadvantaged youth, managing or operating after-school programs, helping communities respond to disasters, improving health services, building affordable housing, and cleaning parks and streams. Grants include formula grants to states and territories, and competitive grants to states, territories, Indian tribes, and national nonprofit organizations. Volunteer Eligibility : Individuals aged 17 and older. Amount of Volunteer Service : Full-time or part-time for a 9- to 12-month period. Volunteer Benefits : Some full-time AmeriCorps members receive a living allowance, health coverage, and child care for those who qualify. Participants in AmeriCorps may receive educational awards for their service through the National Service Trust (see the following section of this report). AmeriCorps members can also obtain loan forbearance (i.e., postponement) in the repayment of their qualified student loans while participating in these programs and have the interest on their accrued loans paid from the trust once they earn an educational award. Administrative Entity : Each state and territory governor appoints members of a service commission to manage, monitor, and administer annual grant applications for the state. CNCS reviews the state commission formula package and makes the awards. For multistate or national awards, grantees are selected competitively by the CNCS headquarters office. The National Service Trust, a special account in the U.S. Treasury, provides educational awards for participants in AmeriCorps Grants, NCCC, and Volunteers in Service to America (VISTA). An individual may not receive more than an amount equal to the aggregate value of two awards for full-time service. The educational award for full-time service is equal to the maximum amount of a Pell Grant in effect at the beginning of the federal fiscal year in which the Corporation approves the national service position. AmeriCorps members serving in programs funded in FY2018 will receive an education award of up to $5,920, which is the Pell Grant maximum in the year the positions were approved. Prorated awards are also made for other terms of service, such as half-time (see Table 1 ). AmeriCorps members aged 55 or older at the beginning of a term of service may transfer the education award to a child, grandchild, or foster child. AmeriCorps State and National participants can serve a maximum of four terms of service. Full-time, half-time, reduced half-time, quarter time, and minimum time terms of service each count as one term of service. In addition to education awards, the National Service Trust provides interest payments on qualified student loans to recipients of AmeriCorps Grants and participants in NCCC or VISTA who have obtained forbearance (postponement of loan repayment). Program Focus : NCCC is a full-time residential program that focuses on short-term projects that meet national and community needs related to disaster relief, infrastructure improvement, environment and energy conservation, environmental stewardship, and urban and rural development. Volunteer Eligibility : Individuals aged 18 to 24. By statute (42 U.S.C.S. §12613(c)), the Corporation is required to take steps to increase the percentage of program participants who are disadvantaged to 50% of all participants. Amount of Volunteer Service : Participants can serve up to two years full time. Full-time service is defined as 10 months each year. Volunteer Benefits : NCCC participants may receive a living allowance, room and board, limited medical benefits, and an educational award through the National Service Trust. Administrative Entity : NCCC programs are administered by the CNCS. CNCS continues to have broad authority to fund a range of activities as authorized by Subtitle I-H, Investment for Quality and Innovation. The Serve America Act established the following programs. Social Innovation Fund (SIF). The Social Innovation Fund leverages federal investments to increase state, local, business, and philanthropic resources to replicate and expand proven solutions and invest in the support of innovation for community challenges. P.L. 115-141 does not include funding for the Social Innovation Fund. Volunteer Generation Fund. The Volunteer Generation Fund awards competitive grants to state commissions and nonprofit organizations to develop and support community-based entities that recruit, manage, or support volunteers. Innovation, Demonstration, and Call to Service. The corporation supports innovative initiatives and demonstration programs, such as the Call To Service, which would engage Americans in community needs, such as the Martin Luther King Jr. National Day of Service and the September 11 th National Day of Service and Remembrance. Since 1990, NCSA has authorized community service programs benefitting students and communities through "service-learning," which integrates community service projects with classroom learning. This program was last funded in FY2010 by the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ). The DVSA was enacted in 1973 as P.L. 93-113 . Like the NCSA, it was last reauthorized in 2011 by the Edward M. Kennedy Serve America Act ( P.L. 111-13 ). The purpose of DVSA is to foster and expand voluntary citizen service throughout the nation. DVSA programs are designed to help the poor, the disadvantaged, the vulnerable, and the elderly. Administered by the CNCS, DVSA programs include VISTA and the National Senior Volunteer Corps. See Table A-1 for DVSA funding information. Program Focus : The VISTA program encourages Americans to participate in community service in an effort to eliminate poverty. Volunteer Eligibility : Individuals aged 18 and older. Amount of Volunteer Service : VISTA members serve full time for up to five years. Volunteer Benefits: VISTA members may receive a living allowance, student-loan forbearance, health coverage, relocation costs, training, and child care assistance. VISTA members have the option of receiving an educational award, which is equivalent to the educational awards earned by AmeriCorps or NCCC members, or they may choose to receive an end-of-service lump sum stipend of $1,500 instead. Like NCCC members, VISTA members receive an educational award based on the Pell Grant. Full-time, half-time, reduced half-time, quarter time, and minimum time terms of service each count as one term of service. Administrative Entity : CNCS state offices. The National Senior Service Corps consists of three programs, summarized below: the Retired Senior Volunteer Program (RSVP), the Foster Grandparent Program (FGP), and the Senior Companion Program (SCP). Program Focus : Volunteers in RSVP may play community service roles in education, health and nutrition services, community and economic development, and other areas of human need. Volunteer Eligibility : Individuals aged 55 and older. Amount of Volunteer Service : Participants can contribute up to 40 hours each week. Volunteer Benefits : The RSVP offers no direct benefits (e.g., stipends or educational awards), with the exception of mileage reimbursement and insurance coverage during assignments. Administrative Entity : CNCS state offices. Program Focus : FGP participants support children with exceptional needs by providing aid and services. FGP participants mentor children and teenagers, teach model parenting skills, and help care for premature infants and children with disabilities. Volunteer Eligibility : Individuals must be 55 or older to participate in FGP and meet income eligibility requirements to receive a stipend. Amount of Volunteer Service : Volunteer schedules, which range from 15 to 40 hours each week, average 20 hours per week. Volunteer Benefits : Income eligible participants may receive a tax-free hourly stipend. Participants may also receive mileage reimbursements and accident, liability, and automobile insurance coverage during assignments. Administrative Entity : CNCS state offices. Program Focus : SCP gives older adults the opportunity to assist homebound elderly individuals to remain in their own homes and to enable institutionalized elderly individuals to return to home care settings. Volunteer Eligibility : Individuals must be 55 or older to participate in SCP and meet income eligibility requirements to receive a stipend. Amount of Volunteer Service : Volunteer schedules, which range from 15 to 40 hours each week, average 20 hours per week. Volunteer Benefits : Participants may receive a stipend. Participants may also receive mileage reimbursements and accident, liability, and automobile insurance coverage during assignments. Administrative Entity : CNCS state offices. | The Corporation for National and Community Service (CNCS) is an independent federal agency that administers the programs authorized by two statutes: the National and Community Service Act of 1990 (NCSA; P.L. 101-610), as amended, and the Domestic Volunteer Service Act of 1973 (DVSA; P.L. 93-113), as amended. NCSA and DVSA programs were most recently reauthorized by the Edward M. Kennedy Serve America Act (P.L. 111-13). This report describes programs authorized by these laws and compares CNCS funding for FY2015, FY2016, FY2017, and FY2018. The NCSA is designed to meet unmet human, educational, environmental, and public safety needs and to renew an ethic of civic responsibility by encouraging citizens to participate in national service programs. The major programs authorized by NCSA include AmeriCorps State and National Grants and the National Civilian Community Corps (NCCC). The NCSA also authorizes the National Service Trust, which funds educational awards for community service participants. A central purpose of the DVSA, which authorizes the Volunteers in Service to America (VISTA) program and the National Senior Volunteer Corps, is to foster and expand voluntary service in communities while helping the vulnerable, the disadvantaged, the elderly, and the poor. The DVSA also authorizes the National Senior Volunteer Corps, which includes three programs for senior citizens: the Foster Grandparent Program, the Senior Companion Program, and the Retired and Senior Volunteer Program (RSVP). Appropriations for the DVSA and the NCSA programs are made annually through the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act (Labor-HHS-ED). CNCS programs are funded through FY2018 under the Consolidated Appropriations Act, 2018 ( P.L. 115-141). The FY2018 appropriations amount for CNCS is $1.064 billion, which is $34 million more than the FY2017 amount of $1.030 billion. This report will be updated as warranted by legislative developments. |
RS20522 -- Army Aviation: The RAH-66 Comanche Helicopter Issue Updated July 2, 2003 The RAH-66 Comanche is a next generation armed reconnaissance helicopter. It is the first helicopter designed anddeveloped specifically for this mission. The Comanche is being designed to stealthily penetrate enemy airspace andconductreconnaissance. It is to incorporate advanced computers and communications to play a leading role in the digital,networkcentric battlespace, with enough weaponry to engage a wide range of targets. Some call the Comanche the world'smostsophisticated combat helicopter, with more lines of software code than even the F/A-22 Raptor. (2) The Comanche's primaryroles would be to seek out enemy forces and designate targets for the AH-64 Apache attack helicopter at night, inadverseweather, and in battlefields obscured by smoke and dust.. Originally, the Army envisioned developing and procuring 5,023 Comanches to replace the Army's 1960s-era observation,utility transport, and attack helicopters (OH-6, OH-58, UH-1, AH-1). Budget constraints and force structuremodificationscaused significant modifications to the Comanche program. First, the utility transport version of the platform wascanceledand the procurement objective reduced to 1,292 armed reconnaissance helicopters. Second, the FY1993 budgetdeferred aproduction decision until 2006 and trimmed the number of prototypes from six to three. Third, in December 1994DoDtrimmed $2 billion from the RAH-66 program and dropped another prototype, going from three to two. Fourth, in1995, theArmy restructured the program to add 6 "experimental operational capability" helicopters within the reduced budgetlimits,in part by producing them without the armaments suite. In April 2000 the Comanche program successfully completed a series of tests and was cleared to begin its two-year, $3.1billion Engineering and Manufacturing Development phase (3) . Boeing-Sikorsy has built and flown two Comancheprototypes. The first pre-production model, and the third Comanche is being built and is expected to be flown firstin March2005. (4) The last plan was for five pre-productionaircraft to be built in this phase and eight production aircraft were due fordelivery by 2004 for initial operational testing and evaluation. A total of 14 initial operational capability RAH-66swasplanned for delivery at the end of 2006 (5) and 1,213Comanches were to have been produced through 2024. On October 21,2002 it was announced that former DoD acquisition chief Pete Aldridge had signed an acquisition decisionmemorandum(ADM) giving final approval for the latest restructuring of the RAH-66 program. Under this new plan, the totalpurchase ofComanches would be reduced from 1,213 to 650 aircraft. Seventy three aircraft will be produced during Low RateInitialProduction (LRIP) in different blocks. Nine EMD aircraft, which will most likely be used as trainers, will be builtanddelivered by 2006. The Comanche's Initial Operating Capability (IOC) will be achieved in September 2009, threeyearslater than originally planned, and nine months after the most recent plan. The remaining 577 aircraft will beproduced undera full rate production schedule of 60 aircraft per year, starting in 2011. The Army had wanted to boost the productionrate to96 aircraft per year as part of an effort to cut costs. (6) This restructuring reduces the Comanche's production phase from $39.3 billion to an estimated $26.9 billion. DoD hasagreed to add $3.7 billion to the helicopter's $3.2 billion full-scale development program. Army officials estimatethat thecost of each Comanche, adjusted for inflation, will increase by 33 percent - to $32.3 million (7) Much of the program's problems have been due to the amount of systems that have been developed concurrently. Forexample, the radar, armor, and navigation and communication systems were all being developed at the same time. (8) Thelatest restructuring will reduce this concurrence by delaying the fielding of certain capabilities - the radar system,a highlevel of control of UAVs, full air-to-air engagement with the turreted gun system, Link 16 datalink, and satellitecommunications - to later blocks. (9) The program was also restructured to field a companion UAV for the Comanche, which will be developed with fundsintended to upgrade Comanche itself. More sophisticated sensors and a better power drive system will be sacrificedin lieuof the UAV development. Comanche officials estimate that about $644 million between fiscal years 2004 and 2009will bespent on the Comanche's UAV instead of the platform itself. (10) The Army has experimented with teaming UAVs and bothApache and Comanche for several years, including work with the RQ-5A Hunter . (11) It is currently unclear whether theComanche's companion will be an operational UAV, one currently in development, or one developed specificallyfor thejob. If there are no further changes, Comanche prime contractors Boeing and Sikorsky would build helicopters through 2019." (12) However, the final word on Comanche numbers has not been spoken. Some note that while DoD originally plannedtoprocure approximately 1,100 H-60 helicopters, over 2,500 have been procured to date. (13) Army officials claim that 650aircraft are too few, and that they require 819 Comanches to effectively equip their Objective Force which is hopedto beready by 2008. Plans call for fielding detachments of 12 Comanche aircraft to the Objective Force brigade-strength'units ofaction,' accompanied by eight UAVs." (14) In May 2002, DoD's Inspector General (IG) reviewed the restructured Comanche program. The IG report called therestructuring a constructive approach to reducing risk and improving the program. However, the IG cautioned thatcontinued emphasis is required to ensure that integration problems do not emerge in the future that could result inincreasedcost and schedule. (15) The RAH-66 Comanche is designed to replace the aging AH-1 and OH-58D helicopters and to augment the AH-64 Apacheattack helicopter. Critics of the Comanche program argue that there is no need for a highly sophisticated, very lowobservable armed reconnaissance helicopter in today's threat environment. They contend that Comanche'scapabilities and mission requirements were developed in response to a Cold War threat environment that no longer exists. Criticsalso arguethat the Comanche's role and capabilities are too similar to the Apache's to justify the costs of the helicopter'sdevelopmentand production. They would cancel the RAH-66, and use the savings to upgrade the OH-58 aircraft and the AH-64DApache's Longbow (16) target acquisitioncapabilities. Others say that Comanche's reduced radar signature will do little tomake it more survivable than current helicopters. They note that in Iraq, Army and Marine Corps helicopters wereshotdown or damaged by IR-guided missiles, rocket-propelled grenades, and small arms fire, none of which use radarsfortargeting. Proponents of the RAH-66 agree that the Cold War threat has disappeared, but counter that today's low-intensity regionalconflicts (such as Kosovo and Somalia) place even greater burdens on Army aviation. U.S. Forces must be moredeployable, less reliant on forward bases, and more versatile than they were during the Cold War. Supporters arguethatComanche satisfies all three criteria. Furthermore, proponents argue that Comanche makes the whole force moreeffectiveand will reduce the Army's maintenance burden. This perspective, proponents argue, is supported by initial resultsfrom anArmy "Analysis of Alternatives." This study compared attack and air cavalry squadrons equipped with AH-64DLongbowsand OH-58D Kiowa Warriors to units composed of Apaches and Comanches. The force equipped with Comanchesreportedly demonstrated better situational awareness, survivability and lethality than the other force. The Comancheprovided better sensing, lethality, range, agility, survivability, and versatility than the Kiowa units. Comanche alsoimproved the effectiveness of the Longbow when the two aircraft were mixed in attack units. The RAH-66's stealthimproved Apache Longbow's survivability when cooperative tactics, techniques and procedures were used. (17) Claims of reduced maintenance burdens for the Comanche, however, are more controversial than are claims of itseffectiveness (18) . Projected ratios of maintenanceman-hours to flight hours have varied over time. The Army hopes toachieve a ratio of 2.6 hours of maintenance to every one hour of flight; however, both the General Accounting OfficeandCongressional Budget Office assert that projected reductions in maintenance are always optimistic. (19) Additionally, somestudies conclude that the Comanche is more expensive to fly than the Kiowa Warrior ($2,042/hour vs $1,598/hour),butless expensive than the AH-64D, which can cost as much as $3,622/hour to fly. (20) The Comanche's role vis-a-vis the Apache is a continued point of debate. The most recent reduction in the Comancheprogram has increased the prominence of the AH-64 Apache. To compensate for fewer Comanches, the Army isconsidering improvements to Apache, such as a life-extension program or upgrades. Another option may be toprocure more Longbow models. (21) Some suggest that the DABdecision reaffirms the Apache's place as the Army's attack aircraft, andquestion whether Comanche should pursue features such as the external fuel, Armaments and Munitions System,or anair-to-air missile capability. (22) Another issue is whether the Army will upgrade Comanche for 'heavy' attack requirements. In November 2001, Armyofficials said they were planning on a heavy variant of the RAH-66 as a replacement for the AH-64D. As part ofArmytransformation plan, Army officials said that the Comanche could perform the attack as well as the armedreconnaissancemission in the future. (23) It is unclear whether theRAH-66 could maintain its stealthy profile while carrying externalweapons, however, and some questions whether Comanche - which currently suffers from weight problems - hasthepower and fuel capacity to take on even more weight. (24) The Marine Corps is expected to seek a replacement for its AH-1ZSuper Cobra helicopters around 2020 and it has been suggested that a joint program with the Army is worthinvestigating. (25) Congress strongly supported the Comanche program by consistently meeting or exceeding DoD's budget requests forfunding. In its report on DoD's FY1996 budget request, the House Armed Services Committee reproached both theArmyand the DoD for tepid commitment to the program, urging that it be given a higher funding priority and thatfull-scaleproduction by 2004 be guaranteed. (26) Summary of Recent Comanche R&D Funding in $ Millions In their reports ( H.Rept. 108-106 , H.R. 1588; and S.Rept. 108-46 , S. 1050 ), House and Senate authorizers respectively matched the Administration's request for FY04 Comanche funding. In light of the facts and arguments presented above, Congress may wish to pursue the following lines of inquiry: Comanche is the Army's only major aviation development program. The Comanche Operational RequirementsDocument describes the RAH-66's contribution to future Army warfighting missions. It states that "Aviationcapabilitiesadd increased deployability, versatility, lethality, flexibility, mobility, extended coverage and sustainment toManeuver,Fire Support, Air Defense..."and other mission areas. If the Comanche buy is reduced, what effect will this have onlong-term capabilities? How much does Comanche contribute to combat power vis-a-vis the light armored vehiclesthatthe also Army wants? $6.8 billion has been spent on the Comanche through FY03. (27) Will a purchase of 650 helicopters be a sufficient returnon this R&D investment? Some say that in recent conflicts, fixed wing aircraft have played a more prominent role, than Army attackhelicopters.Might improved versions of the AC-130 and A-10, or the STOVL variant of the Joint Strike Fighter, be moreeffectiveproviders of Close Air Support to Army ground forces than the RAH-66? The need for Comanche has been challenged on the basis that its capabilities do not differentiate it sufficientlyfromApache to merit its development. However, turning this argument around, some would assert that the Comancheiswell-suited to be the Apache's replacement as the Army's premier attack helicopter and the Army's best platformforfuture growth and development in this area. Subsequently, one could anticipate a helicopter force structurecomposedsolely of heavy lift (CH-47), battlefield utility (UH-60), and scout/attack (RAH-66) aircraft. What are the merits ofthisforce structure? Consideration of export issues is part and parcel of any military program. How much might Comanche exportscontributeto sustaining the aviation industrial base and balancing U.S. trade? As a new platform, and one less overtly designedforattack than the Apache, might the Comanche be offered for export to a larger number of countries than the AH-64?Conversely, due to its low observable features might Comanche exports need to be limited to our closest allies? 1. (back) This report supercedes CRS Report 96-525 F, Army Aviation: RAH-66 Comanche , by Steven R. Bowman. Washington,1996 (Archived). 2. (back) Vernon Loeb. "Fate of Army Chopper OnThe Block." Washington Post . August 31, 2002. p.2. 3. (back) "Comanche Cleared to Begin Engineeringand Manufacturing Development." Defense Daily . April 6, 2000. 4. (back) Kent Faulk. "Comanche Helicopter OnLast Chance To Fly." Birmingham News . July 1, 2002. 5. (back) Telephone conversation with JackSatterfield, Boeing spokesman; Capaccio, Tony, U.S. Army To Make Decision onHelicopter Purchases in April, Bloomberg News Service , March 2, 2000. 6. (back) Neil Baumgardner. "Aldridge InksComanche Acquisition Decision Memorandum, Numbers Cut To 650." Defense Daily. October 21, 2002. 7. (back) Tony Capaccio. "Boeing, UTX SeePositive Impact in Comanche Cut." Bloomberg.com. October 23, 2002. 8. (back) Neil Baumgardner. "Army Ready to MoveForward with Comanche, Program Manager Says." Defense Daily. February28, 2002. 9. (back) Baumgardner. OpCit. "Aldridge Inks Comanche Acquisition Decision Memorandum." 10. (back) Erin Winograd. "Army LeadersAdamant That 650 Comanches Won't Meet Requirements." Inside the Army. October28, 2002. p.10. 11. (back) Kim Burger. "AUSA - Army EyesApache to Fill Comanche Gap." Jane's Defense Weekly. October 30, 2002. 12. (back) Robert Wall. "New Comanche PlanGets Green Light." Aviation Week & Space Technology. October 28, 2002. 13. (back) Ron Laurenzo. "Comanche's LookingUp, But Now Comes The Crunch." Defense Week. June 2, 2003. 14. (back) Burger. OpCit "AUSA- Army Eyes Apache to Fill Comanche Gap." 15. (back) James Asker. "Pentagon Inspector:Latest Comanche Development Plan Reduces Program Risk." Aviation Week &Space Technology. May 19, 2003. 16. (back) The AH-64D Longbow is an upgradedversion of the AH-64A which includes a millimeter-wave Fire Control Radartarget acquisition system and fire-and-forget Hellfire missiles. 17. (back) Erin Winograd. "Initial Results ofAlternatives Analysis Show RAH-66 Contributions." Inside the Army . January 24,2000. 18. (back) Claims of improved maintenancerequirements are based on projections of advanced processes and technologies whichwon't be proven until the aircraft is fielded. In general, more technologically sophisticated weapon systems are moredifficult to maintain than less sophisticated weapon systems. 19. (back) CRS Report 96-525, ArmyAviation: RAH-66 Comanche . P. 3-4. 20. (back) Winograd OpCit . "InitialResults of Alternatives Analysis Show RAH-66 Contributions." 21. (back) Burger. OpCit . "AUSA- Army Eyes Apache to Fill Comanche Gap." 22. (back) Winograd. OpCit . "ArmyLeaders Adamant That 650 Comanches Won't Meet Requirements." 23. (back) Neil Baumgardner. Heavy Comancheto Replace Apache, Army Officials Say. Defense Daily. November 13, 2001. 24. (back) Tony Capaccio. Boeing, United TechComanche Copter's Cost, Weight Hit by GAO. Bloomberg.com . May 18, 2001. 25. (back) Kim Burger. "US Army CutsComanche Buy." Jane's Defense Weekly. October 16, 2002. p.3. 26. (back) U.S. Congress. House ofRepresentatives. Committee on National Security, National Defense Authorization Act forFiscal Year 1996, 104th Cong., 1st Sess., H.R. 104-131, June 1, 1995. P.91. 27. (back) Selected Acquisition Report (SAR)Summary Tables. (As of June 30, 2002)Department of Defense, OUSD(A&T),Systems Acquisition. http://www.acq.osd.mil/ara/am/sar/index.html . | Although it has been a high Army priority, a number of factors havecomplicated the RAH-66 Comanche program. Since its inception, the program has been restructured severaltimes-postponing the initial operational capability (IOC) and increasing overall program costs. In late 2002, DoDrestructured the RAH-66 program again, cutting the number of aircraft to be procured in half. This report will beupdated |
Federal regulations generally result from an act of Congress and are one significant means by which statutes are implemented. Congress delegates rulemaking authority to agencies for a variety of reasons, and in a variety of ways. The Patient Protection and Affordable Care Act (ACA, as amended) provides a notable example of congressional delegation of rulemaking authority to federal agencies. A previous CRS report identified more than 40 provisions in the ACA that explicitly require or permit the issuance of rules to implement the law. The rules that agencies have issued, and will continue to issue, pursuant to the ACA have a major impact on how the law is implemented. For example, in an article posted on the New England Journal of Medicine ' s Health Care Reform Center shortly after the ACA was signed into law, Henry J. Aaron and Robert D. Reischauer wrote, Making the legislation a success requires not only that it survive but also that it be effectively implemented. Although the bill runs to more than 2000 pages, much remains to be decided. The legislation tasks federal or state officials with writing regulations, making appointments, and giving precise meaning to many terms. The manner in which Congress delegates rulemaking authority to federal agencies determines the amount of discretion the agencies have in crafting the rules and, conversely, the amount of control that Congress retains for itself. Some of the more than 40 rulemaking provisions in the ACA are quite specific, stipulating the substance of the rules, whether certain consultative or rulemaking procedures should be used, and deadlines for their issuance or implementation. Other provisions in the ACA permit, but do not require, the agencies to issue certain rules (e.g., stating that the head of an agency "may issue regulations" defining certain terms, or "may by regulation" establish guidance or requirements for carrying out the legislation). As a result, the agency head has the discretion to decide whether to issue any regulations at all, and if so, what those rules will contain. Still other provisions in the ACA require agencies to establish programs or procedures but do not specifically mention regulations. In his book Building a Legislative-Centered Public Administration , David H. Rosenbloom noted that rulemaking and lawmaking are functionally equivalent (the results of both processes have the force of law), and that when agencies issue rules they, in effect, legislate. He went on to say that the "Constitution's grant of legislative power to Congress encompasses a responsibility to ensure that delegated authority is exercised according to appropriate procedures." Congressional oversight of rulemaking can deal with a variety of issues, including the substance of the rules issued pursuant to congressional delegations of authority and the process by which those rules are issued. Having an early sense of what rules agencies are going to issue, and when they are going to issue those rules, can help Congress conduct oversight over the regulations that are issued pursuant to the ACA. The previously referenced CRS report identifying the provisions in the act that require or permit rulemaking can be useful in this regard. A potentially effective way for Congress to identify upcoming ACA rules is by reviewing the Unified Agenda of Federal Regulatory and Deregulatory Actions (hereafter Unified Agenda), which is usually published twice each year—in the spring and fall. The Unified Agenda is published by the Regulatory Information Service Center (RISC), a component of the General Services Administration (GSA), for the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA). The Unified Agenda helps agencies fulfill two current transparency requirements: The Regulatory Flexibility Act (5 U.S.C. §602) requires that all agencies publish semiannual regulatory agendas in the Federal Register , in April and October of each year, describing regulatory actions that they are developing that may have a significant economic impact on a substantial number of small entities. Section 4 of Executive Order 12866 on "Regulatory Planning and Review" requires that all executive branch agencies "prepare an agenda of all regulations under development or review." The stated purposes of this and other planning requirements in the order are, among other things, to "maximize consultation and the resolution of potential conflicts at an early stage" and to "involve the public and its State, local, and tribal officials in regulatory planning." The executive order also requires that each agency prepare, as part of the fall edition of the Unified Agenda, a "regulatory plan" of the most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form during the upcoming fiscal year. The Unified Agenda lists upcoming activities, by agency, in three separate categories: "active" actions, including rules in the prerule stage (e.g., advance notices of proposed rulemaking that are expected to be issued in the next 12 months); proposed rule stage (i.e., notices of proposed rulemaking that are expected to be issued in the next 12 months, or for which the closing date of the comment period is the next step); and final rule stage (i.e., final rules or other final actions that are expected to be issued in the next 12 months); "completed" actions (i.e., final rules or rules that have been withdrawn since the last edition of the Unified Agenda); and "long-term" actions (i.e., items under development that agencies do not expect to take action on in the next 12 months). All entries in the Unified Agenda usually have uniform data elements, which typically include the department and agency issuing the rule, the title of the rule, the Regulation Identifier Number (RIN), an abstract describing the nature of action being taken, and a timetable showing the dates of past actions and a projected date (sometimes just the projected month and year) for the next regulatory action. Each entry also contains an element indicating the priority of the regulation (e.g., whether it is considered "economically significant" under Executive Order 12866, or whether it is considered a "major" rule under the Congressional Review Act). There is no penalty for issuing a rule without a prior notice in the Unified Agenda, and some prospective rules listed in the Unified Agenda are never issued, reflecting the fluid nature of the rulemaking process. Nevertheless, the Unified Agenda can help Congress and the public know what regulatory actions are about to occur, and, arguably, it provides federal agencies with the most systematic, government-wide method to alert the public about their upcoming proposed rules. The Spring 2014 edition of the Unified Agenda, published on May 23, 2014, is the seventh edition compiled and issued by RISC since enactment of the ACA. Federal agencies are usually required to submit data to RISC several weeks prior to publication, but some items may have been subsequently updated during the OIRA review process. This report examines the Spring 2014 edition of the Unified Agenda and identifies upcoming proposed and final rules and long-term regulatory actions expected to be issued pursuant to the ACA in the next 12 months. To identify those upcoming rules and actions, CRS searched all fields of the Unified Agenda (all agencies) using the term "Affordable Care Act," focusing on the proposed rule and final rule stages of rulemaking, as well as the "long-term actions" category. In this edition, agencies reported 14 proposed rules and 17 final rules they expect to issue pursuant to the ACA within the next 12 months. Agencies also reported a total of four long-term regulatory actions. The results of the search for proposed and final rules are provided in the Appendix to this report. For each upcoming proposed and final rule listed, the table identifies the department and agency expected to issue the rule, the title of the rule and its RIN, an abstract describing the nature of the rulemaking action, and the date the proposed or final rule is expected to be issued. The abstracts presented in the table were taken verbatim from the Unified Agenda entries. Within the proposed and final rule sections of the table, the entries are organized by agency. The Spring 2014 edition of the Unified Agenda listed 14 ACA-related rules in the "proposed rule stage" (indicating that the agencies expected to issue proposed rules on the topics within the next 12 months, or for which the closing dates of the comment periods are the next step). Ten of the 14 upcoming proposed rules were expected to be issued by components of the Department of Health and Human Services (HHS): Centers for Medicare & Medicaid Services (CMS, four rules); the Office of Inspector General (OIG, three rules); the Health Resources and Services Administration (HRSA, one rule); the Office for Civil Rights (OCR, one rule); and the Administration for Children and Families (ACF, one rule). Two other proposed rules were expected to be issued by the Equal Employment Opportunity Commission (EEOC). The final two proposed rules are to be issued jointly by CMS, the Department of Labor's (DOL) Employee Benefits Security Administration (EBSA), and the Department of the Treasury's (TREAS) Internal Revenue Service (IRS). Rules agencies intend to issue pursuant to the ACA may be considered notable for a variety of reasons—for example, they may be considered notable if they were listed in the agency's "regulatory plan," which is described below, or if they meet a particular statutory or executive order definition of significance. Some examples of notable rules are listed below. As stated earlier, Executive Order 12866 requires that each agency prepare, as part of the fall edition of the Unified Agenda, a regulatory plan detailing the most important regulatory actions the agency reasonably expects to issue in proposed or final form during the upcoming fiscal year. In the spring edition, agencies are asked to indicate whether their rules have appeared in the regulatory plan. However, of the proposed rules included in the Spring 2014 Unified Agenda, none had been included in the regulatory plan. Although none of the proposed rules were listed in the regulatory plan, the Unified Agenda listed three rules that were considered "economically significant" and/or "major" (one definition of "economically significant" or "major," for example, is that the rule is expected to have at least a $100 million annual effect on the economy). All three rules are to be issued by CMS: a rule on "Reform of Requirements for Long-Term Care Facilities and Quality Assurance and Performance Improvement (QAPI) Program"; a rule on "CY 2016 Notice of Benefit and Payment Parameters"; and a rule on "Application of the Mental Health Parity and Addiction Equity Act to Medicaid Programs." In addition to the above-mentioned rules, the agencies characterized 9 of the 14 upcoming proposed rules as "other significant," indicating that although they were not listed in the regulatory plan or expected to be "economically significant," they were expected to be significant enough to be reviewed by OIRA under Executive Order 12866: an HHS/OIG rule on "Medicare and State Health Care Programs: Fraud and Abuse; Revisions to the Office of Inspector General's Civil Monetary Penalty Rules"; an HHS/OIG rule on "Fraud and Abuse; Revisions to the Office of Inspector General's Exclusion Authorities"; an HHS/CMS rule on "State Option To Provide Health Homes for Enrollees With Chronic Conditions"; an HHS/OCR rule on "Nondiscrimination Under the Patient Protection and Affordable Care Act"; an HHS/ACF rule on "Refugee Medical Assistance"; an EEOC rule on "Amendments to Regulations Under the Americans With Disabilities Act"; an EEOC rule on "Amendments to Regulations Under the Genetic Information Nondiscrimination Act of 2008"; an HHS/CMS, DOL/EBSA, and TREAS/IRS rule on "Ninety-Day Waiting Period Limitation"; and an HHS/CMS, DOL/EBSA, and TREAS/IRS rule on "Amendments to Excepted Benefits." The Regulatory Flexibility Act (RFA, 5 U.S.C. §§601-612) generally requires federal agencies to assess the impact of their forthcoming regulations on "small entities" (i.e., small businesses, local governments, and small not-for-profit organizations). Six of the ACA-related rules listed in the proposed rule section expected that they may trigger the requirements of the Regulatory Flexibility Act because of their effects on small entities: an HHS/CMS rule on "Reform of Requirements for Long-Term Care Facilities and Quality Assurance and Performance Improvement (QAPI) Program"; an HHS/CMS rule on "Application of the Mental Health Parity and Addiction Equity Act to Medicaid Programs"; an EEOC rule on "Amendments to Regulations Under the Americans With Disabilities Act"; an EEOC rule on "Amendments to Regulations Under the Genetic Information Nondiscrimination Act of 2008"; an HHS/CMS, DOL/EBSA, and TREAS/IRS rule on "Amendments to Excepted Benefits"; and an HHS/CMS, DOL/EBSA, and TREAS/IRS rule on "Ninety-Day Waiting Period Limitation." As of June 19, 2014, four proposed rules listed in the Unified Agenda had been published in the Federal Registe r : an HHS/OIG rule on "Medicare and State Health Care Programs: Fraud and Abuse; Revisions to the Office of Inspector General's Civil Monetary Penalty Rules"; an HHS/OIG rule on "Fraud and Abuse; Revisions to the Office of Inspector General's Exclusion Authorities"; an HHS/CMS, DOL/EBSA, and TREAS/IRS rule on "Ninety-Day Waiting Period Limitation Under the Affordable Care Act"; and an HHS/CMS, DOL/EBSA, and TREAS/IRS rule on "Amendments to Excepted Benefits." An additional three upcoming proposed rules were expected to be issued in May or June 2014, but had not yet been issued as of June 19, 2014: an HHS/CMS rule on "Reform of Requirements for Long-Term Care Facilities and Quality Assurance and Performance Improvement (QAPI) Program"; an EEOC rule on "Amendments to Regulations Under the Americans With Disabilities Act"; and an EEOC rule on "Amendments to Regulations Under the Genetic Information Nondiscrimination Act of 2008." The remaining proposed rules listed in the Unified Agenda are expected to be issued sometime during the remaining months of 2014 or 2015. The Spring 2014 edition of the Unified Agenda listed 17 upcoming rules in the final rule section (indicating that the agencies expected to issue these final rules within the next 12 months). Eleven of the 17 upcoming final rules are expected to be issued by components of HHS: the Health Resources and Services Administration (HRSA, one rule); the Food and Drug Administration (FDA, two rules); and CMS (eight rules). Three of the 17 upcoming final rules are expected to be issued by TREAS/IRS. Other final rules are expected to be issued by DOL's Occupational Safety and Health Administration (OSHA, one rule); the Architectural and Transportation Barriers Compliance Board (ATBCB, one rule); and the Department of Veterans Affairs (VA, one rule). As discussed above, rules may be notable for a variety of reasons; several examples of notable upcoming final rules are listed in the section below. Three of the ACA regulations that were listed in the final rule section of the Unified Agenda had been considered important enough to be included in the agencies' regulatory plans: two HHS/FDA rules on "Food Labeling: Calorie Labeling of Articles of Food Sold in Vending Machines" and "Food Labeling: Nutrition Labeling of Standard Menu Items in Restaurants and Similar Retail Food Establishments," both of which the agency expects to publish in June 2014; an ATBCB rule on "Accessibility Standards for Medical Diagnostic Equipment," which the agency expects to publish in November 2014. The Unified Agenda listed seven entries in the final rule section that were considered "economically significant" and/or "major" (i.e., that were expected to have at least a $100 million annual effect on the economy): two HHS/FDA rules on "Food Labeling: Calorie Labeling of Articles of Food Sold in Vending Machines" and "Food Labeling: Nutrition Labeling of Standard Menu Items in Restaurants and Similar Retail Food Establishments," both of which the agency expects to publish in June 2014; an HHS/CMS rule on "Face-to-Face Requirements for Home Health Services; Policy Changes and Clarifications Related to Home Health," which the agency expects to publish in September 2014; an HHS/CMS rule on "Covered Outpatient Drugs," which the agency expects to publish in June 2014; an HHS/CMS rule on "Prospective Payment System for Federally Qualified Health Centers; Changes to Contracting Policies for Rural Health Clinics and CLIA Enforcement Actions for Proficiency Testing Referral," which the agency published as a final rule with comment period on May 2, 2014; an HHS/CMS rule on "Adoption of Operating Rules for HIPAA Transactions," which the agency expects to publish as an interim final rule in March 2015; and an HHS/CMS rule on "Eligibility Notices, Fair Hearing and Appeal Processes for Medicaid and Exchange Eligibility Appeals, and Other Eligibility and Enrollment Provisions," which the agency expects to publish in November 2014. In addition to the above-mentioned rules, six additional upcoming final rules listed in the Unified Agenda were characterized as "other significant," indicating that although they were not listed in the regulatory plan or expected to be "economically significant," they were expected to be significant enough to be reviewed by OIRA under Executive Order 12866: an HHS/HRSA rule on "Designation of Medically Underserved Populations and Health Professional Shortage Areas," which the agency expects to publish as an interim final rule in October 2014; an HHS/CMS rule on "Reporting and Returning of Overpayments," which the agency expects to publish in February 2015; an HHS/CMS rule on "Medicare Shared Savings Program; Final Waivers," which the agency expects to publish in November 2014; an HHS/CMS rule on "Patient Protection and Affordable Care Act; Third Party Payment of Qualified Health Plan (QHP) Premiums," which the agency published as an interim final rule on March 19, 2014; a DOL/OSHA rule on "Procedures for the Handling of Retaliation Complaints Under Section 1558 of the Affordable Care Act of 2010," which the agency expects to publish in February 2015; and an ATBCB rule on "Accessibility Standards for Medical Diagnostic Equipment," which the agency expects to publish in November 2014. Four of the upcoming final rules indicated they are likely to have effects on small entities (businesses, governments, and/or not-for-profit organizations) as defined by the Regulatory Flexibility Act (RFA, 5 U.S.C. §602), possibly triggering the requirements of the RFA: an HHS/CMS rule on "Reporting and Returning of Overpayments"; an HHS/CMS rule on "Medicare Shared Savings Program; Final Waivers"; an HHS/CMS rule on "Eligibility Notices, Fair Hearing and Appeal Processes for Medicaid and Exchange Eligibility Appeals, and Other Eligibility and Enrollment Provisions"; and an HHS/CMS rule on "Patient Protection and Affordable Care Act; Third Party Payment of Qualified Health Plan (QHP) Premiums." Two of the rules listed in the final rule section of the Unified Agenda had been published as of June 19, 2014: an HHS/CMS rule on "Prospective Payment System for Federally Qualified Health Centers; Changes to Contracting Policies for Rural Health Clinics and CLIA Enforcement Actions for Proficiency Testing Referral"; and an HHS/CMS rule on "Patient Protection and Affordable Care Act; Third Party Payment of Qualified Health Plan (QHP) Premiums." An additional five upcoming final rules were expected to be issued in May or June 2014, but had not yet been issued as of June 19, 2014: an HHS/FDA rule on "Food Labeling: Calorie Labeling of Articles of Food Sold in Vending Machines"; an HHS/FDA rule on "Food Labeling: Nutrition Labeling of Standard Menu Items in Restaurants and Similar Retail Food Establishments"; an HHS/CMS rule on "Covered Outpatient Drugs"; a TREAS/IRS rule on "Branded Prescription Drug Fee"; and a TREAS/IRS rule on "Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return." The remaining final rules listed in the Unified Agenda are expected to be issued sometime during 2014 or 2015. As noted earlier in this report, the Unified Agenda also identifies "long-term actions" (i.e., regulatory actions that are under development that the agencies do not expect to take action on in the next 12 months). The Spring 2014 edition of the Unified Agenda listed four long-term actions related to the ACA. In comparison to the proposed and final rules previously discussed, it is much less clear when the ACA-related long-term actions are expected to occur. In each of the four long-term actions listed, the agencies said that the dates for the actions were "to be determined": an HHS/HRSA proposed rule on "340B Civil Monetary Penalties for Manufacturers"; an HHS/HRSA proposed rule on "340B Drug Pricing Program; Administrative Dispute Resolution Process"; an HHS/HRSA proposed rule on "340B Ceiling Price Regulations"; and a DOL/EBSA "undetermined" action on "Automatic Enrollment in Health Plans of Employees of Large Employers Under FLSA Section 18A." None of the rules in the long-term actions section were considered "major" or "economically significant." The agencies considered two of the four actions to be "other significant," meaning that the agencies considered them significant enough to be reviewed by OIRA under Executive Order 12866, but they were not expected to be "economically significant": an HHS/HRSA rule on "340B Drug Pricing Program; Administrative Dispute Resolution Process"; and a DOL/EBSA "undetermined" action on "Automatic Enrollment in Health Plans of Employees of Large Employers Under FLSA Section 18A." None of the long-term actions indicated they expected to have an effect on small entities. However, that could be because of the preliminary nature of the rules included in that section. As noted earlier in this report, when federal agencies issue substantive regulations they are carrying out legislative authority delegated to them by Congress. Therefore, Congress often oversees the rules that agencies issue to ensure that they are consistent with congressional intent and various rulemaking requirements. In order for Congress to oversee the rules issued pursuant to the ACA, Congress must first know what rules are being issued—ideally as early as possible. The Unified Agenda is perhaps the best vehicle to provide that early information, as it describes the rules that are expected to be issued and provides information regarding their significance and timing. Congress has a range of tools available to oversee the rules that federal agencies are expected to issue to implement the ACA. Congress may conduct oversight hearings and confirmation hearings for the heads of regulatory agencies. Individual Members of Congress may also participate in the rulemaking process by, among other things, meeting with agency officials and filing public comments. Congress, committees, and individual Members can also request that the Government Accountability Office (GAO) evaluate the agencies' rulemaking activities. Another option is the Congressional Review Act (CRA, 5 U.S.C. §§801-808), which was enacted in 1996 to establish procedures detailing congressional authority over rulemaking "without at the same time requiring Congress to become a super regulatory agency." The CRA generally requires federal agencies to submit all of their covered final rules to both houses of Congress and GAO before they can take effect. It also established expedited legislative procedures (primarily in the Senate) by which Congress may disapprove agencies' final rules by enacting a joint resolution of disapproval. The definition of a covered rule in the CRA is quite broad, arguably including any type of document (e.g., legislative rules, policy statements, guidance, manuals, and memoranda) that the agency makes binding on the affected public. After these rules are submitted, Congress can use the expedited procedures specified in the CRA to disapprove any of the rules. CRA resolutions of disapproval must be presented to the President for signature or veto. For a variety of reasons, however, the CRA has been used to disapprove of only one rule in the 18 years since it was enacted. Perhaps most notably, it is likely that a President would veto a resolution of disapproval to protect rules developed under his own Administration, and it may be difficult for Congress to muster the two-thirds vote in both houses needed to overturn the veto. Congress can also use regular (i.e., non-CRA) legislative procedures to disapprove agencies' rules, but such legislation may prove even more difficult to enact than a CRA resolution of disapproval (primarily because of the lack of expedited procedures in the Senate), and if enacted could be subject to presidential veto. Finally, outside the CRA, Congress has regularly included provisions in the text of agencies' appropriations bills in order to influence the regulatory process. Such provisions include prohibitions on the finalization of particular proposed rules, restrictions on certain types of regulatory activity, and restrictions on implementation or enforcement of certain provisions. Appropriations provisions can also be used to prompt agencies to issue certain regulations or to require that certain procedures be followed before or after their issuance. The inclusion of regulatory provisions in appropriations legislation as a matter of legislative strategy appears to arise from two factors: (1) Congress's ability via its "power of the purse" to control agency action, and (2) the fact that appropriations bills are usually considered "must pass" legislation. Congress's use of regulatory appropriations restrictions has fluctuated somewhat over time. This report's Appendix contains a table listing the upcoming proposed and final rules published in the Spring 2014 Unified Agenda. For each upcoming proposed and final rule listed, the table identifies the department and agency expected to issue the rule, the title of the rule and its RIN, an abstract describing the nature of the rulemaking action, and the date that the proposed or final rule is expected to be issued. The abstracts presented in the table were taken verbatim from the Unified Agenda entries. Within the proposed and final rule sections of the table, the entries are organized by agency. The table includes only those Unified Agenda entries in which the Affordable Care Act was mentioned. | The Patient Protection and Affordable Care Act (ACA, as amended) was signed into law by President Barack Obama on March 23, 2010. As is often the case with legislation, the ACA granted rulemaking authority to federal agencies to implement many of its provisions. The regulations issued pursuant to the ACA and other statutes carry the force and effect of law. Therefore, scholars and practitioners have long noted the importance of rulemaking to the policy process, as well as the importance of congressional oversight of rulemaking. For example, one scholar noted that the "Constitution's grant of legislative power to Congress encompasses a responsibility to ensure that delegated authority is exercised according to appropriate procedures." Congressional oversight of rulemaking can deal with a variety of issues, including the substance of the rules issued pursuant to congressional delegations of authority and the process by which those rules are issued. Having a sense of what rules agencies are going to issue and when they are going to issue those rules can help Congress conduct oversight over the regulations that are issued pursuant to the ACA. One way in which Congress can identify upcoming ACA rules is by reviewing the Unified Agenda of Federal Regulatory and Deregulatory Actions, which is published by the Regulatory Information Service Center (RISC), a component of the U.S. General Services Administration (GSA), for the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA). The Unified Agenda lists upcoming activities, by agency, in three separate categories: "active" actions, including rules in the prerule stage (e.g., advance notices of proposed rulemaking that are expected to be issued in the next 12 months); proposed rule stage (i.e., notices of proposed rulemaking that are expected to be issued in the next 12 months, or for which the closing date of the comment period is the next step); and final rule stage (i.e., final rules or other final actions that are expected to be issued in the next 12 months); "completed" actions (i.e., final rules or rules that have been withdrawn since the last edition of the Unified Agenda); and "long-term" actions (i.e., items under development that agencies do not expect to take action on in the next 12 months). All entries in the Unified Agenda usually provide uniform data elements, which typically include the department and agency issuing the rule, the title of the rule, the Regulation Identifier Number (RIN), an abstract describing the nature of the action being taken, and a timetable showing the dates of past actions and a projected date for the next regulatory action. Each entry also indicates the priority of the regulation (e.g., whether it is considered "economically significant" under Executive Order 12866, or whether it is considered a "major" rule under the Congressional Review Act). The most recent edition of the Unified Agenda, which was published on May 23, 2014, is the seventh edition of the agenda since enactment of the ACA. In this edition, agencies reported 14 proposed rules and 17 final rules that they expect to issue pursuant to the ACA within the next 12 months. Agencies also reported a total of four long-term regulatory actions. The Appendix of this report lists the upcoming proposed and final rules published in the Spring 2014 Unified Agenda in a table. |
Small business owners in general have long been praised within the United States for their contributions to the economy, especially their impact on job growth and innovation. Thus, the federal income tax burden on small firms and its effects on their formation and growth have been perennial issues for Congress. Many regard small firms as a vital source of job creation and technological innovation. Small firms have also been celebrated as effective vehicles for advancing the economic status of minorities, immigrants, and women. At the same time, some view the federal income tax as an obstacle to the formation and growth of small firms, while others see it as a policy tool for boosting their rates of formation and growth. Going back to the 111 th Congress, seven bills have been enacted that established completely new tax preferences for small firms and extended (and in some cases modified) existing ones: American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), Small Business Jobs Act of 2010 ( P.L. 111-240 ), Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ), American Taxpayer Relief Act of 2012 ( P.L. 112-240 ), Tax Increase Prevention Act of 2014 ( P.L. 113-295 ), Protecting Americans from Tax Hikes Act of 2015 (Division Q of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), and P.L. 115-97 (the tax revision act of 2017). Small business tax benefits (or preferences) raise three potential policy issues for Congress. First, what is the appropriate definition of a small business in the context of public policy? Two considerations seem paramount in finding an answer to that question: (1) choosing the appropriate size measure (e.g., employment, assets, or receipts) and (2) determining whether that measure should apply to all small business tax benefits, as well as other forms of federal assistance for small businesses. Second, is there a sound economic justification for supporting small firms? If no such rationale can be found, then government support for small businesses may do more harm than good by distorting the allocation of domestic economic resources. Third, are tax benefits the most cost-effective way for the federal government to assist small firms? Small business tax preferences entail the following economic costs: (1) the foregone revenue and any interest charges from federal borrowing to offset that revenue loss, (2) the resources required to comply with the rules governing the use of the tax benefits and to enforce compliance with those rules, and (3) the opportunity cost of the foregone revenue and the resources devoted to tax compliance and enforcement. Other policy options for assisting small firms entail similar costs. This report is intended to shed light on the first two issues by identifying the main nonagricultural small business tax preferences, determining the foregone revenue associated with them, and examining the economic arguments for and against them. An assessment of the relative cost-effectiveness of existing federal small business tax benefits is beyond the scope of the report. The report begins by exploring the challenges associated with crafting a uniform definition of a small business for public policy purposes. It then describes existing small business tax preferences and reviews what is known about the economic contributions of small firms in general. It concludes with a discussion of the arguments for and against government policies to support small businesses. An essential starting point for an assessment of the effects of small business tax benefits is the definition of firms that qualify for the benefits. And on the question of how to define a small firm for the purpose of federal programs to support small businesses, a necessary starting point is the Small Business Act of 1953 (P.L. 83-163, as amended). Among other things, the act granted the Administrator of the Small Business Administration (SBA) the authority to establish size standards for federal programs supporting small businesses. A size standard specifies the maximum size a company can attain (whatever the measure) and still qualify for federal assistance. The act also gave the Administrator the authority to determine what those standards should be and how they should be applied. Since the act's passage, Congress has refrained from creating size standards for specific federal programs, with one exception: agricultural enterprises. Other federal agencies may create small business size standards for programs they administer, but they must gain the approval of the Administrator before the new standards can take effect. While empowering the SBA to select the size standards for federal programs, the act also laid down a basic consideration for identifying small businesses eligible for SBA programs. Paragraph 3(a)(1) stated that "for the purposes of this Act, a small business concern.... shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation." In the SBA's view, the act and its legislative history established that two principles should guide the agency in setting size standards for all industries. First, the standards should reflect critical differences among industries. Second, federal programs subject to the standards, including those administered by the SBA, should be designed to help eligible small firms improve their performance within the domestic economy. For the programs it administers, the SBA has used three criteria to identify eligible firms since the early 1950s: (1) the average number of employees in the past year, (2) the average annual receipts in the previous three years, and (3) the value of assets. Employment and receipt size determine eligibility for the vast majority of industries listed in the North American Industrial Classification System (NAICS). The choice of criterion hinges on an industry's structural features. The SBA has established three "base" (or "anchor") size standards, which shape its ongoing review of the standard it sets for a particular industry. For manufacturing, mining, and other industries with an employee-based standard, the base standard is 500 employees. For industries with a receipts-based standard, a group that includes most nonmanufacturing industries, the base standard is $7.0 million in average annual receipts. The base standard is 100 employees for firms involved in wholesale trade. For a limited number of industries, the SBA uses other measures of size that are appropriate for their main lines of business. For example, financial assets are used for banking, barrels per calendar-day for petroleum refining, and the share of overall power generation for electric utilities. In setting or revising a size standard for an industry, the SBA uses its anchor standard as the starting point. Whether a size standard is set below, at, or above that level depends on the results of an evaluation of certain industry characteristics, especially average firm size, start-up costs, entry barriers, degree of competition among firms, and distribution of firms by size. The SBA also takes into consideration the impact of a current or proposed size standard on the access of small firms to federal procurement contracts. According to the SBA's current table of small business size standards, standards based on receipt size range from $0.75 million to $35.5 million; those based on employment range from 100 to 1,500 employees; those based on financial assets are set at either $7 million or $175 million; those based on power generation are uniformly set at 4 million megawatt hours; and those based on petroleum refining are set at 1,500 employees and 125,000 barrels per calendar day. The SBA does alter the size standard for particular industries from time to time. Before a proposed change can take effect, however, the agency's Office of Size Standards (OSS) is required to assess the likely impact of the change on the performance of the affected industry (or industries), focusing on the degree of competition, average firm size, start-up costs, barriers to entry, and distribution of industry sales and employment by firm size. OSS uses the results to make recommendations to SBA's Size Policy Board. If the board agrees with the recommendations, it typically advises the Administrator to approve the proposed change. Approved changes must be published in the Federal Register for public comment. The SBA issues no final rule until it has reviewed the comments received from the public, as well as any other new information. Under the Small Business Jobs Act of 2010 ( P.L. 111-240 ), the SBA has the authority to set alternative size standards based on tangible net worth and average after-tax profits for the 7(a) and the 504/CDC loan programs it administers. Until the SBA does so, the act sets the tangible net worth limit at $15 million and the average after-tax profit limit at $5 million, excluding any net operating losses carried over from previous tax years, in the two fiscal years before the date of a company's loan application. The SBA has not established alternative size standards for those programs as of April 2018. The act also required the SBA to review at least one-third of NAICS industry size standards every 18 months and to make "appropriate adjustments" to reflect current market conditions. No later than 30 days after a review is completed, the SBA must file a report on its findings to the House Committee on Small Business and the Senate Committee on Small Business and Entrepreneurship. It is also required to publicize its reasons for modifying or retaining each reviewed size standard. Federal agencies administering programs that reserve a share of procurement contracts for small firms (known as small business set-aside programs) are required to use the SBA size standards. Other federal programs and tax provisions supporting small businesses may use those standards, though they are not required to do so. Agencies are free to develop their own size standards, but they are subjected to a rigorous rulemaking review process overseen by the SBA before the new standards can be applied. An agency must get the approval of the SBA Administrator before a new standard may be used. The SBA's methodology for selecting size standards for industries continues to stir up concerns among interested lawmakers and analysts. Among the unresolved issues are the following: Should there be a fixed range for a size standard (e.g., 100 to 1,500 employees)? Should the standards be adjusted for inflation more often than once every five years? Should the employment standard be adjusted for productivity gains in an industry? Should the SBA lower its size standards for federal contracts in response to recommendations from the private sector? Should the size standards be calculated only in dollars to reflect actual structural differences among industries? Does the federal tax code use the SBA size standards to determine eligibility for small business tax benefits? Yes, for the most part. As Table 1 shows, most of these tax preferences use asset, receipt, or employment size to identify eligible firms. The employment and receipt sizes found in the tax code are much smaller than the sizes used by the SBA to identify small businesses by industry. In addition, a few tax provisions bestow their benefits on small firms not through a size standard but as a consequence of their design, most notably the expensing allowance under Section 179 of the Internal Revenue Code (IRC). Although the statutory language of the provision makes it clear that firms of all sizes may claim the allowance, its limitations effectively confines its benefits to relatively small firms. There is no explicit rationale in the tax code for the size standards that are used to establish eligibility for small business tax benefits. This lack of a uniform definition of a small business has at least one disadvantage and one advantage. On the one hand, the different IRC size standards can lead to an uneven and seemingly arbitrary distribution of tax benefits among companies that are similar in line of business and employment, receipt, or asset size. On the other hand, the absence of a uniform size standard gives lawmakers greater leeway in designing tax benefits to support specific policy objectives related to small businesses. In principle, all business income is subject to federal taxation, but the reality is more complicated, as the federal tax code does not treat all business income equally. The tax burden on business income depends on several factors. One is whether or not a firm is organized for tax purposes as a C corporation or as a passthrough entity (i.e., partnerships (including limited liability companies, or LLCs), S corporations, and sole proprietorships). Corporate profits are taxed twice: once at the firm level and a second time at the shareholder level when any profits are distributed as dividends or long-term capital gains. By contrast, the net income of passthrough entities is taxed only at the owner or shareholder level. Furthermore, the taxation of business income depends on whether or not the owner of a passthrough entity pays the alternative minimum tax (AMT). Corporations were also subject to an AMT from 1987 to 2017; P.L. 115-97 repealed the tax, starting in 2018. Passthrough business owners paying the AMT may or may not be taxed at lower rates than they would be under the regular income tax. Firm size also plays a role in determining a company's federal tax burden. Some tax provisions offer benefits to smaller firms that are not available to larger firms. There is no formal distinction between the taxation of small and large firms in the tax code. Rather, small business tax benefits are scattered throughout the sections of the code dealing with business taxation. Most come in the form of deductions, exclusions, exemptions, credits, deferrals, and preferential tax rates whose main effect is to reduce the cost of capital for investments and increase a firm's cash flow. The federal tax benefits targeted at smaller firms with the broadest reach outside agriculture are discussed below. Excluded from the list are subsidies available only to small firms in particular industries, such as life insurance, banking, and energy production or distribution. Nor does the list include tax benefits that may be claimed by many small firms but are available to firms of all sizes, such as the Section 41 research tax credit and the Section 168(k) 100% expensing allowance. Table 1 summarizes the key features of each of these tax benefits. As a result of the enactment of H.R. 1 ( P.L. 115-97 ) in December 2017, the current lineup of small business tax benefits differs somewhat from the 2017 lineup. Under previous tax law, the graduated corporate income tax (whose rates ranged from 15% to 35%) was considered a small business tax benefit. P.L. 115-97 permanently replaced those rates with a single corporate tax rate of 21%, starting in 2018. The act repealed a second small business tax benefit from 2017: the rollover of gains from the sale of publicly traded securities into specialized small business investment companies under Section 1044. In addition, by repealing the corporate AMT, the act also did away with another small business tax benefit: an exemption under Section 55(e) from the AMT for corporations whose average annual gross receipts did not exceed $5 million in their first three tax years and $7.5 million in each succeeding three-year period. The current lineup makes no reference to the taxation of passthrough businesses. Some have argued that the tax rates that apply to this income should be considered a small business tax benefit when the returns to passthrough business investment are taxed at lower rates than the returns to corporate business investment. Such a difference existed under the tax law that was in effect in 2017. P.L. 115-97 reversed this difference by setting a corporate tax rate that is 8.6 percentage points lower than the top effective income tax rate for passthrough entities: 29.6%. There is another reason why it is inadvisable to regard the taxation of passthrough business income in general as a small business tax preference, regardless of the differences between corporate and noncorporate income tax rates. Among C corporations and passthrough entities, there are very small and very large companies, and they differ in their economic roles. According to data from the Internal Revenue Service, in 2014, for example, relatively small companies (those with $500,000 or less in receipts) accounted for 68% of C corporation tax returns, 70% of S corporation returns, 89% of partnership returns, and 98% of sole proprietorship returns. By contrast, relatively large companies (those with more than $50 million in receipts) represented 91% of total C corporation receipts, 40% of S corporation receipts, and 71% of partnership receipts in 2014; large firms made only a small contribution to total sole proprietorship receipts. These figures show that not all passthrough firms are small and not all C corporations are large, regardless of the size standard. It is not known how much revenue is lost because of tax benefits shown in Table 1 . Nevertheless, a recent estimate by the Joint Committee on Taxation (JCT) indicates that their revenue cost could exceed $17 billion in FY2018 (see Table 1 ). To put this amount in the proper context, the budget for the SBA in FY2018 totals $887 million. Expensing is the most accelerated form of depreciation. It treats the cost of acquiring a depreciable asset (e.g., a machine tool or building) as a current expense rather than a capital expense. As a result, the full cost of the asset is deducted in the year when it is placed into service. In the absence of expensing, companies have to recover capital costs over longer periods by using the appropriate depreciation method and schedule. Under IRC Section 179, a company may expense (or deduct) up to $1 million of the cost of qualified property—mainly machinery, equipment, standardized computer software, and improvements to nonresidential buildings—placed into service in 2018 and write off any remaining cost using the appropriate depreciation schedule under the Modified Accelerated Cost Recovery System (MACRS). The maximum allowance is permanently fixed at $1 million and is indexed for inflation, starting in 2019. Use of the allowance is subject to several limitations, the most important of which is the dollar limitation. Under this limitation, the maximum allowance is reduced (dollar for dollar) by the amount (if any) by which the aggregate cost of qualified property a firm places in service during a tax year exceeds a phaseout threshold. In 2018, the threshold is set at $2.5 million; it too is indexed for inflation starting in 2019. This means that a firm may expense as much as $1 million of its spending on qualified assets in the 2018, provided its total spending for this purpose during the year remains below $2.5 million. Once the firm's total spending surpasses that amount, the amount that can be expensed drops until total spending reaches $3.5 million, at which point none of that cost may be deducted under Section 179. Congress established the expensing allowance mainly to serve two related purposes. One was to lower the cost of capital for relatively small companies. The other purpose was to stimulate increased business investment during periods of weak or negative economic growth. There is no size limit on the companies that may avail themselves of Section 179. It is the phaseout threshold that makes the expensing allowance a benefit for small firms. Large firms such as GM, Microsoft, or Intel typically spend far more on assets that qualify for the allowance than the threshold for being ineligible for the allowance. In theory, the allowance can stimulate business investment in two ways. First, it lowers the user cost of capital for investment in qualified assets, all other things being equal. This is because expensing produces a zero marginal effective tax rate on the returns to investment in those assets under the standard economic model for determining the user cost of capital. Second, the allowance increases the cash flow of firms using it, all other things being equal. For firms whose cost of internal funds is lower than their cost of external funds such as debt or equity, a rise in cash flow may be critical to their ability to undertake new investments. Economist Douglas Holtz-Eakin illustrated the impact of the allowance on the cost of capital in a 1995 article. Table 2 summarizes his results. The first column shows the corporate tax rate; the second gives the required pretax rate of return if the entire cost of the investment is expensed; the third column provides the required pretax rate of return if the entire cost is recovered through the depreciation deductions allowed under federal tax law in the early 1990s; and the final column presents the effective tax subsidy from expensing, which is expressed as the difference (in percentage points) between the required rates of return shown in columns two and three. At least two conclusions can be drawn from the results. First, expensing offered a significant investment subsidy that increased with a firm's marginal tax rate, as one would expect with a deduction. For example, at a tax rate of 15%, expensing lowered the user cost of capital by 11.3%; but at a rate of 35%, the reduction rose to 27.9%. Second, the user cost of capital under expensing declined as the tax rate increased because tax deductions were worth more at higher tax rates. In FY2018, according to the Joint Committee on Taxation, the allowance may produce a revenue loss of $50.4 billion (see Table 1 ). But the allowance does not necessarily produce a revenue loss. Its revenue effect generally hinges on the aggregate amount of U.S. investment in qualified assets in a particular tax year. In periods of rising business investment, the allowance is likely to generate substantial revenue losses because a share of the total cost of that investment is expensed. But the reverse is likely to happen in periods of declining investment, when the revenue gains from recent claims for the allowance exceed the revenue loss from new uses of it. Any shift from revenue loss to gain simply reflects the timing of depreciation deductions under current law. Firms that write off the entire cost of an asset in the year when it is placed in service under Section 179 can claim no additional depreciation allowances against future profits. In effect, they exchange a lower tax liability in the present for larger tax liabilities in the future. But companies making this tradeoff come out ahead, particularly in the case of relatively long-lived assets, since the present value of all depreciation deductions is greater with expensing than it is with less accelerated methods of depreciation. In other words, a company is better off with expensing than without it because one dollar of tax savings in the present is worth more than one dollar of tax savings in a future year. A key concept underlying the federal income tax is that business taxable income should exclude all costs incurred in earning it. Consequently, companies are allowed to deduct as current expenses all ordinary and necessary costs paid or incurred in conducting a trade or business in determining their taxable income. The concept also implies that costs paid or incurred in starting or organizing a business should not be treated as current expenses, as they are not directly related to the generation of income. Rather, because these expenses are incurred in an attempt to create a capital asset (namely, the business) with a useful life that is likely to extend beyond a single tax year, they should be capitalized, added to the owner's basis in the business, and recovered when the business is sold or ceases to exist. IRC Section 195 (as amended by the American Jobs Creation Act of 2004 or AJCA, P.L. 108-357 ) deviates from this principle by permitting individuals who incur business start-up and organizational costs after October 22, 2004, to deduct up to $5,000 of those costs in the year when the new trade or business begins to operate. This deduction is reduced, dollar for dollar (but not below zero), by the amount by which eligible expenditures exceed $50,000. Expenditures that cannot be deducted may be amortized over 15 years, beginning in the first month the new trade or business earns income. In order to claim the $5,000 deduction, a taxpayer must have an equity interest in the trade or business and actively participate in its management. The Small Business Job Creation Act of 2010 ( P.L. 111-240 ) raised the deduction to $10,000 and the phaseout threshold to $60,000 for qualified start-up and organizational expenses incurred or paid in 2010 only. These higher amounts have not been extended. To qualify for the deduction, start-up and organizational costs must meet two requirements. First, they must be paid or incurred as part of an investigation into creating or acquiring an active trade or business, as part of starting a new trade or business, or as part of an effort to produce income or profit before starting a trade or business with the aim of converting the effort into an active trade or business. Second, the costs must be similar in kind to costs that would be deductible if they were paid or incurred in connection with the expansion of an active trade or business in the same industry. Businesses that incurred or paid business start-up and organizational costs and then entered a trade or business on or before October 22, 2004, were allowed to amortize (or deduct in equal annual amounts) those expenditures over five or more years, beginning in the month when the new trade or business commenced. The option to deduct as much as $5,000 in business start-up and organizational costs in the first year of operation permits the owner of a new firm to deduct expenses in the year when the business begins. Without such a provision, the expenses could not be recovered until the owner sells his or her interest in the business or five years after the business started, whichever comes first. As a result, the option accelerates the recovery of certain business expenses, and this acceleration can aid the growth of small start-up firms by reducing their cost of capital and increasing their cash flow at a time when their access to financial capital may be restricted. For firms that lose money in their first year of operation, the deduction adds to their net operating losses, which may be carried forward up to 20 years and used to offset future taxes paid or owed. IRC Section 446 requires firms to compute their taxable income using the same method of accounting they regularly employ in keeping their books, as long as that method clearly reflects income for tax purposes. A business taxpayer's method of accounting clearly reflects income if it treats items of income and deductions consistently from one tax year to the next. Permissible methods of accounting include the cash-receipts method, the accrual method, the installment method, the long-term-contract method, the crop method, the special methods for research and development expenditures, and the method for soil and water conservation expenditures. Two methods of financial accounting are widely used in the private sector: cash-basis and accrual-basis. Under the former, which is the preferred method for self-employed individuals, income generally is recorded when it is received in the form of cash or its equivalent, and expenses generally are recorded when they are paid, regardless of when the income is actually earned or the expenses are actually incurred. Under accrual-basis accounting, income and expenses generally are recorded when the transactions giving rise to them are completed or nearly completed, regardless of when cash or its equivalent is received or paid. More specifically, a firm using accrual-basis accounting records income when its right to receive it is established and records expenses when the amounts are fixed and its liability for them established. Each accounting method has its advantages. Cash-basis accounting is much simpler to administer and allows firms that employ it to control the timing of the recognition of items of income or deductions. In contrast, accrual-basis accounting often yields a more accurate measure of a firm's economic income because it matches income with expenses with greater precision and rigor. Under certain circumstances, the accrual method must be used for tax purposes. For instance, when keeping an inventory is necessary to the operation of a business, a taxpayer must use the accrual method in computing taxable income—unless the IRS determines that another method clearly reflects income and may be used instead. Inventories are considered necessary when a firm earns income from the production, purchase, or sale of merchandise. In addition, C corporations, partnerships with C corporations as partners, trusts that earn unrelated business income, and authorized tax shelters generally are required to use the accrual method of accounting. But there are some exceptions to these rules. Beginning in 2018, any partnership or C corporation with average annual gross receipts of $25 million or less in the three previous tax years may use the cash method of accounting. Individuals, S corporations, and qualifying partnerships and personal service corporations also have the option of using the method. This dollar threshold is indexed for inflation, starting in 2019. As these exceptions show, many of the eligible firms are relatively small in receipt size. In effect, the cash method offers the same benefit to small firms as the expensing allowance under Section 179 does: the deferral of income tax payments. The federal tax code operates in part on the principle that a firm receives income when it gains the legal right to be paid for something it has provided. But under the cash method, firms have greater control over the timing of receipts and payments for expenses than they do under the accrual method. As a result, firms using the cash method have the option of deferring the payment of taxes, or taking advantage of lower tax rates by shifting deductions and the recognition of income from one tax year to the next. Despite the potential benefits to eligible small firms from using the cash method, it may not always be in their self-interest to do so. A case in point: a small business might be better off using accrual-basis accounting if it needs to periodically issue accurate and reliable financial reports. Cash-basis accounting can distort a firm's financial position in at least two ways. First, because it records transactions involving only cash or its equivalent, the method excludes transactions involving exchanges of assets or liabilities. Second, the determination of net income under cash-basis accounting can be manipulated by recording revenues or expenses long before or after goods and services are produced or sold. Before the enactment of P.L. 115-97 , interest and other borrowing expenses incurred in the pursuit of a trade or business were generally deductible from a company's gross income in the year when the expenses were paid or incurred under Section 163. No deduction was allowed for interest paid on tax-exempt bonds, interest from unregistered obligations, interest paid on insurance contracts, and interest paid on original discount, high-yield obligations. The act placed a limit on the amount of business interest a company can deduct; this limit applies to all legal forms of business organization. Under Section 163(j) as amended by the 2017 act, the deduction for business interest expenses in any tax year is limited to the sum of a firm's interest income, 30% of its adjusted taxable income, and any floor-plan financing interest it paid or incurred. Interest that cannot be deducted may be carried forward indefinitely, subject to certain restrictions for partnerships and S corporations. Adjusted taxable income is defined as a company's regular taxable income calculated without (1) any item of income, gain, deduction, or loss not allocated to a trade or business, (2) any business interest or business interest income, (3) a deduction for net operating losses, (4) the 20% deduction for qualified passthrough business income under Section 199A, and (5) any allowable deduction for depreciation, depletion, or amortization in the years before 2022. Floor-plan financing interest is the interest paid or accrued on debt used to finance the acquisition of motor vehicles held for sale or lease to customers and secured by seller's inventory. Companies with average annual gross receipts in the previous three tax years of $25 million or less are exempt from this limitation. There is no estimate of the revenue forgone because of this exclusion. Several tax provisions benefit smaller enterprises by encouraging equity investment in qualified small firms that otherwise may have trouble raising needed funds. The provisions, which are described below, do so by increasing the potential after-tax returns or reducing the potential after-tax losses on such investment, relative to alternative investment options. The same tax benefits are not available to individuals investing in larger firms. Two key considerations in determining the income tax liability for many individuals are the recognition of income as ordinary or capital gain, and the difference between long-term and short-term capital gains or losses. A capital gain or loss arises when a capital asset such as a stock or bond is sold or exchanged. If the selling price is greater than the acquisition or purchase price, the transaction produces a capital gain. Conversely, a capital loss results when the reverse is true. Capital assets held longer than 12 months and then sold or exchanged give rise to what are known as long-term capital gains or losses, whereas sales or exchanges of capital assets held one year or less generate short-term capital gains or losses. Short-term capital gains are considered ordinary income and taxed at regular income tax rates. By contrast, long-term capital gains are considered capital income and taxed in 2018 at 20% for single filers with taxable incomes of $425,800 or more and joint filers with taxable incomes of $479,000 or more; 15% for single filers with taxable incomes between $38,600 and $425,800 and joint filers with taxable incomes between $77,200 and $479,000, and 0% for single filers with taxable incomes below $38,600 and joint filers with taxable incomes below $77,200. IRC Section 1202 allows noncorporate taxpayers (including partnerships, LLCs, and S corporations) to permanently exclude from gross income the entire gain from the sale or exchange of qualified small business stock (QSBS) that has been held for a minimum of five years and a day. More precisely, the exclusion is 100% for QSBS acquired after September 27, 2010. For QSBS acquired between August 11, 1993, and February 17, 2009, 50% of any gain on its sale or exchange may be excluded. The exclusion is 75% for QSBS acquired between February 18, 2009, and September 27, 2010. There is a total limit on the gain from stock issued by an eligible corporation that a taxpayer may exclude. In any tax year, the gain cannot exceed the greater of 10 times the taxpayer's adjusted basis in all QSBS issued by that firm and sold or exchanged by the taxpayer during that year, or $10 million—reduced by any excluded gains from sales of the same stock in previous years. This means that the amount a taxpayer may exclude over time from the sale of a firm's QSBS cannot exceed $10 million. Any remaining gain is taxed at a fixed rate of 28%. To qualify for the partial exclusion, small business stock must satisfy several requirements. First, it must be issued after August 10, 1993, and acquired by the taxpayer at its original issue, either directly or through an underwriter, in exchange for money, property, or as compensation for services rendered to the issuing corporation. Second, the stock must be issued by a domestic C corporation whose gross assets do not exceed $50 million before the stock is issued. Third, at least 80% of an eligible corporation's assets must be deployed in the active conduct of one or more qualified trades or businesses during "substantially all" of the requisite five-year holding period. Assets used for working capital, start-up activities, and research and development meet the active business test, even if they are devoted mainly to the development of future lines of business. Specialized small business investment companies licensed under the Small Business Investment Act of 1958 also meet the active business test, making their stock eligible for the gain exclusion. Stock issued by C corporations with less than $50 million in gross assets is eligible for the exclusion if the issuing corporation is primarily engaged in an eligible trade or business. All trades and lines of business are eligible except the following: health care, law, engineering, architecture, hospitality, farming, insurance, finance, and mineral extraction. Stock issued by the following small C corporations is also ineligible for the exclusion: current or former domestic international sales corporations (DISCs), regulated investment companies (RICs), real estate investment trusts (REITs), real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), cooperatives, or C corporations that have claimed the possessions tax credit under IRC Section 936. The full exclusion for QSBS is intended to improve the access of small start-up firms in manufacturing and certain other industries to what might be called patient equity capital. It accomplishes this by increasing the potential after-tax returns an investor can earn on purchases of QSBS, relative to the potential after-tax returns on other investment opportunities, over five years. Under current law, the maximum capital gains rate is 20% and the exclusion is 100% of realized gains from QSBS acquired after September 27, 2010. A full exclusion yields an effective capital gains tax rate of 0% for QSBS. Supporters of the 100% exclusion say it is needed to compensate for the uncertainty and asymmetric information that surrounds the growth prospects of new start-up firms in industries where sizable upfront investments in activities such as research and development are critical to their survival and expansion. There is some evidence that the exclusion reduces the cost of capital for eligible C corporations issuing QSBS. In a 1999 study of the issue prices for such stock just before and after the enactment of Section 1202, David Guenther and Michael Willenborg found that the prices of QSBS issued by a sample of eligible firms after the tax change were "significantly higher than the issue prices before the change. Meanwhile, there were no significant differences in the issue prices for a sample of firms that were ineligible to issue QSBS. They concluded that nearly all the future benefits from the capital gains rate reduction were being passed on to issuing corporations in the form of higher stock prices, instead of being captured by investors. All other things being equal, rising stock prices lower a firm's cost of capital. Still, not everyone thinks the gains exclusion is a good idea. Alan Viard of the American Enterprise Institute, while recognizing the efficiency gains from using equity instead of debt to finance new investments, has argued that the exclusion is undesirable because it distorts the allocation of investment capital. As he noted in a 2012 article, the tax preference encourages equity investment in very small companies in certain industries only and may be claimed by certain investors only, not by all investors. In his view, the rules governing the use of the exclusion dampen its economic impact. Generally, losses on investments in stock are treated as capital losses for tax purposes. They may be used to offset any capital gains a taxpayer has in the same tax year. Individuals may also use any combination of short-term and long-term capital losses to offset up to $3,000 in ordinary income in a tax year. Under IRC Section 1242, however, individuals who invest in small business investment companies (SBICs) are permitted to deduct from their ordinary income all losses from the sale or exchange or worthlessness of stock they hold in these companies. This exception from the general rule is intended to foster equity investment in these companies by lowering the potential after-tax loss on an investment in an SBIC, relative to the potential after-tax loss on other investments. SBICs are private regulated investment corporations that are licensed under the Small Business Investment Act of 1958 to provide equity capital, long-term loans, and managerial guidance to firms with a net worth of less than $18 million and an average net income of less than $6 million in the previous two years. SBICs use their own capital and funds borrowed at favorable rates as a result of SBA loan guarantees to make equity and debt investments in qualified firms. For tax purposes, most SBICs are treated as C corporations. IRC Section 1244 allows taxpayers to treat any loss from the sale, exchange, or worthlessness of qualified small business stock as an ordinary loss rather than a capital loss. For business taxpayers, ordinary losses are treated as business losses in computing a net operating loss. To qualify for this treatment, stock must meet four requirements. First, it must be issued by a small business corporation after November 6, 1978. A small business corporation is defined as a domestic C corporation whose cash and property received as a contribution to capital and paid-in surplus totals less than $1 million at the time the stock is issued. Second, the stock must be acquired by an individual investor or a partnership in exchange for money or other property (but not stock and securities). Third, during the five tax years before a loss on the stock is recognized, the small business corporation must derive more than 50% of its gross receipts from sources other than royalties, rents, dividends, interest, annuities, and stock or security transactions. The amount that may be deducted as an ordinary loss in a tax year is capped at $50,000 for single filers and $100,000 for married couples filing jointly. Firms that earn income from the production, purchase, or sale of merchandise are required to maintain inventories in order to account for the cost of goods sold during a tax year. This cost is subtracted from gross receipts in the computation of taxable income. In most cases, the cost of goods sold is determined by adding the value of a firm's inventory at the beginning of the year to purchases of inventory items made during the year and subtracting that amount from the value of the firm's inventory at the end of the year. IRC Section 263A requires business taxpayers engaged in the production of real or tangible property, or in the purchase of real or tangible and intangible property for resale, to "capitalize" (i.e., include in the estimated value of their inventories) both the direct costs of the property included in inventory and the indirect costs that can be allocated to it. This rule is known as the uniform capitalization rule and was added to the tax code by the Tax Reform Act of 1986. In general, direct costs are considered the material and labor costs related to the production or acquisition of goods, and indirect costs refer to all other costs incurred through the production or acquisition of goods (e.g., repair and maintenance of equipment and facilities, utilities, insurance, rental of equipment, land, or facilities, and certain administrative costs). Taxpayers have some discretion in assigning indirect costs to production or resale activities, but the methods used to allocate the costs should yield reasonable and defensible results for the trade or business. Some small firms, however, are exempt from the uniform capitalization rule. Specifically, it does not apply to firms with average annual gross receipts of $25 million or less in the last three tax years that acquire tangible or intangible property for resale. This exemption is beneficial because eligible firms have lower administrative costs, face less complexity in complying with income tax laws, and can exercise more control over the timing of business expense deductions, opening up opportunities for the deferral of income tax liabilities. Businesses that maintain inventories to account for the cost of goods sold are required to estimate the value of their inventories at the beginning and at the end of each tax year. Since doing this item by item is time-consuming and costly, many taxpayers use estimation methods that assume certain item or cost flows. One such method is known as "last-in-first-out" (or LIFO). LIFO operates on the assumption that the most recently acquired goods are sold before all other goods. Consequently, LIFO assigns the most recent unit costs to the cost of goods sold and the oldest unit costs to the remaining inventory at the end of the year. The method can be advantageous during periods when the cost of many inventory items is rising, since it yields a lower taxable income and inventory valuation than other methods. There are various ways to apply LIFO. A widely used application is known as the dollar-value method. Under it, a taxpayer accounts for the value of its inventories on the basis of a pool of dollars rather than a pool of specific items. Each dollar pool includes the value of a variety of inventory items and is measured by the dollar value of the items in their base year, which is the year when they were first added to the inventory. Use of the dollar-value method is complicated and costly and thus beyond the reach of most small firms. But IRC Section 474, which was added to the tax code by the Tax Reform Act of 1986, allows certain small firms to use a simplified dollar-value LIFO method. It differs from the regular dollar-value method in how the inventory items are pooled and how the base-year value of the pooled items is estimated. Firms with average annual gross receipts of $5 million or less in the three previous tax years are allowed to use the simplified method. Under IRC Section 45E, certain small firms may claim a nonrefundable tax credit for a portion of the start-up costs incurred in setting up new retirement plans for employees. The credit, which was enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, began in 2002 and originally was scheduled to expire (or "sunset") at the end of 2010. But a provision of the Pension Protection Act of 2006 permanently extended the credit. It is a component of the general business credit under IRC Section 38 and thus subject to its dollar limitations and rules for carryover. The credit is equal to 50% of the first $1,000 in eligible costs paid or incurred in each of the first three years a qualified pension plan is operative. Eligible costs consist of the ordinary and necessary expenses associated with administering the plan and informing employees about the plan's benefits and requirements. Any new defined benefit or defined contribution plan, savings incentive match plan for employees, or simplified employee pension plan qualifies for the credit. Only firms with fewer than 100 employees, each of whom received at least $5,000 in compensation in the previous year, are allowed to claim the credit if at least one highly compensated employee participates in the plan. The maximum credit an eligible firm can claim is $1,500 (.5 x $3,000). In effect, the credit gives owners of small firms an incentive to establish pension plans for employees by lowering the after-tax cost of setting up and administering these plans over the first three years they are available. Supporters of the credit say the reduced cost should spur increased plan sponsorship among small employers. As a 2010 report issued by the SBA made clear, startup costs can be considerable on a per-employee basis for companies with relatively few employees. Yet available data on pension benefits by employer size offer no clear evidence that the credit has had its intended effect on the share of small employers offering pension plans. According to figures published by the Employee Benefit Research Institute (EBRI), the percentage of firms with fewer than 100 employees sponsoring pension plans was lower in 2013 (the most recent year for which survey results are available) than it was in 2002, the first year the credit was available. Under IRC Section 44, an eligible small firm may claim a nonrefundable tax credit for expenses incurred in making its business facilities more accessible for disabled employees. The credit is equal to 50% of eligible expenditures in a tax year above $250 but not greater than $10,250; it is capped at $5,000 for a firm in a tax year. In the case of a partnership and S corporation, this upper limit applies separately at the entity level, and at the partner or shareholder level. The disabled-access credit is a component of the general business credit under IRC Section 38 and thus subject to its dollar limitations and rules for carry-forward and carry-back. A firm may claim the credit if, during its previous tax year, its gross receipts (less any returns and allowances) totaled no more than $1 million, or its full-time equivalent (FTE) work force did not exceed 30 persons. Any amount an eligible small firm pays or incurs to bring its business into compliance with the Americans with Disabilities Act of 1990 (ADA) qualifies for the credit. The expenses must be reasonable in amount and required by law. Eligible expenses include the cost of removing architectural, communication, transportation, or physical barriers to making a business accessible to or usable by disabled individuals; providing interpreters or other effective methods of making materials understandable to hearing-impaired individuals; and supplying qualified readers, taped texts, and other effective methods of making materials understandable to visually impaired individuals. The credit is intended to lower the net cost to smaller firms of complying with the mandates of the ADA and to encourage them to hire more disabled persons. Although the credit has been available for over two decades, it remains unclear how effective it has been in stimulating business investment in making workplaces more accommodative to the special needs of disabled persons seeking employment. In a 2002 report, the then-named General Accounting Office (GAO) noted that it could find no studies of the effectiveness of the credit and that few businesses were even aware of it. It appears that no such studies have been done since 2002. The Patient Protection and Affordable Care Act (ACA, P.L. 111-148 ) added a provision to the federal tax code (IRC Section 45R) that grants certain small employers a tax credit for nonelective contributions to health plans that cover at least 50% of the cost for participating employees. An employer's contribution is considered nonelective if it does not involve a reduction in participating employees' salaries or wages. Eligible employers have been able to take the credit since the 2010 tax year. From 2010 through 2013, the maximum credit was equal to 35% of the lesser of the total amount of an employer's nonelective contributions during a tax year for the payment of qualified health insurance for its employees through a "contribution arrangement," or the total amount of nonelective contributions that would have been made if each employee had enrolled in a qualified health plan with a premium equal to the average premium for the small-group market in the state where the employer is located. Under such a scheme, an employer may not claim the credit for the portion of employer-paid premiums above the average premium for the small-group market where the employer is located. Employers with up to 25 or fewer full-time employees who earn an average annual compensation of $50,000 or less can benefit from the credit, but the full credit may be claimed only by employers with 10 or fewer full-time employees with an average annual compensation of $25,000 or less. The credit phases out by 6.667% for each full-time employee above 10, and by 4% for every $1,000 in average annual compensation above $25,000. For tax years beginning in 2014, an eligible employer may claim the credit no more than two consecutive tax years (e.g., 2014 and 2015) if it offers one or more qualified health plans through a state-based health insurance exchange. Each state was required to establish such an exchange by 2014. The maximum credit for tax years after 2013 will be equal to 50% of the lesser of the total amount of employer contributions for qualified health plans offered through an exchange, or the total amount of employer contributions that would have been made that year if each employee had enrolled in a qualified health plan with a premium equal to the average premium for the small-group market in the rating area where the employees receive coverage. The credit does not apply to premiums deemed excessive. Several rules governing the use of the credit affect its effective rate. The credit is a component of the general business credit (GBC), and thus subject to its limitations. Unused GBCs may be carried back one year or forward up to 20 years. Any credit not used by the end of the 20-year carry-forward period may be deducted in its entirety for the next tax year. Since 2011, employers have been able to take the credit against both the regular income and alternative minimum taxes. But to prevent employers from deriving two tax benefits from the same expenditures, any employer taking the credit must reduce its deduction for employer-paid health insurance premiums by the amount of the credit. The credit is intended to increase the share of employers with 25 or fewer low-wage employees that offer health insurance to employees. It does so by lowering the after-tax cost of coverage by as much as 35% from 2010 to 2013 and by as much as 50% in any two consecutive years starting in 2014 for firms with sufficient tax liability. Congress added the credit to the ACA in part to address a longstanding concern about gaps in the domestic web of employer-provided health insurance. While the vast majority of large employers offer health benefits to employees, a much smaller share of small employers have done so, and the share is even smaller for small employers with mostly low-wage workers. According to the latest survey of employer health benefits by the Henry J. Kaiser Family Foundation (KFF) and the Health Research and Educational Trust (HRET), 96% of employers with 100 or more employees offered health benefits in 2017, compared with 90% of employers with 50 to 99 employees and 50% of employers with 3 to 49 employees. Among all the employers surveyed, regardless of their employment size, 64% of those with relatively low ratio of low-wage workers (defined as those earning $24,000 or less) to total workers offered health benefits in 2017, whereas 44% of those with a relatively high ratio did so. Available data indicate that small firms play a major role, on the whole, in domestic economic activity. For example, according to figures published by the SBA, firms with fewer than 500 employees accounted for 99.9% of all domestic firms, 99.7% of firms with paid employees, and 48.0% of private-sector employment in 2013. These indicators of economic importance raise the question of why government assistance is needed when small firms typically account for substantial shares of employment and output and make important contributions to technological innovation over time. The answer to this question is no trivial matter. Small firms could receive more than $17 billion in federal tax benefits in FY2018 —in addition to the subsidies they obtain through other federal programs targeted at small businesses. As with any public expenditure, this support carries an opportunity cost in the form of alternative uses of these funds and their potential economic effects. If it turns out that there is no sound economic justification for existing federal government support for small business, then one could argue that the U.S. economy would be better off using the funds going to small firms for other purposes with significant economic effects, such as investing in infrastructure expansion and modernization, research and development, or deficit reduction. This section describes the chief arguments for and against government support (including tax preferences) for small businesses. Proponents of government support for small business generally cite four reasons why they believe it is justified: (1) the special economic role played by small firms; (2) the financial barriers to their formation and growth; (3) the impact of relatively high marginal tax rates on the formation and growth of small entrepreneurial firms; and (4) the unique opportunities for individual economic advancement created by small business ownership. Many lawmakers cite the economic importance of small firms as a primary reason to support them through government programs and other subsidies. For example, in remarks made on the floor of the Senate in 2003, Senator Olympia Snowe urged her colleagues to back the creation of more tax benefits for small firms by noting that "they represent 99% of all employers, employ 51% of private-sector workforce, provide about 75% of the net new jobs, contribute 51% of the private-sector output, and represent 96% of all exporters of goods." Statements such as this suggest that small firms in general deserve federal support, not because they are prone to some kind of market failure, but because they play an important role in economic activity. Some proponents of government support for small businesses take this line of reasoning a step further by arguing that small firms generate uniquely valuable economic benefits. These benefits, they say, can be seen in the multitude of jobs and new technologies small firms create over time, their innumerable and ever-changing linkages to larger firms in supply chains, and their unique contributions to economic renewal and growth. Proponents maintain that the net effect of these activities is to accelerate the growth of the U.S. economy in ways that large firms cannot. On the issue of job creation, those who favor government support for small firms note that SBA data show that firms with fewer than 500 employees accounted for 63.3% of net job creation from 1992 to 2013. The data also indicate that, though many small firms fail within five years of starting up, the survivors, especially firms known as gazelles because of their rapid growth starting at a young age, typically create enough jobs to more than offset those lost because of firms going out of business. On the issue of technological innovation, proponents of government support for small firms cite several findings from the literature on firm size and technological innovation. One study found that the contributions of small firms to innovation varied by industry, and that their contributions tended to be most important in industries where no firm had established substantial market power. Another study concluded that in certain industries, small start-up firms were more adept than large established ones at identifying promising commercial applications for new technologies and exploiting them. More specifically, the study provided evidence that during the 1980s and 1990s, there were many instances in which small start-up firms gained temporary competitive advantages over larger established rivals in the commercial development of new technologies in biotechnology, microelectronics, computer software, and electronic commerce. A 2003 study by CHI Research, Inc. uncovered further evidence that small firms have made important contributions over time to the commercial development of new technologies. The researchers found that firms with fewer than 500 employees held 41% of all patents filed by U.S. corporations from 1996 to 2000. The study also found that those firms received 13 to 14 times as many patents per employee as larger firms did. Furthermore, the results showed that small firms filed 25% of the patents related to biotechnology, 19% of the patents related to pharmaceuticals, 11% of the patents related to medical equipment and electronics, and 9% of the patents related to chemicals other than pharmaceuticals. According to a 2011 study of small business innovation in "green" technologies, among all firms awarded 15 or more patents between 2005 and 2009; small firms were 16 times more prolific than other firms. In this case, productivity was measured on the basis of the number of patent awards per employee. Innovative firms with fewer than 500 employees acquired an average of 27 patents per employee, compared to an average of 1.6 patents per employee for larger firms. Proponents of government support for small business also contend that such support is needed because of the special roles many small firms play in industrial supply chains involving large companies in a variety of industries. To substantiate this claim, they point to evidence that small firms have tended to supply certain goods and services more efficiently than larger ones. For instance, economist Bo Carlsson noted in a 1999 study that such an efficiency edge was apparent in industries where economies of scale in production were the main drivers of competition and success. Foremost among the industries exhibiting this linkage were computers, automobiles, and steel. In industries such as these, small and large firms specialized in providing specific products or services. The two groups ended up interacting more as partners or suppliers than as competitors. In Carlsson's view, the dramatic rise in foreign outsourcing among large U.S. manufacturing firms in the 1990s reinforced this pattern of specialization between large and small firms. His findings led him to conclude that small firms in general possessed at least one significant advantage over larger firms in the supply chains that underpinned the U.S. economy: small firms could act with greater flexibility and speed in responding to new market opportunities and emerging competitive threats. Proponents of government support for small business also cite the financial (and social) benefits of small business ownership for women, minority groups, and immigrants and the communities where they live as another reason to provide such support. They argue that owning and managing a small business gives these individuals opportunities to increase their income and independence and to move into the economic mainstream of the United States. According to data from the American Community Survey conducted by the U.S. Bureau of the Census, 18% of small business owners in 2010 were immigrants, and they employed 14% of all people working for small businesses that year. In addition, according to proponents, there is evidence that women-, minority-, and immigrant-owned small firms generate benefits for their communities that go beyond job and wealth creation. For example, female small business owners have done more than their male counterparts to encourage openness in workplace communication and decisionmaking, hire a diverse workforce, establish desirable child-care programs, and pay full benefits to employees. In addition, families with self-employed women who work out of their homes seem more stable than the average family. And among minority and immigrant groups, small business ownership encourages the emergence of tight-knit social networks, provides critical job and skills training, and establishes informal local capital markets. Another argument made in favor of government support for small businesses concerns the difficulties many younger small firms (especially new small entrepreneurial firms) encounter in raising the financial capital needed to start and grow a business. In their view, government intervention can lessen or offset these difficulties, paving the way to faster rates of domestic business formation, especially businesses given over to commercializing new technologies. If capital markets were truly efficient, every investment opportunity offering an after-tax rate of return greater than the cost of capital would be funded, regardless of the profitability, cash flow, size, or age of a firm. But proponents of government support for small business say that such a condition applies to relatively few new small firms. In their view, owners of such firms typically experience considerable difficulty in borrowing from lending institutions or attracting equity capital, mainly because lenders and investors lack the information they require to evaluate the profit potential of the proposed venture. As a consequence, aspiring small business owners often are forced to finance projects out of their own resources (e.g., savings accounts, retirement funds, and credit cards) or the resources of friends and family members, or, lacking access to those resources, to abandon the ambition of owning their own business. Proponents also note that the problem of limited access to capital markets does not affect start-up companies only. Established small business owners may also have difficulty raising capital through borrowing or equity investment. In light of these difficulties, proponents maintain that government support, especially loan guarantees and tax incentives for equity investment, is needed to enable cash-starved small firms to obtain the funds they need to survive and grow. Proponents of government support for small firms point to the relatively high tax compliance costs borne by small firms as another reason to grant them some kind preferential treatment through the tax code, at least until the code can be simplified in ways that benefit small business owners. To substantiate this argument, they cite the results of a 2007 study that estimated federal tax compliance costs by various measures of the size of business. Among other things, the researchers found that the compliance burden, as measured by the time and money devoted to tax compliance per employee, was inversely proportional to the size of a business. Specifically, for the 2002 tax year, the estimated financial burden per employee ranged from $8,435 for firms with 1 to 5 employees down to $348 for firms with more than 50 employees. Proponents maintain that large differences between the tax compliance costs for small firms and larger firms could exacerbate any competitive disadvantages the former face in vying with latter for sales or contracts. Not everyone agrees that government support for small business is justified on economic grounds. Critics of such support cite the findings of several recent studies as grounds for questioning the economic arguments made by proponents. A key element of standard economic analysis is that government intervention in the economy is warranted mainly to remedy a market failure. In general, such a failure represents a condition that prevents or hinders the emergence of economically efficient outcomes. Foremost among the market failures identified by economists as justifications for government intervention are the following: Lack of perfect competition, Presence of public goods, Positive or negative external effects (or externalities), Incomplete markets, and Imperfect or asymmetric information on the part of key economic agents. Critics of government support for small businesses say there is no evidence that a market failure is affecting (or has affected) trends in small business formation, growth, investment, and failure. More specifically, they can find no evidence that imperfections in financial markets are leading to the formation of too few or the failure of too many small firms, or that small firms in general generate uniquely valuable positive externalities. Therefore, say critics, in the absence of a verifiable market failure, government support (including tax subsidies) for small business seems unwarranted on economic grounds. Proponents of government support for small businesses generally ignore their equity effects in defending them on economic grounds. But to critics, those effects are one of several reasons to reduce or end such support through the federal tax code. In their view, small business tax preferences undercut the progressivity of the federal individual income tax. Under a progressive income tax, an individual's tax liability depends critically on his or her taxable income. Taxpayers with higher taxable incomes pay a greater share of their income in taxes than do taxpayers with lower taxable incomes. Small business tax preferences, however, weaken the link between tax liability and income by lowering the tax burden on the earnings of small firms, the vast share of which are organized as passthrough entities. The earnings of such a business pass through to the owner(s) and are taxed at his/her/their individual income tax rates. A substantial share of those earnings goes to individuals subject to the highest income tax rates. According to an estimate by the Tax Policy Center, passthrough business income represented 31.9% of total adjusted gross income (AGI) for taxpayers in the 39.6% tax bracket in 2017; for taxpayers subject to the 35% and 33% tax brackets, the AGI shares were 27.9% and 17.1%, respectively; the average share for all tax brackets was 8.8% in 2017. Among public finance economists, it is assumed that individuals, not firms, ultimately bear the burden of business income taxes or reap the benefits of business tax subsidies. Critics of government support for small business argue that these benefits ultimately increase the after-tax earnings of small firms. As a result, small business owners may have lower tax burdens than individuals whose taxable income comes primarily from wages and salaries. In this case, small business tax preferences may interfere with the achievement of horizontal equity in the taxation of household income. Horizontal equity involves taxing individuals with similar taxable incomes in the same manner. Differences in the taxation of key sources of income tend to undermine horizontal equity. Some also oppose small business tax subsidies on efficiency grounds. In theory, income taxes reduce economic welfare by driving a wedge between the costs and benefits of the available choices for consumption and production facing consumers and firms, respectively. Standard economic analysis holds that the best possible tax system is one that raises needed revenue without distorting the allocation of economic resources among investment and consumption choices. The only tax that meets such a requirement is a lump-sum tax, since it would impose the same tax on all individuals, regardless of their income or wealth. Such a view has several notable implications for tax policy: The returns to all investments should be taxed at the same rate; Any tax that is not uniform across businesses (regardless of size or organizational form) is likely to diminish social welfare; and Taxes should not distort a firm's choice of inputs or its investment or production decisions. Small business tax preferences, say critics, conflict with each of these principles. In their view, an efficient allocation of resources is possible only if the tax code is neutral with regard to business investments and the natural growth and decline of firms. A departure from the neutral taxation of capital income to assist small firms might be warranted if there were something uniquely or extraordinarily valuable about their economic role and if the majority of small firms can play that role only with government support. Proponents of such support contend that small firms, on the whole, demonstrate their unique value by consistently creating more jobs and generating more technological innovations than larger firms. They also claim that those contributions would be placed in jeopardy if the federal government were to stop supporting small firms. Critics call into question the empirical evidence for this argument. Critics disagree with the view that small firms as a whole deserve government support because they make valuable economic contributions that larger firms cannot readily match or duplicate. According to critics, however, there is no evidence that small firms in general have a decisive long-term edge over larger firms in such important economic activities such as creating jobs, developing new marketable goods and services, improving the efficiency and productivity of supply chains, and promoting beneficial economic change and renewal. They also argue that there is a lack of evidence to substantiate the claim that too few small firms are created over time owing to systematic failures by private lenders and investors to provide adequate financing for start-up firms. Each of these issues tied to the claim that small businesses play a special role in the U.S. economy is examined below. Critics and proponents of government support for small business largely agree that small firms are responsible for most job growth over time. According to the SBA, firms with 500 or fewer workers created 63.3% of all net new U.S. jobs from 1992 to 2013. But the two sides differ on the economic significance and policy implications of this contribution. On the one hand, proponents see the large share of net new jobs attributed to small firms as a reason for the federal government to support such firms. Critics, on the other hand, say that the share of net new jobs attributed to small firms does not prove what proponents claim it does. To back their case, they cite certain findings from the academic literature on firm size and job growth. According to critics, small firms are not consistently better at creating jobs than large firms. To substantiate this claim, they cite a 1994 study by David Birch and James Medoff of U.S. job creation. Birch and Medoff estimated that the share of the total number of net new jobs generated in the late 1980s and early 1990s by firms employing 100 or fewer workers varied from 40% to 140%, depending on the stage of the business cycle. Critics also point out that there is substantial variation in the number of net new jobs small businesses create from one year to the next. Most jobs created by small firms originate in start-up firms, which typically begin small in employment size. According to a 2011 report by Ian Hathaway and Albert Palacios, firms in existence less than a year accounted for an average of about 3 million jobs per year from 1990 through 2009. By contrast, firms aged from 1 to 5 years lost an average of 622,000 jobs a year; firms aged from 6 to 10 years lost an average of 348,000 a year; and firms that had been in business 11 or more years lost an average of 574,000 a year. This is to say that non-start-up firms lost an average of 1.5 million jobs a year in that period. Hathaway and Palacios also found that the average annual job creation from 1990 to 2009 among start-up firms was 2.906 million, whereas small firms aged 1 to 5 years lost an annual average of 703,000 jobs; those aged from 6 to 10 years lost an annual average of 401,000; and those aged 11 or more years lost an annual average of 849,000. Relatively few start-up firms accounted for most of the job growth. A 2010 study by economist John Haltiwanger and Ron Jarmin and Javier Miranda from the U.S. Census Bureau supported the findings of the Hathaway-Palacios study. Haltiwanger, Jarmin, and Miranda used data from the Census Bureau Business Dynamics Statistics and Longitudinal Database to test the widely held belief that net job growth over time is negatively related to firm size. The results confirmed the belief when the researchers did not control for the age of firms. But when they did, the evidence for a systematic relationship between firm size and net job growth disappeared. What emerged instead was a systematic relationship between gross and net job creation and the age of firms. More specifically, the results showed that start-ups accounted for disproportionately large shares of job creation and job destruction from 1992 to 2005. They also indicated that firms over 10 years old and with more than 500 employees accounted for 40% of job creation and destruction. Haltiwanger, Jarmin, and Miranda concluded that young firms exhibit an "up or out dynamic," meaning that they either grow fast or quickly go out of business. Birch and Medoff discerned a similar trend in their analysis of the small business jobs created during the late 1980s and early 1990s. They called the few firms responsible for this job growth "gazelles," as they grew swiftly from few employees to many employees. Critics also contend that even if small firms were to create more lasting, well-paying jobs than large firms do over time, there would be no reason to expect government support for small business to generate faster employment growth. Economic analysis shows that an economy generates jobs through a natural process of growth, decline, and structural change. The size distribution of firms seems to be nothing more than a byproduct of this process. This implies that the level of national employment at any point in time is the result of a mix of forces that is bound to overwhelm the employment effects of any government support for small business. Most economists would agree that the key forces are fiscal and monetary policy, consumer spending, business investment, and U.S. exports and imports. Research and development (R&D) is the lifeblood of technological innovation, which, in turn, serves as a powerful engine of long-term economic growth and transformation. Economists generally agree that without government support, business investment in R&D would fall significantly short of socially optimal amounts. Left to their own devices, firms are likely to invest too little in R&D for two reasons. First, they cannot capture all the returns to R&D investment, as other firms find ways to capitalize on the results of research despite patents and other forms of intellectual property protection. Second, some firms (mainly start-up firms) lack access to the funds needed to undertake planned R&D projects because potential lenders and investors lack the information they require to assess the projects' profit and the firms' survival potential. Economists generally view the predisposition of businesses to invest suboptimal amounts in R&D as a market failure. This is because the external economic benefits (or positive externalities) from the investments seem to have little or no influence on the investment decisions of private companies. To remedy this shortcoming, many economists call for the adoption of government measures aimed at spurring greater levels of business R&D investment than companies would undertake on their own. Critics of government support for small businesses maintain there is no good reason for targeting such support at small firms only if the main intent is to spark faster rates of technological innovation. They note that small and large firms develop the new technologies that propel economic growth and encourage lasting shifts in the structure of developed countries' economies. Moreover, say critics, it is often impossible to disentangle the contributions of smaller firms from larger ones. According to data from the National Center for Science and Engineering Statistics, larger firms typically perform the vast share of business R&D: in 2008 and 2009 combined, for example, companies with fewer than 500 employees accounted for more than 20% of the business R&D (measured in current dollars) conducted in the United States, whereas companies with 1,000 or more employees undertook nearly 76% of those investments. Available evidence indicates that small firms and large firms tend to have distinct advantages as agents of technological innovation. Historically, small firms have had more success than larger ones in using R&D to generate new industries and dominate the industries' early stages of growth. Smaller firms may also have been more flexible than larger firms in identifying and pursuing commercial applications for emerging innovations. In contrast, large firms more easily raise the funds needed to finance the sunken costs involved in many research projects. They are also likely to capture a larger share of the returns to R&D investments through marketing campaigns, the use of intellectual property protection, and the creation of regional, national, and international distribution, service, and repair networks. According to critics, studies that have looked at the effects of firm size and market structure on innovation have found no consistent proof that a certain firm size is ideal for generating and disseminating new commercial technologies. Rather, their findings indicated that in some industries, small firms were more innovative than large firms, but that in other industries, large firms had a decisive edge in the generation of new technologies. Critics also point out that the vast majority of U.S. small business owners have no intention of developing a new idea and bringing it to the marketplace. A 2011 study by economists Erik Hurst and Benjamin Pugsley from the University of Chicago noted that only 10% of new businesses that participated in a 2006 survey conducted as part of a Panel Study of Entrepreneurial Dynamics II reported that they planned to develop "proprietary technology, processes, or procedures in the future." By contrast, nearly 80% of the businesses indicated that they had no plans for research and development "to be a majority priority." Critics of government support for small businesses also challenge the notion that small firms in general play critical roles in improving the efficiency of business supply chains. They cite certain findings of the study by Hurst and Pugsley to make their case. Among other things, Hurst and Pugsley found that about half of the new small businesses they surveyed intended to provide an existing product or service to an existing customer base. In addition, few of those firms showed much desire to grow into big firms or to innovate "in any observable way. " When asked about their primary reasons for starting a new business, over half of the small business owners said that "nonpecuniary benefits" played a leading role. These benefits included being one's own boss and having a flexible work schedule. According to Hurst and Pugsley, such behavior was consistent with the industries in which most small firms were concentrated. Using data from the Statistics of U.S. Businesses compiled by the U.S. Census Bureau, they found that two-thirds of small businesses in 2007 were either restaurants, skilled professionals (e.g., doctors, lawyers, accountants), skilled craftsmen (e.g., general contractors, electricians, plumbers), professional service providers (e.g., clergy, insurance agents, real estate agents), or small retailers (e.g., gas stations, pharmacies, grocery and clothing stores). Critics maintain that these findings call into question the validity of the argument that small firms deserve government support because they serve as indispensable agents for productivity growth and greater efficiency within business supply chains. In their view, the typical small business owner has little or no interest in developing new products or processes that could be sold to large firms. Rather, say critics, he/she is mainly concerned with selling existing goods and services to established customers in the geographic areas they serve. Critics acknowledge that start-up companies that become what Medoff and Birch called "gazelles" can exert a transformative pull on the fabric of markets and industries. Cases in point include Google, Microsoft, Facebook, and Amazon. But they dispute the notion that small firms in general are critical to the processes of economic renewal and change. In their view the gales of creative destruction stirred by such innovative big companies as Amazon and Walmart have done as much as any gazelle to transform entire markets and industries, often to the benefit of consumers. Some say that firms such as these are likely to do more to advance productivity growth and promote economic change over time than any cluster small firms could do. Yet another concern raised by government support for small businesses, according to critics, is that the subsidies may offer a robust disincentive to grow to the point that the firms no longer qualify for the government support. This effect, which has been called the "notch problem," is likely to become an issue when the loss of a tax preference effectively penalizes the firms that had benefited from it. A case in point is the Section 179 expensing allowance. The maximum allowance is set at $1 million in 2018, and the allowance begins to phase out when the total value of qualified assets acquired and placed in service that year exceeds $2.5 million. Firms that purchase and placed in service more than $3.5 million in qualified assets cannot claim the allowance, as the amount that can be expensed is reduced dollar for dollar when a firm's total spending on such assets exceeds the phaseout threshold. Critics maintain that such a design gives firms a tax incentive not to invest more than $2.5 million in qualified assets. Firms that invest more than that amount face implicit tax penalties in the form of higher marginal effective tax rates that increase as the amount of investment over $2.5 million approaches $3.5 million. Available economic data indicate that small firms make significant contributions to the U.S. economy. The magnitude of the contributions depends, of course, on how a small firm is defined. If a small business is defined as a firm with fewer than 500 full-time employees, then it can be said that small businesses account for a majority of private-sector jobs and about half of private-sector output, generate many technological innovations, and serve as agents of renewal and structural change in a variety of industries. But if the threshold were set at fewer than 100 employees, the small business shares of output and employment would be smaller. The economic contributions of small businesses, however defined, appear to explain part of the longstanding bipartisan support in Congress for government programs to assist small firms. Some of this support is in the form of tax preferences (or expenditures) available to many small firms. The combined revenue loss from these expenditures may top $17 billion in FY2018 (see Table 1 ). Current federal small business tax benefits serve one or more of the following four purposes: (1) improving access to equity capital, (2) simplifying tax compliance, (3) promoting capital investments, and (4) achieving other policy objectives. Supporters of these benefits and other federal programs to support small businesses argue that they are needed to eliminate or reduce barriers to the birth, survival, and growth of small businesses, which, in their view, make invaluable contributions to the growth and transformation of the U.S. economy. They point to the vital role played by small firms in job creation and in technological innovation as proof of the special economic importance of small businesses in general. The biggest barrier, they say, is the difficulties many small start-up companies experience in raising the financial capital they require to fund operations, including R&D. Yet the findings of some studies and recent changes in federal policy toward start-up firm financing raise questions about the accuracy of this economic rationale. In particular, they suggest that current federal support for small businesses may be less effective, on the whole, than it could be in promoting faster job growth and increased investment in such firms. A 2010 study by economists John Haltiwanger, Ron Jarmin, and Javier Miranda from the U.S. Census Bureau used data from the Census Bureau Business Dynamics Statistics and Longitudinal Database to test the widely held belief that net job growth over time is negatively related to firm size. When the researchers did not consider the ages of the firms, the results indicated that smaller firms had faster rates of net job growth than larger firms from 1976 to 2005. But when they considered the age of firms, that relationship fell apart. What emerged instead was a strong correlation between gross and net job creation and the age of firms. More specifically, the results showed that start-ups had disproportionately high rates of both job creation and job destruction over the first 10 years of their existence. A 2011 study by economists Erik Hurst and Benjamin Pugsley, using a database composed of individuals in the process of starting a business, found that most small business owners are not the entrepreneurs that economic models and lawmakers tout as the prolific job creators and intrepid innovators who open up new pathways for economic growth by accelerating the demise of older technologies. Instead, their research showed that relatively few small firms bring new ideas to the marketplace, and that most small business owners are content to sell existing products or services to buyers in local established markets. Hurst and Pugsley also discovered that relatively few small business owners have a strong desire to grow large and innovate. This disposition was consistent with the main characteristics of the industries in which the majority of small businesses operated: skilled craftsmen, lawyers, real estate agents, doctors, small shop owners, and restaurateurs. It is also consistent with another key finding by Hurst and Pugsley: for about half the people who started a new business in 2004, the primary motivations were nonpecuniary, especially being one's own boss and having flexible work hours. The findings from the two studies raise questions about the justification for current federal policy toward small businesses. Specifically, the findings suggest that most of the job growth and technological innovation by small firms is likely to come from the activities of a relatively small number of new companies. Therefore, Congress may consider whether new ways to target federal support at small start-up companies would help more of them raise financial capital. Identifying these companies is itself a significant challenge for public policy. Hurst and Pugsley suggested as one option having the SBA work with venture capitalists to find new entrepreneurial small firms that might benefit from early-stage federal financial assistance. They also maintained that a better understanding of the costs and benefits of current federal support for small businesses may help lawmakers determine which current programs address the needs of those firms and which should be jettisoned as unnecessary and ineffective. Most economists believe that departures from uniform or neutral taxation of the returns to capital are warranted only to correct identifiable market failures. This raises the question of whether existing federal government support for small firms is intended to remedy any market failure. For example, in light of the contributions of start-up firms to employment growth and technological innovation, one might argue that too few such firms are being formed, largely because of barriers in debt and equity markets to small business startup financing. Is there evidence that too few small entrepreneurial firms are being formed? Imperfections in capital markets arguably prevent some individuals from getting the funds they need to start a new business and grow it. This can happen for a variety of reasons, including asymmetric information between aspiring entrepreneurs and lenders or investors, and excessive caution on the part of lenders and investors. A 2010 study by Alicia M. Robb and David T. Robinson of the financing choices of firms in their first year of business indicated that most of the firms in their sample relied much more on external debt than family and friends to obtain start-up capital. They found that the start-up capital for over 80% of those firms was split evenly between bank debt and owner equity. The findings suggested that well-functioning credit markets are critical to the formation and success of new small firms. The federal government is using several measures to improve access to capital for new businesses, including SBA loan guarantees, tax preferences for investment in small startup firms and business startup costs, and the recent dismantling of regulatory obstacles to using a method of raising equity capital known as "crowdfunding." Under this method, aspiring small business owners can raise small amounts of money from a large pool of investors, usually through the Internet, without running afoul of federal securities laws. Congress might consider whether additional measures could accelerate the rate of new entrepreneurial business formation and growth. | The federal tax burden on small firms and its effects on their formation and growth have long been matters of legislative concern for Congress. This abiding interest has helped pave the way for the enactment of a series of tax laws in recent years that included targeted tax relief for a number of small businesses. This report describes the main federal tax preferences that benefit small firms and examines the main arguments for and against government support for small firms in general and for tax benefits targeted at such firms in particular. It addresses the tax preferences that can be claimed only by small firms in a wide range of industries and excludes those targeted at small firms in specific industries, such as the special deduction for small life insurance companies under Section 806 of the federal tax code. The small business tax preferences discussed here reflect the changes in the tax code under P.L. 115-97. The following small business tax benefits are examined here: Expensing allowance for machinery and equipment under Section 179 of the Internal Revenue Code; Cash-basis accounting under Section 446; Tax credit for a portion of the costs incurred by small firms in establishing pension funds for employees under Section 45E; Tax credit for costs incurred by small firms in complying with the Americans with Disabilities Act under Section 44; Full exclusion from the capital gains tax on the sale or exchange of qualified small business stock under Section 1202; Exemption from the limitation on the deduction for business interest expenses under Section 163; Tax credit for small firms that offer qualified health insurance coverage to employees under Section 45R; Simplified dollar-value last-in-last-out accounting under Section 474; Deduction for and amortization of business start-up expenses under Section 195; Ordinary income treatment of losses on the sale of certain small business stock under Section 1244; Treating losses on the sale of Small Business Investment Company stock as ordinary losses under Section 1242; Exemption from the uniform capitalization rule under Section 263A; and Use of research tax credit to reduce payroll tax for certain small firms under Section 41. While available information does not allow for an estimate of the federal revenue cost of the small business tax preferences examined here, a recent estimate by the Joint Committee on Taxation suggests that the cost might exceed $17 billion in FY2018. Tax preferences for small businesses raise several policy issues. For some, a key question is whether they can be justified on economic grounds. In the absence of such a justification, small business tax benefits, while promoting the survival and growth of firms that can take advantage of them, may cause more economic harm than good by distorting the allocation of domestic economic resources. |
Congress has expressed significant, ongoing interest in increasing the availability of broadband services throughout the nation, both in expanding the geographic availability of such services (e.g., into rural as well as more urban areas), as well as expanding the service choices available to consumers (e.g, promoting additional service options at reasonable prices). The telephone, cable, and satellite industries, and more recently the electric utilities, all provide broadband services to consumers. Electric utilities have long had the ability to send communications over their powerlines through what is called powerline communications (PLC) technology, but that capability was used primarily to maintain the operability of the power grid—remote monitoring of the grid and other management functions. It was not offered as a commercial product because of technical limitations and regulatory limitations under the 1935 Public Utility Holding Company Act (PUHCA). Specifically, regarding regulatory limitations, PUHCA prohibited electric utilities from entering the retail telecommunications market without all of their operations, including the telecommunications component, being regulated by the Securities and Exchange Commission under PUHCA. However, in 1996, driven by the elimination under the Telecommunications Act of the PUHCA limitations and the increasing demand for broadband services, electric utilities began exploring ways to turn PLC into a commercially viable, consumer service—Broadband over Powerlines (BPL). Many electric companies are now in the process of upgrading their transmission and distribution systems to provide BPL. This technology has the potential to play a significant role in increasing the competitive landscape of the electric utility and telecommunications industry, as well as making broadband available to more Americans than ever before. BPL, however, like any technology, has its advantages and disadvantages. For example, BPL, in general, is less expensive to deploy than the cable and telephone companies' broadband offerings because it does not require upgrades to the actual electric grid and is not limited by certain technical constraints of its competitors. Specifically, the telephone companies' broadband service, digital subscriber line (DSL), is limited to consumers within 18,000 feet of a central office unless expensive remote equipment is placed close to the customer. Cable companies, while not limited by the same distance restrictions as the telephone companies, still must upgrade their cable plant as well as the equipment at their "head end" to provide cable modem service. Finally, Internet service delivered via satellite is still primarily a downstream-only service, with a dial-up connection required to send data to the Internet. However, critics of BPL have expressed concern that it will interfere with licensed radio spectrum such as amateur radio, government, and emergency response frequencies. Companies both in the United States and abroad have pilot tested BPL and many are now deploying it commercially. For example, in 2004, Manassas, VA, began testing BPL service and became the first U.S. community with a commercial BPL offering. The service is now being used by roughly 1,000 of the 12,500 households in the Manassas area. However, in Manassas as well as in other areas where BPL is being deployed, there have been some concerns and difficulties. For example, amateur radio operators have stated their concern that BPL will interfere with their radio signals. Efforts are being made by industry and government to address these concerns while still continuing BPL deployment. In addition to providing new choices for consumers and increased competition in the broadband market, BPL can provide other benefits, both to the electric utilities and to others. As tests and commercial deployments continue, the electric utilities can capitalize on their existing relationships with consumers and the ubiquity of their networks. Also, BPL can be sold either as a retail service under the electric utility's brand or as a wholesale service to third-party ISPs, offering smaller broadband providers another wire to the customer—and electric utilities have expressed interest in providing such open access on a wholesale basis. Concerns among electric utilities and investors about BPL deployment do remain, however. Although the pilot tests and limited commercial deployments have thus far proven successful, the viability of large-scale commercial implementation remains unproven. Also, while name recognition will help the electric utilities as they roll out their service, there is also concern that they may have an unfair competitive advantage over smaller, less established providers. In this case, however, this may not be a significant concern because of the size of the established broadband providers, the telephone and cable companies. Finally, although BPL is likely to be deployed further out into rural areas than either cable or DSL, it remains to be seen if BPL is as economical to deploy in those areas as policymakers and rural consumers hope. The FCC opened a rulemaking proceeding on the technical issues related to BPL deployment in February 2004 and adopted a Report and Order on the proceeding in October 2004 (see "Regulatory Activity—Federal Communications Commission," page 6). Congress may wish to monitor how the FCC implements the rules that will guide BPL development and deployment, as well as monitor more general issues surrounding BPL, such as industry and societal issues, regulatory and industry governance issues, and technical issues. These three categories of issues are discussed in detail at the end of this report (see " Issues for Congress "). In addition to marketplace competitors and consumers, the key stakeholders in this issue are the BPL industry, amateur radio operators (represented primarily by the American Radio Relay League (ARRL)), and various government entities. In favor of BPL deployment and the FCC's rules is the BPL industry: the electric power companies, Internet service providers (ISP), BPL equipment manufacturers, BPL system solutions companies (such as Main.net), and the trade associations representing those companies. Trade associations involved include the Edison Electric Institute, the Powerline Communications Association (PLCA), the PLC Forum, United Power Line Council (UPLC), and the United Telecom Council (UTC). These groups have a financial stake in bringing BPL successfully to market and are eager to enter the broadband business. Amateur radio users have expressed opposition to BPL deployment because of concerns over its potential negative impact—specifically, interference—on amateur radio frequencies by BPL emissions. Although some of its concerns had been addressed in the BPL Report and Order, the ARRL remained concerned about the impact of widespread deployment of these systems. In addition to the abovementioned groups, several government entities have an interest in how BPL is deployed. Specifically, local and regional emergency responders, the Department of Defense, the Federal Emergency Management Agency (now part of the Department of Homeland Security), and the National Telecommunications and Information Administration (NTIA) within the Department of Commerce have expressed both concern and support for BPL. Although these groups express concerns similar to those of ARRL—namely that BPL could potentially interfere with emergency communications and steps need to be taken to ensure noninterference—they also express support for BPL because they believe it will contribute to a more secure and better-managed electric transmission and distribution network. The NTIA expresses support for BPL because of its potential to further close the "digital divide," one of its major goals. Further, because of the services that can be offered over BPL (e.g., voice over Internet Protocol [VoIP]), the law enforcement community is also concerned about the regulatory treatment of BPL—specifically, whether BPL services should be subject to federal wiretap requirements set forth in the Communications Assistance for Law Enforcement Act (CALEA). The FCC has the largest role in how BPL will be deployed. It not only is the regulatory agency that developed the rules governing BPL, it also has a statutory obligation under Section 706 of the Telecommunications Act of 1996 to "encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans." The FCC, therefore, will maintain a significant influence on how the market for BPL service develops. The FCC has been investigating BPL since 2003 and adopted rules regulating BPL systems in October 2004; it is also addressing BPL-related issues in its CALEA and IP-Enabled Services Proceedings. In April 2003, the FCC issued a Notice of Inquiry (NOI), Inquiry Regarding Carrier Current Systems, including Broadband over Powerline Systems , to gather comments concerning whether it should amend its Part 15 Rules "to facilitate the deployment of Access BPL while ensuring that licensed services continue to be protected." The FCC received over five thousand initial and reply comments in response to its NOI during July and August 2003. These comments were discussed at length in the FCC's February 2004 Notice of Proposed Rulemaking (NPRM). The FCC adopted its Report and Order (R&O or "Order") in this proceeding in October 2004. Specifically, the Order— set forth rules imposing new technical requirements on BPL devices, such as the capability to avoid using any specific frequency and to remotely adjust or shut down any unit; established "excluded frequency bands" within which BPL must avoid operating entirely to protect aeronautical and aircraft receivers communications; and establishes "exclusion zones" in locations close to sensitive operations, such as coast guard or radio astronomy stations, within which BPL must avoid operating on certain frequencies; established consultation requirements with public safety agencies, federal government sensitive stations, and aeronautical stations; established a publicly available BPL notification database to facilitate an organized approach to identification and resolution of harmful interference ; changed the equipment authorization for BPL systems from verification to certification; and improved measurement procedures for all equipment that use RF energy to communicate over power lines. After the Order was released, the amateur radio community and the BPL industry filed a total of 17 petitions for reconsideration. The FCC released a Public Notice on February 28, 2005, announcing the petitions. Oppositions to petitions were due on March 23, 2005, and replies to the oppositions were due April 4, 2005. On August 3, 2006, the FCC adopted a Memorandum Opinion and Order (MO&O) in this matter. Specifically, the MO&O— affirmed its rules regarding emission limits for BPL, including its determination that the reduction of emissions to 20 dB below the normal Part 15 emissions limits will constitute adequate interference protection for mobile operations; denied the request by the amateur radio community to prohibit BPL operations pending further study and to exclude BPL from frequencies used for amateur radio operations; denied the request by the television industry to exclude BPL from frequencies above 50 MHz; affirmed the July 7, 2006 deadline for requiring certification for any equipment manufactured, imported or installed on BPL systems, with the proviso that uncertified equipment already in inventory can be used for replacing defective units or to supplement equipment on existing systems for one year within areas already in operation; affirmed the requirement that information regarding BPL deployment must be provided in a public database at least 30 days prior to the deployment of that equipment; adopted changes regarding protection of radio astronomy stations by requiring a new exclusion zone and amending consultation requirements for these stations; adopted changes to provide for continuing protection for aeronautical stations that are relocated denied the request by the aeronautical industry to exclude BPL operating on low-voltage lines from frequencies reserved for certain aeronautical operations; and denied the request by the gas and petroleum industry to be considered as public safety entities. On October 10, 2006, the ARRL notified the U.S. Court of Appeals for the D.C. Circuit that it would appeal certain aspects of both the FCC's October 2004 R&O and August 2006 MO&O. The court issued its decision in the matter on April 25, 2008, finding that during its rulemaking process, the FCC relied on five scientific studies that measured BPL devices' radio emissions, in an attempt to determine interference risks with other users of the spectrum. Although the agency released those studies during a public comment process required by federal law, it redacted portions of them, arguing they were just "internal" communications that didn't influence its deliberations. But after reviewing the unredacted studies in private, the majority of the judges agreed with the ARRL that it was against federal administrative procedure law to keep those portions under wraps, particularly since they could call the FCC's rules into question. The court also said the FCC had not offered a "reasoned explanation" for why it rejected ARRL-submitted data that could have influenced its interference estimates and potentially reshaped its rules. The judges opted to send the rules back to the FCC with instructions to clarify those points and publicize its studies more fully, although they did not overturn the rules themselves. The court did not side entirely with the ARRL on other key points related to the substance of the rules. For instance, the ARRL had argued that the FCC was departing from longstanding agency precedent by refusing to require that BPL operations found to cause "harmful interference" be shut down immediately—the so-called "cease-operations" rule. The court wasn't persuaded by that argument, saying the FCC had explained adequately that there isn't ample evidence that "harmful interference" is a real risk. On August 5, 2005, the FCC ruled that providers of certain broadband and interconnected VoIP services must accommodate law enforcement wiretaps. Such a definition includes the type of service that would be provided via BPL. The FCC found that these services can be considered replacements for conventional telecommunications services currently subject to wiretap rules, including circuit-switched voice service and dial-up Internet access. As such, the new services are covered by CALEA, which requires the FCC to preserve the ability of law enforcement to conduct wiretaps as technology evolves. The rules are limited to facilities-based broadband Internet access service providers and VoIP providers that offer services permitting users to receive calls from, and place calls to, the public switched telephone network. On March 10, 2004, the FCC released an NPRM, In the Matter of IP-Enabled Services . This rulemaking, still under consideration at the FCC, will likely affect BPL in that it will determine how the services that will be offered via BPL will be regulated. Comments and replies to the NPRM were due May 28 and June 28, 2004, respectively. On June 3, 2005, the FCC released an order on Enhanced 911 services over IP-enabled services. In this order, the Commission adopted rules requiring providers of interconnected voice over Internet Protocol (VoIP) service to supply enhanced 911 (E911) capabilities to their customers. The characteristics of interconnected VoIP services have posed challenges for 911/E911, and threaten to compromise public safety. Thus, the FCC required providers of interconnected VoIP service to provide E911 services to all of their customers as a standard feature of the service, rather than as an optional enhancement. The Commission further required them to provide E911 from wherever the customer is using the service, whether at home or away from home. The FCC had no findings regarding whether a VoIP service that is interconnected with the public switched telephone network should be classified as a telecommunications service or an information service. On March 8, 2005, the FCC's Wireless Broadband Access Task Force released its report to the Commission containing its findings and recommendations. The report highlights how some BPL providers are using Wi-Fi (i.e., wireless networking) to complement their service offerings, either employing Wi-Fi access points within the BPL network to transmit information from one power line to another or to use wireless networking technologies to reach from utility poles to individual homes. Comments to the report were due April 22, 2005, and replies were due May 23, 2005. No further action has been taken at this time. In December 2005, the UPLC filed a petition for declaratory ruling requesting that the FCC find that BPL-enabled Internet access service is an information service, rather than a telecommunications service. In response, in October 2006, the FCC issued an MO&O affirming the UPLC's petition, which placed BPL-enabled Internet access service on an equal regulatory footing with other broadband services, such as cable modem service and DSL Internet access service. In April 2004, the NTIA released Phase 1 of a study on the potential for BPL to interfere with radio frequencies used by Government users for homeland security, defense, and emergency response. In that report, initiated by NTIA in response to the FCC's NOI, the NTIA described federal government usage of the 1.7-80 MHz spectrum, identified associated interference concerns, and outlined the studies it planned to conduct to address those concerns. The report (1) contains findings on interference risks to radio reception in the immediate vicinity of overhead power lines used by BPL systems (Access BPL only); (2) suggests means for reducing these risks, and (3) identifies techniques for mitigating interference should it occur. One of the most important findings of the report was that existing Part 15 compliance measurement procedures for BPL tended to significantly underestimate BPL peak field strength. Such underestimation increases the risk of interference. According the report, as currently applied to BPL systems, Part 15 measurement guidelines do not address the unique characteristics of BPL emissions. Overall, the report concludes that BPL could interfere with licensed radio spectrum, even though under the current Part 15 testing parameters, emission levels would be within the limits. Therefore, it was recommended that the compliance measurement procedures be refined. The NTIA stated, however, that refining the compliance measurement procedures should not impede deployment of BPL because the technology can reportedly be deployed within a more narrow range of frequencies that will not cause interference. For these reasons, the NTIA did not recommend that the FCC relax Part 15 field strength limits for BPL systems. Instead, NTIA recommended new measurement provisions derived from existing guidelines, including using measurement antenna heights near the height of power lines; measuring at a uniform distance of 10 meters from the BPL device and power lines; and measuring using a calibrated rod antenna or a loop antenna in connection with appropriate factors relating magnetic and electric field strength levels at frequencies below 30 MHz. Overall, NTIA supported the continued development and deployment of BPL and suggested several means by which BPL interference could be prevented or eliminated. For example, mandatory registration of certain aspects of BPL systems would give radio operators the information needed to advise BPL operators of any anticipated interference problems or suspected actual interference. NTIA also recommended that BPL developers consider, for example, routinely using the minimum output power needed from each BPL device; avoiding locally used radio frequencies; using filters and terminations to extinguish BPL signals on power lines where they are not needed; and carefully selecting BPL signal frequencies to decrease radiation. Issues potentially of interest to Congress may be divided into three categories. Industry and societal issues, such as the impact of BPL on competition in broadband services, and the potential for BPL to reach previously unserved and underserved populations. Larger regulatory and industry governance issues, such as how the regulatory classification of BPL might affect other FCC regulations and proceedings (e.g., the appropriate regulatory classification of IP-based services) and electric utility regulations (e.g., reliability mandates, Federal Energy Regulatory Commission (FERC) regulations, and Public Utility Holding Company Act (PUHCA) exemptions). Technical issues, such as how BPL should be implemented to minimize interference with other services (e.g., amateur radio frequencies) and what effect BPL technology may have on reliability and security of the transmission and distribution systems and homeland security goals (i.e., BPL may result in benefits as well as risks). Each issue is discussed below. Since the passage of the 1996 Telecommunications Act, Congress has sought to increase both competition between broadband service providers, as well as the availability and adoption of broadband services. Although the current competitive environment for broadband service could be considered fairly robust, with significant competition between cable and DSL providers, both policymakers and consumers alike would likely welcome a third wide-spread, facilities-based option for receiving that service (satellite broadband service is not widely available as it usually requires a dial-up "uplink" to the Internet). BPL could provide that opportunity for the "third wire" to the home. While further increasing consumer choice is a goal of both Congress and the FCC, there are still consumers who have no options or perhaps only one option for receiving broadband service. Some of those consumers are likely part of those populations that are traditionally underserved, (e.g., rural residents, low-income consumers) and for them, BPL may also provide at least a partial solution. BPL, not being limited, technically, by distance and not requiring upgrades to the electric lines themselves, is significantly easier to deploy to what might be considered by cable and DSL providers to be "undesirable" areas. Of course, cost and potential profitability are still issues in those areas and there will always be areas where deployment is simply not realistic either technologically or economically, or both. Congress may wish to continue monitoring how the FCC balances ensuring that BPL, as a new technology, is given every opportunity to reach the market, while also ensuring that it is not given an unfair regulatory advantage over other similar services. In the coming months, the electric utilities will roll out their commercial BPL offerings. As electric utilities deploy their commercial systems, the FCC's role in ensuring that the utilities are given incentives for wide BPL deployment, while also considering additional policy questions that arise, will be watched to assess the success of both the FCC and of BPL. Broadband over powerlines is just the latest in a growing list of technologies and services that challenge the current structure of the FCC and the statutory and regulatory "stove pipes" required by current law. While BPL is a technology for the delivery of Internet service, it challenges traditional and embedded thinking and paradigms about telecommunications and information services because it does not fit neatly into an existing category of service. If Congress decides to amend the country's current communications laws, it may consider the impact that such new technologies are having on the way lawmakers and regulators have traditionally looked at underlying transmission technologies. With respect to IP-enabled services that would be provided over BPL, the one with the most legal and regulatory impact may be IP-based voice service (voice over Internet Protocol or VoIP). VoIP is different from traditional telephone service in that it does not employ a single, dedicated path between the calling parties (called circuit switching). Instead, VoIP "translates" analog voice into digital "packets" and transmits those packets along multiple paths (called packet switching) and reassembles the packets at the receiving end. This is the same format, or protocol, used to transmit email, instant messages, video, and other data via the Internet. Thus, voice is no longer a separate service—voice data looks just like every other kind of data. Until recently, VoIP has been provided by companies that are in one way or another "communications providers," whether that be voice, data, or video communication. However, electricity companies have not generally been in the business of providing resale communications. This blurring of lines between voice and other types of data has already raised issues such as law enforcement's ability to conduct wiretaps and state versus federal jurisdiction over such calls (discussed earlier in this report); intercarrier compensation for call termination on the public switched network; and universal service. These issues will likely become even more complex with the entry of electric utilities into the communications business since they will be offering IP-enabled services, both directly to the consumer as well as to third-party vendors (i.e., Internet service providers). As the market develops a tension may develop over whether these new entrants should be required to adhere to existing requirements, or perhaps how existing requirements should be changed to better reflect the current technological and competitive environment. The FCC focused on technical issues in its BPL proceedings. These issues have included how BPL should be implemented to minimize interference with other services (e.g., amateur radio frequencies) and what effect BPL technology could have on reliability and security of the transmission and distribution systems (i.e., BPL may provide benefits as well as potentially create risks). Although the FCC's regulations mandate the technical standards under which BPL will be deployed, those standards will very likely have an impact on the previous two categories of issues and, therefore, Congress may have an interest in monitoring the development of these technical issues as well. Some stakeholders have continued to express varying degrees of concern over the potential of BPL to disrupt licensed radio services, including amateur, public safety, and emergency response frequencies. The FCC continues to address those concerns in its BPL proceedings. Other stakeholders stated during the proceeding that BPL upgrades by the electric utilities have the potential to enhance the security and reliability of the transmission and distribution networks. For example, BPL technology can provide electricity outage detection, home energy management, distribution transformer overload analysis, demand side management, supervisory control and data acquisition (SCADA) data transmission, safety checks for isolated circuits, power quality monitoring, phase loss detection, line testing, and outage localization, among other things. However, while the first four functions simply provide additional operational monitoring and control abilities, the fact that enhanced data may be supplied to the SCADA system via BPL could be of concern to electric utility companies and homeland/infrastructure security officials. The FCC did not address this issue in its rulemaking proceeding. However, some parties that did not participate in the rulemaking have expressed concern that BPL would make the transmission and distribution system vulnerable to individuals or groups trying to steal or corrupt consumers' Internet data or the utilities' monitoring data, or even to terrorists trying to cause a large-scale disruption of the nation's electricity supply. If sensitive operational information, as well as consumers' personal data, is being sent over the lines the physical security of those lines and the integrity of the data on them become a serious concern. Although BPL may offer significant social and competitive benefits, the possible negative impact that BPL may have on reliability and security may be a more important factor in BPL deployment. In January 2007, Representative Mike Ross introduced H.R. 462 , the Emergency Amateur Radio Interference Protection Act. This bill would require that within 90 days after the date of enactment, the FCC would be required to conduct "a study of the interference potential of systems for the transmission of broadband Internet services over power lines." The study would examine— the variation of field strength of BPL service signals with distance from overhead power lines, and a technical justification for the use of any particular distance extrapolation factor; the depth of adaptive, or 'notch', filtering for attenuating normally permitted BPL service radiated emission levels that would be necessary and sufficient to protect the reliability of mobile radio communications; a technical justification for the permitted, radiated emission levels of BPL signals relative to ambient levels of man-made noise from other sources; and options for new or improved rules related to the transmission of BPL service that, if implemented, may prevent harmful interference to public safety and other radio communications systems. Upon completion, the FCC would be required to submit the study report to the House Committee on Energy and Commerce and the Senate Committee on Commerce, Science, and Transportation. This bill was referred to the House Committee on Energy and Commerce. No further action has been taken. In June 2007, Senator Mark Pryor introduced S. 1629 , which contains the same study requirements as H.R. 462 . That bill was referred to the Senate Committee on Commerce, Science, and Transportation. On August 4, 2007, the House of Representatives passed H.R. 3221 , the New Direction for Energy Independence, National Security, and Consumer Protection Act. If signed into law, Section 9113(a)(8) would require an assessment by a newly established Grid Modernization Commission to determine, biannually, the progress being made toward modernizing the electric system, including an "assessment of ancillary benefits to other economic sectors or activities beyond the electricity sector, such as potential broadband service over power lines." CRS Report RL33542, Broadband Internet Regulation and Access: Background and Issues , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32728, Electric Utility Regulatory Reform: Issues for the 109 th Congress , by [author name scrubbed]. American Public Power Association, http://www.appanet.org American Radio Relay League, http://www.arrl.org Edison Electric Institute, http://www.eei.org Federal Communications Commission, http://www.fcc.gov/ FCC NOI: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-03-100A1.pdf FCC NPRM: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-04-29A1.pdf National Telecommunications and Information Administration, http://www.ntia.doc.gov/ United Power Line Council, http://www.uplc.org United Telecom Council, http://www.utc.org "How Broadband over Powerlines Works," Robert Valdes, http://computer.howstuffworks.com/bpl.htm/printable (undated). | Congress has expressed significant interest in increasing the availability of broadband services throughout the nation. Broadband over powerlines (BPL) has the potential to play a significant role in increasing the competitive landscape of the communications industry as well as extend the reach of broadband to a greater number of Americans. BPL, like any technology, has its advantages and disadvantages. Proponents state that BPL is less expensive to deploy than the cable and telephone companies' broadband offerings; it does not require upgrades to the actual electric grid; and, it is not limited by some technical constraints of its competitors. However, critics are concerned that BPL interferes with licensed radio frequencies used for amateur radio, government, and emergency response. In October 2004 and October 2006, the Federal Communications Commission (FCC) adopted a Report and Order (R&O) (FCC 04-245) and a Memorandum Opinion and Order (MO&O) (FCC 06-113) on BPL issues. In May 2007, the American Radio Relay League (ARRL) petitioned the U.S. Court of Appeals for the DC Circuit to review the FCC's October 2004 R&O and 2006 MO&O. In its brief, the ARRL contends, among other things, that the FCC's actions in adopting rules to govern unlicensed BPL systems fundamentally alter the longstanding rights of radio spectrum licensees, including amateur radio operators. In April 2008, the court remanded the rules to the Commission. In January 2007, Representative Mike Ross introduced H.R. 462, the Emergency Amateur Radio Interference Protection Act, which would require the FCC to conduct a study on the "interference caused by broadband Internet transmission over powerlines." The bill was referred to the Committee on Energy and Commerce Subcommittee on Telecommunications and the Internet on February 2, 2007; no further action has been taken. In June 2007, Senator Mark Pryor introduced S. 1629, which contains the same study requirements as H.R. 462. That bill was referred to the Senate Committee on Commerce, Science, and Transportation. In August 2007, the House of Representatives passed H.R. 3221, the New Direction for Energy Independence, National Security, and Consumer Protection Act. If signed into law, Section 9113(a)(8) would require an assessment by a newly established Grid Modernization Commission to determine, biannually, the progress being made toward modernizing the electric system, including an "assessment of ancillary benefits to other economic sectors or activities beyond the electricity sector, such as potential broadband service over power lines." In October 2007, the National Telecommunications and Information Administration (NTIA) published its Phase II BPL Study Report. The NTIA concluded that the FCC's BPL rules, measurement guidelines, and special protection provisions will limit the interference risks for federal radiocommunication systems. |
The Department of Health and Human Services (HHS) has designated eight of its 11 operating divisions (agencies) as components of the U.S. Public Health Service (PHS). The PHS agencies are (1) the Agency for Healthcare Research and Quality (AHRQ), (2) the Agency for Toxic Substances and Disease Registry (ATSDR), (3) the Centers for Disease Control and Prevention (CDC), (4) the Food and Drug Administration (FDA), (5) the Health Resources and Services Administration (HRSA), (6) the Indian Health Service (IHS), (7) the National Institutes of Health (NIH), and (8) the Substance Abuse and Mental Health Services Administration (SAMHSA). ATSDR is administered by the Director of the CDC and is included in the discussion of CDC in this report. The programs and activities of five of the PHS agencies—AHRQ, CDC, HRSA, NIH, and SAMHSA—are mostly authorized under the Public Health Service Act (PHSA). While some of FDA's regulatory activities are also authorized under the PHSA, the agency and its programs largely derive their statutory authority from the Federal Food, Drug, and Cosmetic Act (FFDCA). Many of the IHS programs and services are authorized by the Indian Health Care Improvement Act, while ATSDR was created by the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, the "Superfund" law). The missions and key functions of the PHS agencies vary. Two of them are primarily research agencies. NIH conducts and supports basic, clinical, and translational medical research, and AHRQ conducts and supports research on the quality and effectiveness of health care services and systems. Three agencies—IHS, HRSA, and SAMHSA—provide health care services or support systems that do so. IHS supports a health care delivery system for American Indians and Alaska Natives. Health services are provided through tribally contracted and operated health programs, and through services purchased from private providers. HRSA funds programs and systems to improve access to health care among low-income populations, pregnant women and children, persons living with HIV/AIDS, rural and frontier populations, and others who are medically underserved. SAMHSA funds community-based mental health and substance abuse prevention and treatment services. CDC and ATSDR are public health agencies that develop and support public health prevention programs and systems, such as disease surveillance and provider education programs, for a full spectrum of acute and chronic diseases and injuries, including public health emergencies and bioterrorism. The PHS agencies have limited, if any, regulatory responsibilities with the exception of FDA; its mission is largely regulatory, ensuring the safety of foods and the safety and effectiveness of drugs, vaccines, medical devices, and other health products. AHRQ, CDC, HRSA, NIH, and SAMHSA receive most of their funding through the annual appropriations act for the Departments of Labor, Health and Human Services, Education, and Related Agencies (Labor-HHS-ED). Funding for ATSDR and IHS is provided through the Interior, Environment, and Related Agencies (Interior/Environment) appropriations act. FDA receives its funding through the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies (Agriculture) appropriations act. For each PHS agency, this report provides a brief overview of the agency's statutory authority and principal activities and includes a table summarizing its funding for FY2010 and FY2011, as well as the FY2012 budget request. The FY2010 amounts reflect the funding provided in the agency's FY2010 appropriations act, with subsequent minor adjustments. The FY2011 amounts are based on the funding provided by the full-year continuing resolution (CR)—the Department of Defense and Full-Year Continuing Appropriations Act, 2011—that was enacted on April 15, 2011, marking the completion of the FY2011 regular appropriations cycle more than six months after the start of the fiscal year. Both the FY2010 and FY2011 amounts in the funding tables in this report are taken from each agency's FY2011 operating plan. Also included in each table is a column showing the change in funding between FY2011 and FY2010. The FY2012 amounts represent the funding levels requested in the President's FY2012 budget, which are summarized in the HHS FY2012 Budget in Brief. The funding tables show the agencies' discretionary budget authority and program level for each fiscal year. Discretionary budget authority represents the funding provided in the annual Labor-HHS-ED or other applicable appropriations acts. Program level indicates the total amount of funding available to the agency, which includes discretionary budget authority plus additional funding from other sources. These include (1) user fees; (2) PHS evaluation set-side funds (see discussion below under "PHS Program Evaluation Set-Aside"); and (3) funding provided in laws other than annual appropriations acts, notably the health reform law (see discussion below under "PPACA Funding"). Each funding table shows the amounts for all the major budget items, which are summed to give the agency's total program level. At the bottom of the table, any user fees, set-aside funds, PPACA funds, and other non-discretionary funds are then subtracted from the program level to show the agency's discretionary budget authority. Most tables include one or more non-add entries either to highlight the funding for specific programs within a larger budget line or, in some instances, to indicate the allocation of user fees or PPACA funds. Each table is also accompanied by a brief discussion of the changes (mostly reductions) in the agency's budget for FY2011, followed by an overview of the President's FY2012 budget request for the agency. For a summary of PHS agency funding for FY2011, see the text box below ("PHS Agency FY2011 Funding At-a-Glance"). On June 16, 2011, the House passed the FY2012 Agriculture appropriations act ( H.R. 2112 ), which includes funding for FDA. Details of the agency's funding for FY2012, as recommended by the House, are included in the FDA section below. This report will be updated once the House Appropriations Committee completes its work on the FY2012 Labor-HHS-ED and Interior/Environment appropriations acts, which fund the other PHS agencies. Four PHS agencies—CDC, HRSA, NIH, and SAMHSA—are subject to a budget tap called the PHS Program Evaluation Set-Aside (set-aside). PHSA Section 241 authorizes the Secretary to use a portion of eligible appropriations to assess the effectiveness of federal health programs and to identify ways to improve them. The set-aside has the effect of redistributing appropriated funds for specific purposes among the HHS agencies. Although the PHSA limits the set-aside to no more than 1% of program appropriations, in recent years the annual Labor-HHS-ED appropriations act has specified a higher maximum amount of funds that may be set aside for evaluation and other uses. The FY2010 Labor-HHS-ED appropriations act capped the set-aside at 2.5%. The FY2011 full-year CR act for FY2011 adopted the same value by reference. For FY2012, the President's budget proposes to increase the set-aside to 3.2%. Following passage of the annual appropriations act, the HHS Budget Office calculates the amount of set-aside funds to be tapped from donor appropriations. It then makes allocations to recipient agencies and programs, including several offices within the Office of the Secretary, first taking into account the amounts that have been specified in the appropriations act. The set-aside funds that an agency receives are not included in its discretionary budget authority but are counted towards the overall program level. AHRQ is almost entirely funded by evaluation set-aside funds (see Table 1 ). By convention, PHS agency budget tables show only the amount of set-aside funds received. They do not subtract the amount of the evaluation tap from donor agencies' appropriations. The Patient Protection and Affordable Care Act (PPACA), as amended, includes numerous mandatory appropriations that together provide billions of dollars to support new and existing grant programs and other activities within HHS. Multiple PPACA provisions appropriated funds for specified programs and activities within the PHS agencies. These amounts are itemized and included as part of each agency's program level in the funding tables below. Each provision is identified by its PPACA section number. In addition, PPACA established three multi-billion dollar trust funds to support programs and activities within the PHS agencies. The Community Health Center Fund (CHCF) will provide a total of $11 billion in supplemental funds over the five-year period FY2011 through FY2015 for HRSA's health centers program and the National Health Service Corps. Note that PPACA also included a separate $1.5 billion appropriation for health center construction and renovation. The Patient-Centered Outcomes Research Trust Fund (PCORTF) will support comparative effectiveness research over the 10-year period FY2010 through FY2019 with a mixture of appropriations and transfers from the Medicare Part A and Part B trust funds. A portion of the PCORTF funding is allocated for AHRQ. The Prevention and Public Health Fund (PPHF), for which PPACA provides an annual appropriation in perpetuity, is intended to support prevention, wellness, and other public health programs and activities authorized under the PHSA. Transfers from all three PPACA trust funds are also itemized and included as part of each agency's program level in the funding tables below. Two separate tables summarizing the allocation of CHCF and PPHF funds for FY2010, FY2011, and FY2012 and additional information about the funds are provided in Appendix A and Appendix B , respectively. AHRQ is the federal agency charged with supporting research designed to improve the quality of health care, increase the efficiency of its delivery, and broaden access to the most essential health services. To accomplish these goals, the agency supports research aimed at reducing the costs of care, promoting patient safety, and increasing the effectiveness of health care services. AHRQ has evolved from a succession of agencies concerned with fostering health services research and health care technology assessment. The Omnibus Budget Reconciliation Act of 1989 ( P.L. 101-239 ) added a new PHSA Title IX and established the Agency for Health Care Policy and Research (AHCPR), a successor agency to the former National Center for Health Services Research and Health Care Technology Assessment (NCHSR). AHCPR was reauthorized in 1992 ( P.L. 102-410 ). On December 6, 1999, President Clinton signed the Healthcare Research and Quality Act of 1999 ( P.L. 106-129 ), which renamed AHCPR as the Agency for Healthcare Research and Quality (AHRQ) and reauthorized it through FY2005. Table 1 presents funding levels for AHRQ programs for FY2010 through the FY2012 request. The AHRQ budget is organized according to program areas, including (1) Healthcare Costs, Quality and Outcomes (HCQO) Research; (2) the Medical Expenditure Panel Surveys (MEPS); and (3) program support. HCQO research focuses on six priority areas, which are summarized in the text box below. Generally, AHRQ gets its entire budget from the PHS evaluation set-aside. The set-aside funds are included in the agency's overall program level amount but are not counted as appropriated funds; thus, the agency's discretionary budget authority shows up as zero in the table. Additional funds are provided from the Patient-Centered Outcomes Research Trust Fund (PCORTF) and the Prevention and Public Health Fund (PPHF), both established by PPACA and described earlier in the introduction to this report. The FY2011 full-year CR ( P.L. 112-10 ) reduces PHS evaluation set-aside funding for AHRQ by $25 million, from $397 million as provided in FY2010 to $372 million, a 6% reduction. The agency's operating plan specifies that the General Patient Safety Research program is to absorb the entire reduction (see Table 1 ). However, this cut in the agency's funding is partially offset by a $6 million increase in PPHF funds for Prevention/Care Management research, and a transfer of $8 million in PCORTF funds to boost funding for Patient-Centered Health Research. Overall, AHRQ's FY2011 program level is $11 million (3%) below the FY2010 level. The across-the-board 0.2% rescission established under P.L. 112-10 does not affect funding for AHRQ because the agency receives no discretionary appropriation. The President's FY2012 budget request would reduce AHRQ's total program level by $13 million (3%) from the FY2010 enacted level of $403 million to $390 million (see Table 1 ). The total proposed FY2012 program level includes $366 million in evaluation set-aside funding and $24 million from PCORTF. Notable changes in program area funding levels include those for Patient-Centered Health Research and General Patient Safety Research. Funding for Patient-Centered Health Research would increase by $25 million from FY2010 levels, with an additional $24 million from the PCORTF. Funding for General Patient Safety Research would decrease by $26 million from the FY2010 level. HHS notes that $25 million of this reduction may be attributed to a one-time investment in medical malpractice liability reform projects. According to the Centers for Disease Control and Prevention (CDC), its mission is "to promote health and quality of life by preventing and controlling disease, injury, and disability." CDC is the nation's principal public health agency, coordinating and supporting a variety of population-based disease and injury control activities. It is organized into a number of centers, institutes, and offices (CIOs), some focused on specific public health challenges (such as injury prevention), others on general public health capabilities (such as surveillance and laboratory services). As noted earlier, the Agency for Toxic Substances and Disease Registry (ATSDR) is administered by the CDC Director. Often CDC's activities are not specifically authorized but are based in broad, permanent authorities in the PHSA. Four CDC operating divisions are explicitly authorized. The National Institute for Occupational Safety and Health (NIOSH) was established in permanent authority in the Occupational Safety and Health Act of 1970. The National Center on Birth Defects and Developmental Disabilities (NCBDDD) was established in PHSA Section 317C by the Children's Health Act of 2000. The National Center for Health Statistics (NCHS) was established in PHSA Section 306 by the Health Services Research, Health Statistics, and Medical Libraries Act of 1974. ATSDR was established in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA, the "Superfund" law). CDC provides financial and technical assistance to state, local, municipal, tribal, and foreign governments, and to academic and non-profit entities. About 75% of the agency's funding is used for these extramural purposes. CDC has few regulatory responsibilities. Most CDC programs are funded through the annual Labor-HHS-ED appropriations act, while ATSDR is funded separately through the Interior/Environment annual appropriations. Table 2 presents funding levels for CDC programs for FY2010 through the FY2012 request. In addition to the annual discretionary appropriations, amounts for each year include three mandatory appropriations: (1) for the Vaccines for Children (VFC) program; (2) for activities to support the Energy Employees Occupational Illness Compensation Program (EEOICPA); and (3) appropriations provided under PPACA. CDC also receives annual funds through the PHS evaluation set-aside and through authorized user fees, and may also receive funding through supplemental appropriations and other transfers. The FY2011 full-year CR provided $5.649 billion in discretionary budget authority for CDC, $740 million (12%) less than the FY2010 amount. However, the CDC/ATSDR program level for FY2011 decreased by only $6 million (less than 1%) from the FY2010 amount. Increases in several mandatory funds and transfers largely offset the decrease in budget authority. Notably, CDC received $611 million in transfers from the PPHF for FY2011, $419 million more than for FY2010. Annual growth in transfers for the Vaccine for Children (VFC) program, as well as a $225 million transfer from the Public Health and Social Services Emergency Fund, also contributed to minimizing the decrease in the FY2011 program level. These components of the CDC budget are displayed in Figure 1 . A number of CDC programs that received funding for FY2010 were not funded for FY2011. Many of these are earmarks that were eliminated pursuant to the FY2011 full-year CR ( P.L. 112-10 ). In addition, CDC did not request funding for buildings and facilities for FY2011, saying that it had sufficient carryover funds from FY2010 to meet its needs for the current fiscal year. CDC did request buildings and facilities funds for FY2012. Finally, the Communities Putting Prevention to Work program, originally funded through the FY2009 stimulus package, was slated for elimination in the agency's FY2012 request. CDC plans to use $145 million in FY2011 funds from the PPHF for Community Transformation Grants (CTG), authorized in PPACA Section 4201, which support objectives similar to those of the Communities Putting Prevention to Work program. CTG awards competitive grants to state, local and tribal governments and non-profit entities to implement evidence-based community preventive health activities. The Administration requested $5.818 billion in CDC budget authority through Labor-HHS-ED appropriations, and $76 million for ATSDR through Interior/Environment appropriations. In addition, the Administration requested $490 million in PHS evaluation set-aside funds, and proposes to transfer $753 million in FY2012 PPHF funds for various CDC activities. The Administration proposed to eliminate the Preventive Health and Health Services block grant, saying that state health departments receive substantial CDC funding through other existing activities. It also proposed to use $705 million of its requested chronic disease funds (including $158 million from the PPHF) to establish a new grant program, the Coordinated Chronic Disease Prevention and Health Promotion Grant Program (CCDPP), by combining the following existing programs: Nutrition, Physical Activity and Obesity; Health Promotion; Heart Disease and Stroke; Diabetes; Cancer Prevention and Control; Prevention Centers; Arthritis and Other Chronic Diseases; and non-HIV/AIDS School Health. The CCDPP would address risk factors for the five chronic diseases (i.e., heart disease, cancer, stroke, diabetes, and arthritis) that have the most impact on death and disability. Tobacco programs would continue to be funded separately. The Administration proposed using $221 million from the PPHF for Community Transformation Grants, discussed earlier. The Administration did not request FY2012 budget authority for NIOSH, recommending instead that the full amount requested—$260 million, which is exclusive of the mandatory EEOICPA funds—be provided through evaluation set-aside funds. FDA regulates the safety of foods; the safety and effectiveness of human drugs, biological products (e.g., vaccines), medical devices, and radiation-emitting products; and the manufacture, marketing, and distribution of tobacco products. The agency also regulates animal drugs and feeds. Seven centers within FDA represent the broad program areas for which the agency has responsibility: the Center for Biologics Evaluation and Research (CBER), the Center for Devices and Radiological Health (CDRH), the Center for Drug Evaluation and Research (CDER), the Center for Food Safety and Applied Nutrition (CFSAN), the Center for Veterinary Medicine (CVM), the National Center for Toxicological Research (NCTR), and the Center for Tobacco Products (CTP). Other offices have agency-wide responsibilities. The Federal Food, Drug, and Cosmetic Act (FFDCA) is the principal source of FDA's statutory authority. FDA is also responsible for administering certain provisions in other laws, most notably the PHSA. Although the FDA's authorizing committees in Congress are the committees with jurisdiction over public health issues—the Senate Committee on Health, Education, Labor, and Pensions, and the House Committee on Energy and Commerce—FDA's assignment within the appropriations committees reflects its origin as part of the Department of Agriculture. The appropriations subcommittees on Agriculture, Rural Development, FDA, and Related Agencies have jurisdiction over FDA's budget, even though the agency has been part of various federal health agencies (HHS and its predecessors) since 1940. FDA's budget has two funding streams: direct appropriations (i.e., discretionary budget authority) and industry user fees. In FDA's annual appropriation, Congress sets both the total amount of appropriated funds and the level of user fees to be collected that year. Appropriated funds are largely for salaries and expenses, with a much smaller amount for buildings and facilities. User fees, which account for 33% of FDA's total FY2011 program level, come from several programs. Major user fee programs provide support for FDA's prescription drug, medical device, and animal drug regulatory activities, whereas smaller amounts come from mammography quality and standards, and export and color certification fees. The agency's tobacco regulatory activities are entirely supported through user fees paid by tobacco product manufacturers and importers. Combining direct appropriations and user fees, FDA had a total FY2010 program level of $3.284 billion and a total FY2011program level of $3.690 billion. Table 3 displays FDA funding levels for FY2010 through the FY2012 request. The FY2011 full-year CR provides FDA with a total program level of $3.690 billion, which includes $2.457 billion in direct appropriations (discretionary budget authority) and $1.233 billion in user fees. Relative to FY2010 funding, these amounts represent a 4% increase in budget authority and a 34% increase in user fees, for an overall 12% increase in total program level. The President requested a total program level of $4.360 billion for FDA. This is 33% more than FY2010, and 18% more than FY2011. The FY2012 request has two components: $2.744 billion in budget authority and $1.616 in user fees. The budget authority is 16% more than FY2010 and 12% more than FY2011. The requested user fees are 75% more than FY2010 and 31% more than FY2011. The requested user fee total for FY2012 includes $1.457 billion for ongoing user fee programs (prescription drugs, medical devices, animal drugs, animal generic drugs, tobacco, mammography screening, and drug export and certification); $99 million for new fee categories authorized in the Food Safety Modernization Act (food export certification, voluntary qualified importer program, food reinspection, and recall); and $60 million for proposed, as yet unauthorized, fees (generic drugs, medical products reinspection, and international couriers). FDA's FY2012 budget requested an increase in funding in the following four key areas: (1) an additional $218 million for the Transforming Food Safety and Nutrition Initiative to implement the Food Safety Modernization Act; (2) an additional $70 million for the Advancing Medical Countermeasures Initiative to develop products to respond to terrorist threats and naturally emerging diseases; (3) an additional $56 million for the Protecting Patients Initiative to work on developing a biosimilar approval pathway, improving the foreign and domestic supply chain of medical products, and other safety activities; and (4) an additional $49 million for the FDA Regulatory Science and Facilities Initiative both to strengthen its core regulatory scientific capacities to foster review of new and emergency technologies, and to ready the CBER-CDER Life Sciences-Biodefense Laboratory complex for FY2014 occupancy. On June 16, 2011, the House passed H.R. 2112 , the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2012. For FY2012, the bill would provide FDA with a total program level of $3.693 billion, comprised of $2.172 billion (59%) in direct appropriations (discretionary budget authority) and $1.520 billion (41%) in user fees. The budget authority would be 12% below FY2011 and 21% below the President's FY2012 request. User fees would be 23% above FY2011 and 6% below the President's request. Overall, the total program level would be a fraction (less than 0.1%) above FY2011 and 15% below the President's FY2012 request. HRSA is the federal agency charged with increasing access to health care for those who are uninsured, underserved, vulnerable, or have special needs. The agency currently funds more than 3,000 grantees, including community-based organizations, colleges and universities, hospitals, state, local and tribal governments, and private entities to support health services projects. In addition, HRSA administers the health centers program, which provides grants to non-profit entities that provide primary care services to people who experience financial, geographic, cultural, or other barriers to health care. More information on HRSA's organization and functions is provided in the text box below. The majority of HRSA's programs are authorized in the PHSA. Title III authorizes the Health Centers Program, National Health Service Corps, Children's Hospitals Graduate Medical Education Program, Organ Transplant and Bone Marrow Programs, Telehealth Program, and State Offices of Rural Health; Title VII authorizes programs for health workforce development; Title VIII authorizes programs for nursing workforce development; and Title XXVI consolidates all Ryan White HIV/AIDS programs. Several of the agency's programs are authorized under the Social Security Act, including the Maternal and Child Health Block Grant; the Maternal, Infant, and Early Childhood Home Visiting Program; and the Rural Health Policy Development programs. Finally, Section 427(e) of the Federal Mine Safety and Health Amendments Act ( P.L. 95-164 ) authorizes the Black Lung Program, which supports clinics that provide services to retired coal miners and others. Table 4 shows funding levels for HRSA's programs and activities for FY2010 through the FY2012 request, including transfers from the CHCF and the PPHF. The table also includes programs that received direct appropriations from PPACA. Program level funding for the agency's major program areas is shown. The FY2011 full-year CR provided HRSA with a total discretionary budget authority of $6.272 billion, a decrease of $1.221 billion (16%) from FY2010. However, this reduction was more than offset by a substantial increase in PPACA funds. Total funding from PPACA and other sources (i.e., user fees, set-aside funds) increased from $575 million in FY2010 to $3.394 billion in FY2011. As a result, HRSA's total program level increased by $1.598 billion (20%), from $8.067 billion in FY2010 to $9.665 billion in FY2011 (see Table 4 ). Discretionary funding for the heath centers program was reduced by $660 million in FY2011. However, the program received a $1 billion transfer from the CHCF, resulting in an overall funding increase of $340 million over FY2010. Similarly, discretionary funding for the NHSC was reduced by $117 million, but the program received a CHCF transfer of $290 million, resulting in a net increase of $174 million over the FY2010 program level. Aside from the NHSC, funding for most of the other health workforce program areas either remained flat or decreased significantly. The Children's Hospital Graduate Medical Education (GME) program had its appropriation reduced by $48 million, while both the Primary Care Training and Enhancement and the Nursing Workforce Development programs saw their supplemental FY2010 PPHF funding eliminated in FY2011. However, GME Payments for Teaching Health Centers, a new program authorized under PPACA, received a $230 million mandatory appropriation for FY2011. Maternal and Child Health programs increased by $144 million overall, due almost entirely to the increase in mandatory funding for the new Maternal, Infant, and Early Childhood Home Visiting Program, which was authorized under PPACA. The Congenital Disabilities program, which received $0.5 million in FY2010, received no funding for FY2011. The $47 million reduction in funding for rural health programs is largely attributable to a ban on earmark spending, which eliminated $45 million in funding for the Denali Project and the Delta Health Initiative. In addition, funding for Rural and Community Access to Emergency Devices (i.e., defibrillators) was reduced by $2 million, or 91%. Funding was not provided for the State Health Access Program (SHAP), as it is anticipated that programs authorized under PPACA will be sufficient to cover the populations formerly served by SHAP. A total of $2.337 billion will be spent on the Ryan White HIV/AIDS program in FY2011, which represents a $21 million (1%) increase over FY2010. The HRSA operating plan includes a total of $885 million for the AIDS Drug Assistance Program (ADAP), which represents a $25 million (3%) increase in funding over FY2010. Finally, as part of the ban on earmarks, funding is eliminated for Congressional Projects (i.e., congressionally directed spending on specified health facilities, including for construction and renovation). The President's FY2012 budget request would provide budget authority of $6.808 billion for HRSA, which represents a decrease of $684 million (9%) from FY2010 and an increase of $537 (9%) million over FY2011 funding. The Administration proposes to eliminate funding for a number of HRSA programs. Several of these cuts are consistent with the final FY2011 budget. They include funding for Congressional Projects, the Denali Commission, and the Delta Health Initiative. The President's budget also would eliminate funding for certain rural health projects, and for the Children's Hospital GME program. The President's budget requests $1.252 billion for health workforce programs. The budget seeks to expand the primary care workforce capacity, team-based health care services, and geriatric education. It would increase funding for certain other health workforce programs and would fund grants to develop Teaching Health Centers and provide GME payments for these centers. The FY2012 budget request proposes a $107 million increase in funding for Maternal and Child Health programs over the FY2011 level, which largely reflects a further increase in PPACA funding for the Maternal, Infant, and Early Childhood Home Visiting Program. The FY2012 request would provide a total of $2.401 billion for the Ryan White HIV/AIDS program, an increase of $65 million over FY2011, including an additional $80 million for ADAP, bringing its total to $940 million, and an additional $5 million for Early Intervention programs. IHS provides health care for approximately 1.9 million eligible American Indians/Alaska Natives through a system of programs and facilities located on or near Indian reservations, and through contractors in certain urban areas. IHS provides services in 35 states either directly or through facilities and programs operated by Indian tribes or tribal organizations through self-determination contracts and self-governance compacts negotiated with IHS. The Snyder Act of 1921 provides general statutory authority for IHS. In addition, specific IHS programs are authorized by two acts: the Indian Sanitation Facilities Act of 1959 and the Indian Health Care Improvement Act (IHCIA). The Indian Sanitation Facilities Act authorizes the PHS to construct sanitation facilities for Indian communities and homes, and IHCIA authorizes programs such as urban health, health professions recruitment, and substance abuse and mental health treatment, and permits IHS to receive reimbursements from the Medicare, Medicaid, and the State Children's Health Insurance Program (CHIP), and from third-party insurers. Unlike most other PHS agencies, the IHS receives its appropriations through the Interior/ Environment appropriations act, not the Labor-HHS-ED appropriations act. Table 5 shows IHS funding for FY2010 through the FY2012 request. The table includes funding under IHS's discretionary budget authority, as well as mandatory appropriations from the Special Diabetes Program for Indians and funding that IHS receives from renting staff quarters and from collections from Medicare, Medicaid, CHIP, and other third-party insurers for services provided at IHS-funded facilities. For FY2011 IHS received an appropriation of $4.069 billion, an increase of $17 million (0.4%) from FY2010. This increase will provide additional funding for hospitals and health clinic services and construction. In general, FY2011 funding for the majority of IHS programs remained constant or was reduced a small amount as required by the 0.2% across-the-board rescission included in P.L. 112-10 . IHS also projects that it will receive $17 million more in collections than the agency received in FY2010, a 2% increase. Overall, therefore, the IHS program level will be $34 million (0.7%) higher than FY2010. The President's FY2012 budget proposes to increase IHS's discretionary budget authority by 12% from the FY2010 level. PPACA requires the FY2012 budget request to include amounts that reflect changes in the costs of health care and in the size of IHS's service population. HHS notes that the increased funding for IHS reflects those requirements. In general, the President's FY2012 budget requests additional funding for IHS's programs. One notable exception is sanitation facility construction, which would receive $16 million (17%) less than in FY2010. HHS notes that this program has funding carried over from the prior fiscal year, which would allow IHS to maintain current activities with the funding level included in the budget request. NIH is the primary agency of the federal government charged with the conduct and support of biomedical and behavioral research. It also has major roles in research training and health information dissemination. The NIH mission is "to seek fundamental knowledge about the nature and behavior of living systems and the application of that knowledge to enhance health, lengthen life, and reduce the burdens of illness and disability." NIH derives its statutory authority from the PHSA. Section 301 grants the Secretary of HHS broad permanent authority to conduct and sponsor research. In addition, Title IV, "National Research Institutes", authorizes in greater detail various activities, functions, and responsibilities of the NIH Director and the 27 institutes and centers (ICs). The annual Labor-HHS-ED appropriations act provides separate appropriations to 24 of the ICs, the Office of the Director (OD), and the Buildings and Facilities (B&F) account. NIH receives additional funds from the Interior/Environment appropriations act and from a mandatory appropriation for diabetes research. Table 6 shows funding for NIH for FY2010 through the FY2012 request. Compared to the funding level originally enacted for FY2010, the FY2011 full-year CR ( P.L. 112-10 ) reduced NIH funding by $50 million in the Buildings and Facilities account, by $210 million taken as a pro rata reduction in all other NIH accounts for ICs and the Office of the Director, and by the 0.2% across-the-board rescission. Overall, total NIH funding in FY2011, at $30.926 billion, is $317 million (1%) lower than FY2010. Most institutes and centers are down by about 1% compared with their FY2010 program levels; the B&F account is 50% lower. For FY2012, the Obama Administration has requested $31.987 billion for NIH, an increase of $745 million (2.4%) over the FY2010 program level and $1.062 billion (3.4%) over FY2011. In FY2012, the agency will focus on implementing a new translational medicine program. NIH is proposing to establish a new center, the National Center for Advancing Translational Sciences (NCATS), to catalyze the development of new diagnostics and therapeutics. NIH plans to abolish the existing National Center for Research Resources (NCRR) and transfer its programs to either NCATS or other ICs. Another component of NCATS will be the Therapeutics for Rare and Neglected Diseases (TRND) program. NCATS may also incorporate the new Cures Acceleration Network (CAN), authorized under PPACA, for which $100 million is requested in FY2012. PPACA did not fund CAN and specified that other funds appropriated under the PHSA may not be allocated to CAN. The purpose of CAN is to support the development of high-need cures (i.e., drugs, biologics, and devices to diagnose or treat rare diseases, and for which market incentives are inadequate) and facilitate their FDA review. If CAN receives funding, NIH would determine which medical products are high-need cures, and then make awards to research entities or companies in order to accelerate the development of such high-need cures. In addition to the new translational medicine program, NIH will emphasize three other broad scientific areas in FY2012 including advanced technologies, comparative effectiveness research, and support of young investigators. SAMHSA is the lead federal agency for increasing access to behavioral health services. It supports community-based mental health and substance abuse treatment and prevention services through formula grants to the states and U.S. territories and through numerous competitive grant programs to states, territories, tribal organizations, local communities, and private entities. Under SAMHSA' s charitable choice provisions, religious organizations are eligible to receive funding in order to provide substance abuse services without altering their religious character. The agency also collects information on the incidence and prevalence of mental illness and substance abuse at the national and state levels. SAMHSA and most of its programs and activities are authorized under PHSA Title V. However, the agency's two largest programs, the Substance Abuse Prevention and Treatment (SAPT) block grant and the Community Mental Health Services (CMHS) block grant, which together accounted for more than 60% of the agency's budget in FY2010, are separately authorized under PHSA Title XIX Part B. Under PHSA Title V, SAMHSA is organized into three centers: the Center for Mental Health Services (CMHS), the Center for Substance Abuse Treatment (CSAT), and the Center for Substance Abuse Prevention (CSAP). Each center has general statutory authority, called Programs of Regional and National Significance (PRNS), under which it has established grant programs for states and communities to address their important substance abuse and mental health needs. PRNS authorizes each center to fund projects that (1) translate promising new research findings to community-based prevention and treatment services; (2) provide training and technical assistance; and (3) target resources to increase service capacity where it is most needed. In addition, PHSA Title V authorizes a number of specific grant programs, referred to as categorical grants. The PHSA also directs SAMHSA to conduct data collection and analysis activities related to mental health and substance abuse. Most SAMHSA programs are administered by one of the three centers and focus on mental health, substance abuse prevention, or substance abuse treatment. Several cross-cutting programs receive support separately from all three centers, including the National Registry of Evidence-based Programs and Practices, the SAMHSA Health Information Network, the Minority AIDS Program, and the Minority Fellowship Program. To better address cross-cutting issues, SAMHSA has also created connections between centers for programs with both mental health and substance abuse components. For instance, the co-occurring state incentive grant, which supports improvements to infrastructure and capacity for treating individuals with both mental health and substance abuse conditions, is administered by both CMHS and CSAT. SAMHSA and its programs were last reauthorized in 2000, as part of the Children's Health Act. Funding authority for most of SAMHSA's grant programs expired at the end of FY2003, though many of them continue to receive annual appropriations. Congress has not taken up comprehensive reauthorization legislation since 2000, though it has added some new authorities to Title V and otherwise expanded the agency's programs and activities in the past decade. Table 7 shows SAMHSA's funding for FY2010 and FY2011, the change between those years, and the FY2012 budget request. Several non-add programs have been included in the table as examples; these do not represent a complete list. While PHS evaluation set-aside funds are incorporated in the funding amounts for certain programs and activities, the PPHF transfers are included as their own separate row. Both the set-aside funds and the PPHF transfers are subtracted from the SAMHSA program level at the bottom of the table to give the agency's total discretionary budget authority. As discussed in more detail below, SAMHSA's FY2012 budget request proposes a restructuring of its programs and activities. To the extent possible, the table reflects the existing structure, consistent with FY2010 and FY2011 appropriations. The new SAMHSA-wide programs in the FY2012 request are listed separately with the FY2010 and FY2011 columns left blank (see discussion below under "FY2012 Budget Highlights"). The FY2011 full-year CR ( P.L. 112-10 ) slightly reduced SAMHSA's funding below the FY2010 level. With the 0.2% across-the-board rescission, the agency's discretionary budget authority for FY2011 is $3.380 billion, which is $52 million (1.5%) less than the FY2010 amount. However, that reduction was more than offset by a $68 million increase in PPHF transfers. SAMHSA's total program level for FY2011 is $3.599 billion, which is $16 million (0.4%) above the FY2010 program level of $3.583 billion. P.L. 112-10 prohibited the funding of grants for prescription drug monitoring programs originally authorized under the National All Schedules Prescription Electronic Reporting Act of 2005 (NASPER). In FY2010, $2 million was appropriated for the NASPER grants. The President's FY2012 budget request includes a total program level of $3.649 billion for SAMHSA, which represents an increase of $66 million (2%) over the FY2010 program level (see Table 7 ). The FY2012 program level includes budget authority of $3.387 billion, down about 1% from the FY2010 budget authority of $3.431 billion, plus $263 million in PHS evaluation set-aside funds and PPHF transfers. Importantly, the FY2012 budget reflects a restructuring of SAMHSA's programs in an effort to focus more resources on prevention of substance abuse and mental illness, assist Indian tribes in addressing substance abuse and suicide, and support emerging issues such as primary/behavioral health care integration and health information technology. To accomplish these goals SAMHSA's FY2012 budget request includes funding for three new prevention programs. First, it proposes a new substance abuse prevention state grant program focused on high-risk communities and youth, which will be funded using the SAPT block grant's 20% prevention set-aside. Second, it proposes expanding an existing discretionary mental health prevention program aimed at young children (Project LAUNCH) to create a new state grant program to support comprehensive mental health prevention strategies for children, youth and young adults. Finally, the FY2012 budget proposes a new grant program using PPHF funds to promote behavioral health in Indian tribes by reducing alcohol and substance abuse and preventing suicide. Among other programmatic changes reflected in its FY2012 budget, SAMHSA has combined most of the existing PRNS grant programs in the three centers into a single account for Innovation and Emerging Issues; consolidated funding for three different data collection systems and the agency's evidence-based practice registry into one Performance and Quality Information Systems budget line; and grouped the seclusion and restraint program, the protection and advocacy and the prescription drug monitoring formula grant programs, and two other regulatory and oversight programs into a single budget line. Appendix A. Community Health Center Fund PPACA Section 10503 established a Community Health Center Fund (CHCF) to provide supplemental funding for health center operations and the National Health Service Corps (NHSC). The law provided annual appropriations to the CHCF totaling $11 billion over the five-year period FY2011 through FY2015. PPACA also included a provision the intent of which is that in order for the CHCF funds to be used, regular appropriations for the health centers program and the NHSC must be maintained at least at the FY2008 funding level. P.L. 112-10 eliminated this requirement for FY2011, thus allowing CHCF funds to be used in FY2011 even though the regular appropriations for health centers and the NHSC for the current fiscal year have been cut well below the FY2008 level. Table A -1 summarizes the amounts appropriated to the CHCF and the allocation of funds for each of the five fiscal years. PPACA Section 10503 also included an appropriation of $1.5 billion, available for the period FY2011 through FY2015, for health center construction and renovation. These funds are separate from the CHCF and are not included in Table A -1 . Appendix B. Prevention and Public Health Fund PPACA Section 4002 established a Prevention and Public Health Fund (PPHF), appropriated in perpetuity, to be used to support prevention, wellness, and other public health-related programs and activities authorized under the Public Health Service Act (PHSA). PPACA appropriates to the PPHF: $500 million for FY2010; $750 million for FY2011; $1 billion for FY2012; $1.25 billion for FY2013; $1.5 billion for FY2014; and $2 billion for FY2015 and each fiscal year thereafter. Transfers from the PPHF to specific HHS activities for FY2010 and FY2011 have been carried out by the HHS Secretary and are summarized, along with the Administration's proposed transfers for FY2012, in Table B -1 . PPHF transfers to PHS agencies are also itemized in the funding tables presented earlier in this report. PPACA requires the Secretary, when using PPHF funds to augment existing programs and activities, to maintain at least the FY2008 funding level. FY2011 appropriations for the PPHF became available on October 1, 2010, at the beginning of the fiscal year. FY2011 operating plans for the recipient agencies show how these funds have been and will continue to be used for this fiscal year. In some cases, PPHF funds appear to be used to replace funds from regular appropriations. Under current law, PPHF funds are appropriated in perpetuity. As a result, the FY2012 amounts in the table reflect not the Administration's request for the funds, but rather the Administration's intended allocation and use of the funds. Congress may by law (including an appropriations law) direct the Secretary to expend the funds in a manner other than what is proposed, or take any other actions with respect to these funds. | Within the Department of Health and Human Services (HHS), eight agencies are designated components of the U.S. Public Health Service (PHS): (1) the Agency for Healthcare Research and Quality (AHRQ), (2) the Agency for Toxic Substances and Disease Registry (ATSDR), (3) the Centers for Disease Control and Prevention (CDC), (4) the Food and Drug Administration (FDA), (5) the Health Resources and Services Administration (HRSA), (6) the Indian Health Service (IHS), (7) the National Institutes of Health (NIH), and (8) the Substance Abuse and Mental Health Services Administration (SAMHSA). This report gives a brief overview of each agency and summarizes its funding for FY2010 and FY2011, as well as its FY2012 budget request. The total amount of funding available to the agency (i.e., total program level) includes discretionary budget authority provided in annual appropriations acts, plus additional funding from other sources. These include mandatory funding provided in laws other than annual appropriations acts, notably the Patient Protection and Affordable Care Act (PPACA). AHRQ and NIH are primarily research agencies. AHRQ conducts and supports health services research to improve the quality of health care. For FY2011, AHRQ's total program level is $392 million, which is $11 million (2.7%) below the FY2010 amount. NIH conducts and supports basic, clinical, and translational biomedical and behavioral research. For FY2011, NIH's total program level is $30.926 billion, which is $317 million (1.0%) lower than FY2010. Three PHS agencies—IHS, HRSA, and SAMHSA—provide health care services or help fund systems that do so. IHS supports a health care delivery system for American Indians and Alaska Natives. For FY2011, IHS's total program level is $5.134 billion, which is $34 million (0.7%) above the FY2010 amount. HRSA funds programs and systems to improve access to health care among the uninsured and medically underserved. For FY2011, HRSA's discretionary budget authority is $6.272 billion, and its total program level is $9.665 billion. Budget authority decreased by $1.221 billion (16.3%) from FY2010 to FY2011, but this drop was more than offset by an increase in mandatory funding from PPACA and funds from other sources. Overall, HRSA's total program level increased by $1.598 billion (19.8%) from FY2010 to FY2011. SAMHSA funds mental health and substance abuse prevention and treatment services. For FY2011, SAMHSA's discretionary budget authority is $3.380 billion, which is $52 million (1.5%) below the FY2010 level. With the slight increase in PPACA funds, however, SAMHSA's FY2011 total program level of $3.599 billion is $16 million (0.4%) above the FY2010 amount. CDC, the federal government's lead public health agency, coordinates and supports a variety of population-based programs to prevent and control disease, injury, and disability. For FY2011, CDC's discretionary budget authority (including ATSDR) is $5.726 billion, and its total program level is $10.870 billion. Budget authority decreased by $741 million (11.5%) from FY2010 to FY2011. However, that cut was largely offset by PPACA funds and funding from other sources. Overall, CDC's program level decreased by only $6 million. FDA, which regulates drugs, medical devices, food, and tobacco products, receives a significant portion of its funding from industry user fees. For FY2011, FDA has a total program level of $3.690 billion, which includes $2.457 billion in direct appropriations and $1.233 billion in user fees. Relative to FY2010, these amounts represent a 4.0% increase in direct appropriations and a 33.7% increase in user fees, which now account for one-third of FDA's funding. |
Debate over the creation of a federal Chief Information Officer (CIO) position has ebbed and flowed over thepast five years as Congress has sought to addressgovernment information technology (IT) organizational and management issues. In private sector organizations witha CIO, this person serves as the seniordecisionmaker providing leadership and direction for information resource development, procurement, andmanagement, with a focus on improving efficiency andthe quality of services delivered. The possibility of creating a federal CIO, to be located in the Office ofManagement and Budget (OMB), was originallyconsidered in an early draft of what became the Clinger-Cohen Act in 1995 ( P.L. 104-106 ). However, the idea ofa single federal CIO was dropped in favor ofcreating CIO positions within the executive agencies in the final version of the law. The mixed results ofagency-level CIOs, combined with a growing interest inbetter managing government technology resources, brought renewed attention to creating a national CIO positionduring the 106th Congress. In addition, therecent piecemeal efforts to move governmental functions and services online has led some observers to call for anelectronic government (e-government) "czar" ora federal CIO to coordinate these efforts. (1) During the mid-1990s, Congress considered several bills focusing on governmental reform and improved management of public resources. The option ofestablishing a federal CIO was one of several proposals to address these problems. The success of CIOs in theprivate sector is often cited as an example forgovernment to follow. However, the interest in establishing CIOs in the federal government was generated by theexperience of local and state governments. Atthe time forty states had some form of a CIO operating in a policy capacity, as did several major cities. For many,their experience demonstrated that there was aneed for someone to articulate a "vision" of information resources that helped coordinate agency activities and goalsrather than reinforce the artificial"stovepipes" that separated them. However, the idea of a federal CIO was dropped in favor of agency-level CIOs following testimony at a July, 1995 Senate Governmental Affairs Committeehearing. At this hearing, a number of arguments were made in favor of eliminating the single federal CIO provisionsin the Clinger-Cohen Act. Some critics ofthe proposal argued that the operational nature of the CIO position (i.e., the development of technical standards,determining the applicability of procurementlaws, and maintenance of performance and efficiency indicators) was a poor fit with the traditional policy role ofOMB. Other critics argued that creating a federalCIO was adding another layer of bureaucracy and centralizing decisionmaking procedures. They contended thatit was counterproductive to the purpose of theClinger-Cohen Act, which was to decentralize decisionmaking processes and purchasing decisions away from theGeneral Services Administration (GSA) to theindividual executive agencies. A third argument made by some critics at the time was that the role of a federal CIOwas too big for any one person or agency tohandle. Proponents of this view noted that the size of the Department of Defense alone was larger than some stategovernments, and that cross-agency groupsfocusing on specific problems would be a more effective approach. In light of this opposition, Congress decidedto instead designate a CIO in each of the majorexecutive branch agencies. These agency-level CIOs were tasked with the following responsibilities: (1) providing advice and other assistance to the head of the executive agency and other senior management personnel of the executive agency to ensure thatinformation technology is acquired and information resources are managed for the executive agency in a mannerthat is consistent with chapter 35 of title 44,United States Code, and the priorities established by the head of the executive agency; (2) developing, maintaining, and facilitating the implementation of a sound and integrated information technology architecture for the executive agency; and (3) promoting the effective and efficient design and operation of all major information resources management processes for the executive agency, includingimprovements to work processes of the executive agency. (2) Following the passage of P.L. 104-106 , President Clinton created the Chief Information Officers Council. Established by Executive Order 13011, FederalInformation Technology , on July 16, 1996, it serves as "the principal interagency forum to improve agencypractices on such matters as the design, modernization,use, sharing, and performance of agency information resources." (3) The CIOCouncil is comprised of the CIOs and Deputy CIOs from twenty-eight federaldepartments and agencies. (4) The Deputy Director for Management for theOffice of Management and Budget (OMB) serves as the Chair of the CIO Council andthe Vice Chair is elected from the membership. The CIO Council meets monthly and has six committees to addressspecific information technology managementconcerns such as enterprise interoperability, security and privacy, and e-government. The committees work to helpfacilitate the growth of government standards,share best practices, and help agencies work to be in compliance with reform legislation such as the GovernmentPerformance and Results Act (GPRA). TheCouncil's materials are sometimes used by the General Accounting Office (GAO) to help inform its methodologywhen evaluating the information technologymanagement progress of various agencies. (5) The Council also has workedwith the Office of Personnel Management (OPM) to develop special pay rates forhard-to-hire IT professionals. (6) During the 106th Congress (and the concurrent Presidential campaign) a number of policymakersmade proposals regarding the establishment of a federal CIO. While none of these bills passed, new bills have been introduced during the first half of the 107thCongress. A summary of the major provisions of the relevantbills is listed below, with a more comprehensive overview provided in Appendix A. S. 1993 (Thompson), Government Information Security Act. Requires the Director of the Office of Management and Budget to establish government-wide policies for the management of programs that:(1) support the cost-effective security of Federal information systems by promoting security as an integral part ofeach agency's business operations; and (2)include information technology architectures as defined under the Clinger-Cohen Act of 1996. Requires such policies to: (1) be founded on a continuous risk management cycle; (2) implement controls that adequately address the risk;(3) promote continuing awareness of information security risks; (4) continually monitor and evaluate informationsecurity policy; and (5) control effectiveness ofinformation security practices. Outlines information security responsibilities of each agency, including the development and implementation of an agency-wide securityplan for the operations and assets of such agency. H.R. 4670 (Turner), Chief Information Officer of the United States Act of 2000. Establishes an Office of Information Technology in the Executive Office of the President to serve as a source of technical, policy, andmanagement analysis, leadership, and advice for the President and federal agencies with respect to the development,application, and management of informationtechnology by the federal government. Provides for such office to be headed by a Chief Information Officer who shall be the President's principal adviser on matters relating to suchdevelopment, application, and management of information technology. Establishes in the executive branch a Chief Information Officers Council to assist and advise in the development and implementation offederal policies and practices with regard to agency development, application, and management of informationtechnology. H.R. 5024 (Davis), Federal Information Policy Act of 2000. Establishes an Office of Information Policy in the Executive Office of the President to be headed by a Chief Information Officer (CIO) of theUnited States who shall be the principal adviser to the President on matters relating to the efficient and effectivedevelopment, use, and management ofinformation technology and resources by the federal government. Outlines the Officer's duties and grants the Officercertain authorities and duties currently givento the Director of the Office of Management and Budget (OMB) under existing law. Incorporates certain provisions of the Government Paperwork Elimination Act concerning the use and acceptance of electronic signatures byexecutive agencies. Grants the Officer duties under such provisions currently given to the Director. Requires the Officer to establish government-wide security and framework policies for the management of programs, and requires suchpolicies to address risk management and assessment. Outlines information security responsibilities of each agency,including the development andimplementation of an agency-wide security program for the operations and assets of such agency. Makes eachprogram subject to Officer approval and annualreview by agency program officials. The 2000 Presidential Campaign. During the 2000 Presidential campaign, both major party candidatesexpressed support for establishing a federal CIO in some form. In a June 2000 policy statement on governmentreform, then-Governor George W. Bush stated hewould designate the Deputy Director of OMB as the federal CIO to coordinate e-government initiatives and facilitatethe development of federal informationtechnology management in general. (7) Similarly, Vice Presidential candidateSenator Lieberman issued a policy statement in July 2000 indicating his support for afederal CIO or "IT Czar" to work on e-government efforts and coordinate interagency projects. (8) Since the Bush Administration took office, it has been widely reported that the President still favors the appointment of a federal CIO in some capacity, at thesubcabinet level or lower. (9) In a statement to the Congressional InternetCaucus on March 22, 2001, then-OMB Deputy Director Sean O'Keefe said that the BushAdministration opposed the creation of a separate federal CIO position due in part to concerns about agencyaccountability. Instead, O'Keefe stated that the BushAdministration intended to recruit a deputy director of management for OMB who will be responsible for oversightof agency-level CIOs and coordinatinge-government initiatives. (10) On June 14, 2001 OMB announced the appointment of Mark Forman to a newly created position, the Associate Director for Information Technology andE-Government. As "the leading federal e-government executive," (11) thenew Associate Director will be responsible for the e-government fund, direct theactivities of the CIO Council, and advise on the appointments of agency CIOs. The Associate Director will also"lead the development and implementation offederal information technology policy." (12) The new position will report tothe Deputy Director of Management at OMB, who in turn will be the federal CIO. (13) In January 2002, Norman Lorentz began work as the first Chief Technology Officer at OMB. Lorentz, a former USPS CTO, reports to Mark Forman. Lorentz hasbeen tasked to lead and coordinate multiple efforts to identify and develop the technological architecture needed to support federal government e-government andother information technology initiatives. (14) Representative Davis (VA, 1st) has indicated he may reintroduce H.R. 5024 in the coming months, perhaps with some revisions to gain widersupport, as a means to further the debate. (15) On May 1, 2001 S. 803 (The E-Government Act of 2001) was introduced by Senator Lieberman. Thisbill was referred to the Governmental Affairs Committee, which held a hearing on the bill on July 11, 2001. Alsoon July 11, 2001 Representative Turnerintroduced a companion bill to S. 803 , H.R. 2458 (The E-Government Act of 2001). (16) On March 21, 2002, the Governmental AffairsCommittee reported S. 803 (now renamed the E-Government Act of 2002) with an amendment. On June 27,2002, the Senate passed S. 803 unanimously and the bill was sent to the House of Representatives for consideration. A summary of theirrelevant provisions is listed below, with a morecomprehensive overview provided in Appendix B. H.R. 2458 (Turner), E-Government Act of 2001. Establishes an Office of Information Policy in OMB to be headed by a federal Chief InformationOfficer (CIO). The CIO would provide"overall leadership and direction to the executive branch on information policy," and serve as the leader andcoordinator of federal e-governmentissues. Establishes the CIO Council by law and task it to work with the federal CIO on issues such as developing collaborative multi-agencyinformation technology initiatives, coordinating the development of federal information technology standards, andworking with the Office of Personnel andManagement (OPM) regarding the recruitment and retention of federal information technology expertise andleadership. Establishes as $200 million-per-year E-Government Fund for interagency information technology projects, administered by the federalCIO. Establishes a Federal Information Technology Training Center to train federal government personnel in information technology andinformation resource management skills. Establishes an Online National Library through the collaboration of the National Science Foundation, the Smithsonian Institute, the NationalPark Service, the Institute of Museum and Library Sciences, and the Library of Congress. S. 803 (Lieberman), E-Government Act of 2002. Establishes an Office of Electronic Government in OMB to be headed by an Administrator. The Administrator would provide "overallleadership and direction on electronic government," and serve as the leader and coordinator of federal e-governmentissues. Establishes the CIO Council by law and task it to work with the Deputy Director of Management of OMB and the Administrator of theOffice of Electronic Government on issues such as developing collaborative multi-agency information technologyinitiatives, developing common performancemeasures for agency information resources management, and working with the Office of Personnel and Management(OPM) regarding the recruitment andretention of federal information technology expertise and leadership. Establishes an E-Government Fund for interagency information technology projects, administered by the Administer of the General ServicesAdministration. Establishes a Federal Information Technology Training Center to train federal government personnel in information technology andinformation resource management skills. A variety of policy options have been proposed, suggesting there is bipartisan support in favor of establishinga federal CIO position. However, there are somedissenting voices raising a number of issues that remain unresolved. This includes whether a federal CIO shouldin fact be established. If so, the organizationalplacement of the position, and the scope of responsibility and authority assigned to the position needs to bedetermined. Some of these issues arise from theimplicit paradox of trying to centralize management of decentralized technologies. Others are the result of differingopinions regarding how informationtechnology fits into the general scope of governance. Although there is disagreement about the exact nature of the position, support for a federal CIO generated during the closing months of the 106th Congress appearsto have grown since the beginning of the 107th Congress. Discussed in greater detail below, supporterscite a variety of reasons to justify creating a federal CIOposition. Some of the reasons include a need to develop government-wide cybersecurity (17) measures and a need for a voice to advocate the appropriate budgetarysupport for both short and long term information technology projects. Another reason frequently cited is the needto coordinate the growing number of federale-government initiatives. As more government functions become available online, sustained and focused centralleadership becomes critical to improving federalIT performance and enhancing the delivery of services. (18) This includes thedevelopment of government information technology standards that will contribute to arobust and secure information infrastructure. A common theme underlying many of these arguments is the beliefthat the role of information technology ingovernance requires leadership with strategic vision to ensure that the improved productivity and efficiency expectedby the investment in technology is realized. Some observers also point to the role of CIOs in improving the performance and productivity of private sectororganizations as an example of what could be donein the public sector. (19) In response, opponents of efforts to establish a federal CIO argue that the responsibilities of such a position are too complex and unwieldy for one person. Theybelieve that it is not possible for an individual to manage and coordinate the various information technology projectsand needs across the entire U.S. government. Related to this argument, some critics also contend that centralizing management of government informationtechnology is a step backward rather than forward.Instead, they suggest it is more appropriate to approach IT needs through smaller, interagency groups focusing ona specific task such as the processing of studentloan applications online or improving online tax filing procedures. (20) Another reason cited by some opponents is the organizational obstacles to change that willnot disappear with the establishment of a federal CIO. One obstacle cited is a budget process that favors separateagency projects rather than cross-agencyinitiatives. Another is a shorter term focus when major IT projects require long term planning and implementation. Some critics are also concerned about theimplications for agency-level planning and responsibility. They fear that centralized management by a federal CIOwill be a signal to agencies that they can relyon the federal CIO to supplant their responsibility for tougher IT issues and can reduce their resource commitmenttoward solving them. In contrast, these criticsbelieve that efforts to change from an industrial age government to an information age government must emanatefrom the bottom-up by agencies rather than fromthe top-down by a cabinet-level position. (21) The placement of the federal CIO is perhaps the most hotly contested issue. Specifically, there is disagreement over whether the federal CIO should be placed inthe Office of Management and Budget (OMB), or if a new office should be established within the White House tofocus solely on information technology issues. In September, 2000 the Subcommittee on Government Management, Information, and Technology of theGovernment Reform Committee of the House ofRepresentatives held a hearing regarding two bills proposed by Representatives Turner and Davis earlier thatsummer (discussed above). Much of the testimonyfocused on the relationship between the proposed federal CIO and the OMB. Then-Deputy Director of Managementat the OMB, Sally Katzen, argued thatsituating oversight of information technology management within OMB's management and budgeting authority wasessential for the successful budgeting andexecution of information technology programs. In response, critics of this approach argued that information technology programs are crucial enough to warrant autonomous management and budget authority byspecialists who can devote their full energy to the success of government information technology projects. Inaddition, some observers suggest there are lessons tobe learned from the lackluster results of the agency-level CIO provisions in the Clinger-Cohen Act. The GAO hascited the divided attention of agency-level CIOswith multiple spheres of responsibility as an obstacle for implementing information technology managementreforms. The GAO has further stated that the role ofthe CIO is a full-time leadership position requiring complete attention to information resource managementissues. (22) The Bush administration has indicated a preference for assigning some of the responsibilities associated with proposals for a federal CIO to the Deputy Director ofManagement of OMB. The bills introduced by Representatives Davis and Turner during the 106thCongress both called for the creation of a separate positionwithin the White House. It has been reported that Senator Lieberman favors the creation of a new, separate CIOposition with deputy director status within theOMB. (23) The responsibilities of the federal CIO are closely related to the organizational location of the position. If the federal CIO is expected to manage interagencyprojects and influence budget decisions, then the position will need the appropriate authority and stature tosuccessfully carry out the mission of the office. However, there is some disagreement over what that appropriate authority should be. Some proponents, includingRepresentatives Davis and Turner, and manyfederal agency-level CIOs, favor the idea of the federal CIO being a cabinet-level position. Other policymakers,including President Bush and Senator Lieberman,contend that the federal CIO does not require cabinet-level status. (24) On theother hand, in its recent report, "E-Government: The Next American Revolution," theCouncil of Excellence favors the creation of multiple positions at both the cabinet and sub-cabinet levels. (25) Information Security. More specifically, questions have been raised about oversight of government informationsecurity. Some proponents have advocated that the federal CIO should be empowered to develop and implementa comprehensive response to informationsecurity threats. Indeed, some observers cite information security as one of the most important roles for a potentialfederal CIO, noting that federal informationsecurity currently falls under the jurisdiction of twelve congressional appropriations subcommittees and in practiceis carried out through a multiple ofuncoordinated (and potentially incompatible) efforts by various agencies and departments. (26) In the September 2000 testimony before the House Government Management, Information and Technology Subcommittee, the GAO made three primaryrecommendations regarding governmental action to improve the state of federal information security. Two of thesethree recommendations focused on thecentralization of responsibilities. One recommendation was to have greater "prescriptive guidance regarding thelevel of protection that is appropriate for thesesystems." (27) The GAO witness observed that discretion is left primarily withthe individual agencies to decide which computer security measures to take and howstrenuously to enforce them. The second recommendation was to implement "stronger central leadership andcoordination of information security-relatedactivities across the government." (28) The GAO witness stated that oversightof government information security was "divided among a number of agencies,including OMB, NIST, the General Services Administration, and the National Security Agency," and concluded thatthis dispersed oversight resulted in a lack of"clear and central coordination" over key "roles and responsibilities." In addition, the GAO witness observed thatthere was a lack of sharing of informationregarding information security vulnerabilities and solutions. (29) One of the central arguments in favor of centralized federal information security management is that it will establish a clear level of accountability for federalinformation security that is currently diffused. However, it is this very concern about accountability that hasconcerned opponents of this idea. Critics ofproposals for an "IT security czar," argue that agencies will assume they can minimize their responsibility to securetheir computer networks. Instead, thesecritics suggest IT problems such as computer security must be addressed at the agency level where change takesplace. (30) Budgetary Authority. Another issue is budgetary authority. Many observers consider some control overfunding of IT projects critical to the success of a federal CIO. They note that major IT projects require long termplanning and implementation that is ill-suited tothe short-term focus of most budgetary processes. Currently, interagency projects coordinated by the CIO Councilare funded through an ad hoc, voluntary"pass-the-hat" process. (31) Supporters of proposals to give a federal CIO some budgetary authority argue that having someone who recognizes the financial needs of information technology projects and has control over the flow of funding will help contribute to more stable planning and ensure thecompletion of the project. There appears to be little ifany significant opposition to assigning the federal CIO some form of budget authority. There has also beenrelatively little debate about what form it would take. Some observers have suggested either having the federal CIO control a portion of the various agencies' budgets forinformation technology projects or providingthe federal CIO with a single fund to support interagency projects. President Bush appears to favor the latter option. On February 28, 2001, President Bushproposed an "E-Government Fund," with an initial funding of $10 million in 2002, which would rise to $100million over three years. The fund was to be usedby the federal CIO to support interagency e-government projects such as developing a government-wide public keyinfrastructure (PKI) (32) for secure transactionsand helping agencies comply with the Government Paperwork Elimination Act (GPEA). (33) However, the fiscal 2002 Post Service appropriations bill that wassigned into law on November 21, 2001 provided for only $5 million for the e-government fund. For the fiscal 2003budget, President Bush has proposedallocating $45 million for the E-Government Fund. On November 19, 1999, Senators Thompson and Lieberman introduced S. 1993 , which was referred to the Committee on Governmental Affairs. Itwas later reported in the Senate by the committee on April 10, 2000 with an amendment. Although not creating afederal CIO by name, S. 1993 proposed the centralization of federal information security oversight in OMB. The bill specifically assigned theseresponsibilities to the Director of OMB, who inturn could delegate this authority only to the Deputy Director of Management of OMB. An exception for nationalsecurity systems was included that allowedthese responsibilities to be delegated to the Secretary of Defense and the Director of Central Intelligence. In manyrespects, the provisions in S. 1993 mirror other proposals calling for the designation of the Deputy Director of Management of OMB as the federalCIO. The bill would have given the OMB theresponsibility to establish government-wide information security policies, including the development andimplementation of standards and guidelines. In addition,agencies would have been required to conduct independent evaluations annually and report the results to the Directorof OMB. These results, in turn, were to becompiled and presented to Congress by the Comptroller General. On June 15, 2000, Representative Turner introduced H.R. 4670 , which was referred to the House Committee on Government Reform. The purposeof H.R. 4670 was "to establish a central focal point to provide effective leadership for efforts by the FederalGovernment to use informationtechnology," to improve its efficiency and effectiveness, create opportunities for innovation, and to "provide amechanism for improved coordination amongFederal agencies" for the development and management of information technology projects. Among its primaryprovisions, H.R. 4670 would haveestablished the Office of Information Technology in the Executive Office of the President. This new office was tobe headed by the Chief Information Officer ofthe United States and advise the President on technical policy issues related to "the development, application, andmanagement of information technology by theFederal Government." The CIO was to be an appointee reporting directly to the President as the principal advisoron information technology matters. The CIOwould also be responsible for submitting an annual report to the President and Congress on the progress ofinformation technology initiatives withrecommendations for future actions. In addition to appointing the federal CIO as the Chair of the Chief InformationOfficers Council, H.R. 4670 would have established the CIO Council by law and asked the Council to assist the federal CIO with thecoordination of multi-agency initiatives, the developmentof performance measures, and consult with the private sector to improve federal government information technologypractices. The provisions of H.R. 4670 were not applicable to national security systems, as defined by section 5142 of the Clinger-CohenAct (40 U.S.C. 1452). On July 27, 2000, Representative Davis (VA, 1st) introduced H.R. 5024 , which was also referred to the House Committee on Government Reform. Similar to H.R. 4670 , the purpose of H.R. 5024 was to create opportunities for innovation for the useand management of informationtechnology resources in the federal government, "harmonize existing information resource management laws inorder to coordinate and improve the FederalGovernment's development, use, and management of information resources," and "create effective management andoversight of related information security risksincluding coordination of information security standards." H.R. 5024 sought to amend chapters 35-38 of title 44 of the United States Code. The proposed amendments to chapter 35 would have established theOffice of Information Policy (OIP) in the Executive Office of the President. It also would have established a federalCIO and deputy CIO to be appointed by thePresident and confirmed by the Senate. The federal CIO would be the head of OIP and Chair of the CIO Council. The CIO Council would also have beenestablished by law rather than executive order. Under H.R. 5024 , the federal CIO was to serve as theprincipal advisor to the President oninformation technology matters related to the functions of the federal government. The federal CIO would also havebeen responsible for providing direction toexecutive agencies on issues of collection and dissemination of information, public access to public information,statistical activities, privacy, and procurement ofinformation technology. In the area of statistical activities the federal CIO would have been responsible forcoordinating the policies and procedures forcollection, handling, classification, and sharing of statistical information within and between federal agencies. Thefederal CIO would also have been empoweredto appoint a chief statistician and establish an Interagency Council on Statistical Policy to assist carrying out theseduties. To encourage the use of electronic documents in the federal government, H.R. 5024 would have provided the federal CIO with the responsibility todevelop and implement procedures for the use of electronic signatures and to conduct an ongoing study with theNational Telecommunications InformationAdministration (NTIA) on the progress of these efforts. To further support the movement toward electronicdocuments, H.R. 5024 called for thecreation of the Government Information Locator Service (GILS). GILS would have functioned as a distributedagency-based operation to help identify majorinformation holdings, enhance public access, and work towards the development of technical standards to ensurethe compatibility of information betweenagencies. Finally, similar to H.R. 4670 , the federal CIO would have been required to submit an annual reportto the President and Congress. The bill proposed amendments to chapter 36 that would have reauthorized a significant portion of the Paperwork Reduction Act (PRA) with few or no changes. (34) The bill also proposed amendments to chapter 37 that focused on information security, designating it as specific area of concern for the federal CIO. This chapterof H.R. 5024 would have established an Office of Information Security and Technical Protection (OISTP)within the Office of Information Policy(OIP). The role of OISTP was to serve as the principal advisor of the federal CIO on information security matters(�3703). Overall, this chapter directed thefederal CIO to enhance information security measures through a variety of activities including the development ofstandards and guidelines, sharing best practices,promoting awareness, and making recommendations to the Director of OMB regarding budgetary actions. Althougha significant part of the federal CIO'sportfolio, �3705 of chapter 37 explicitly holds the individual agencies responsible for actively developing, assessing,and implementing their own informationsecurity measures. It also required each agency to conduct an annual independent evaluation of their informationsecurity practices and submit the results to thefederal CIO. Proposed amendments to chapter 38 of H.R. 5024 focused on federal CIO's role in general information technology management concerns. Some ofthe provisions included encouraging performance-based and results-based procurement (�3803), enforcingaccountability, developing federal information systemstandards, and keeping Congress informed of the performance of these efforts (�3802 J). Some observers describe H.R. 5024 as a much more detailedversion of H.R. 4670 , combined with the primary elements of S. 1993 and PRA reauthorizationlanguage. (35) On July 11, 2001, Representative Turner introduced H.R. 2458 , a companion bill to the original language of S. 803 , which was referredto Committee on Government Reform. H.R. 2458 contains a variety of provisions related to the managementand promotion of electronicgovernment services. Its purpose is to establish effective leadership of federal information technology projects,require the use of Internet-based informationtechnology initiatives to reduce costs and increase opportunities for citizen participation in government, and promoteinteragency collaboration for e-governmentprocesses. Title I establishes new organizational structures and amends different portions of Title 44 of the United States Code. Section 101 would establish the federal CIOposition to be appointed by the President and confirmed by the Senate. The Office of Information Policy would beestablished as an office in OMB. As head ofthe Office of Information Policy, H.R. 2458 would task the federal CIO with carrying out relevant OMBresponsibilities for prescribing guidelinesand regulations for agency implementation of the Privacy Act, the Clinger-Cohen Act, information technologyacquisition pilot programs, and the GovernmentPaperwork Elimination Act. It would also require the General Services Administration (GSA) to consult with thefederal CIO on any efforts by GSA to promotee-government. Section 103 would amend Title 44 by adding Chapter 36 - Management and Promotion of Electronic Government Services, which focuses on issues related to thefunctions of the federal CIO, the CIO Council, and the E-Government Fund. This chapter would make the federalCIO responsible for carrying out a variety of information resources management (IRM) functions. Some of these responsibilities would include; reviewingagency budget requests for information technologycapital planning and investment, reviewing information technology investment legislative proposals, evaluating theperformance and results of agency informationtechnology investments, advising the Director of OMB on IRM resources and strategies, providing "overallleadership and direction to the executive branch oninformation policy," promoting the effective and innovative use of information technology by agencies especiallythrough multiagency collaborative projects,administering and distributing funds from the E-Government Fund (discussed in greater detail below), consultingwith GSA on the use of the InformationTechnology Fund to promote e-government projects, serving as the Chair of the CIO Council, establishing andpromulgating information technology standards forthe federal government, establishing fora for federal, state, local, and tribal collaboration and consultation oninformation technology best practices andinnovation, promoting electronic procurement initiatives, and implementing accessibility standards. Section 103 would also establish the CIO Council by law, detailing its organizational structure and mandate. In addition, Section 103 would establish a $200million-per-year E-Government Fund for interagency information technology projects. The fund would beadministered by the federal CIO in consultation withthe CIO Council. The provision would also allow funds be made available without fiscal year limitation and requirethe federal CIO to submit annual reports tothe President and Congress regarding the operation of the fund. Title II focuses on enhancing a variety of e-government services and establishes the federal CIO's role as the leader and coordinator of federal e-governmentservices. The provisions most directly connected to the responsibilities of the federal CIO are described in greaterdetail while those less so are described in lessdetail. Section 201 covers federal agency responsibilities as they relate to the federal CIO. Some of theseresponsibilities include participation in the CIO Counciland submitting annual agency e-government status reports to the federal CIO. Section 202 would require executive agencies to adopt electronic signature methods that would ensure acceptability and compatibility with OMB standards. Section 203 would direct GSA to develop an online federal telephone directory. Section 204 would direct the National Science Foundation, the Smithsonian Institute, the National Park Service,the Institute of Museum and Library Sciences,and the Library of Congress to collaborate in the creation of an Online National Library. Section 205 would direct the federal courts to develop web sites containing information about the operation of the court, dockets, and related materials. Similarly,section 206 would direct regulatory agencies to establish web sites containing relevant public information. Section 207 would require the federal CIO to conduct a feasibility study on integrating federal information systems across agencies and implement up to five pilotprojects integrating data elements. Section 208 would direct the federal CIO to assemble an interagency task forceto develop and implement regulations andprocedures for the creation of an online database and web site providing access to federal funded research anddevelopment data. Section 209 would direct thefederal CIO to facilitate the development of common protocols for geographic information systems. Section 210 would amend the Share-in-Savings procurement provisions of the Clinger-Cohen Act by allowing executive agencies to retain a portion of the savingsrealized from this type of procurement method. It would also direct the Administrator of GSA to move past the pilotprograms and provide general authority toexecutive agencies to use this procurement method. Section 211would direct the Federal Emergency Management Agency (FEMA) to contract with the National Research Council of the National Academy ofSciences to "conduct a study on the use of information technology to enhance crisis response and consequencemanagement of natural and manmade disasters." Itwould also direct the federal CIO to conduct pilot projects based on the results of the study. Section 212 would provide for the establishment of a Federal Information Technology Training Center to train federal government personnel in informationtechnology and information resource management skills. Section 213 would mandate an interagency study on thebest practices of federally-funded communitytechnology centers. Section 214 would direct the federal CIO to contract with a nonprofit, non-partisan organization to examine disparities in Internet access based on demographiccharacteristics. Section 215 would outline the federal CIO's responsibilities for maintaining accessibility, usability,and preservation of government information. Among its provisions this section would establish an Advisory Board on Government Information with its membersto be appointed by the federal CIO. Theboard would be tasked to conduct studies and submit recommendations to the federal CIO regarding thedevelopment of interoperable cataloguing and indexingstandards by federal agencies and ensuring permanent public access to information disseminated by the federalgovernment online. Section 216 would require the federal CIO to establish a public domain directory of federal government web sites. Section 217 would require the Federal CIO topromulgate community standards for federal web sites regarding features, operation, and information provided. Section 218 would establish privacy requirementsregarding agency use of personally identifiable information and require the federal CIO to establish privacyguidelines for federal web sites. Section 219 wouldrequire any of the actions taken under this act to be compliant with section 508 of the Rehabilitation Act of 1973regarding accessibility to people with disabilities. Section 220 would require the federal CIO to notify Congress if any of the provision in the act were obsolete orcounter-productive to its purposes. Section 301 and 301 authorize appropriations for the bill through fiscal 2006 and has the bill take effect 120 days after it is enacted. On May 1, 2001, Senator Lieberman introduced S. 803 , which was referred to the Governmental Affairs Committee, which held a hearing on the billon July 11, 2001. On March 21, 2002, the Governmental Affairs Committee reported S. 803 (then renamedthe E-Government Act of 2002) with anamendment. S. 803 contains a variety of provisions related to the management and promotion of electronicgovernment services. Their purposeincludes to establish effective leadership of federal information technology projects, require the use of Internet-basedinformation technology initiatives to reducecosts and increase opportunities for citizen participation in government, and promote interagency collaboration fore-government processes. The descriptionbelow reflects the amended version of S. 803 , which was passed unanimously by the Senate on June 27, 2002. Title I establishes new organizational structures and amends different portions of Title 44 of the United States Code. Section 101would establish the Office ofElectronic Government in OMB. This new office would be headed by an Administrator, who would be appointedby the President and confirmed by the Senate. As head of the Office of Electronic Government, S. 803 would task the Administrator with assisting theDirector of OMB, and the Deputy Director ofManagement, in conjunction with the Administrator of the Office of Information and Regulatory Affairs (OIRA)to carry out relevant OMB responsibilities forprescribing guidelines and regulations for agency implementation of the Privacy Act, the Clinger-Cohen Act,information technology acquisition pilot programs,and the Government Paperwork Elimination Act. It would also require the General Services Administration (GSA)to consult with the Administrator of the Officeof Electronic Government on any efforts by GSA to promote e-government. Section 103 would amend Title 44 by adding Chapter 36 - Management and Promotion of Electronic Government Services, which focuses on issues related to thefunctions of the Administrator of the Office of Electronic Government, the CIO Council, and the E-GovernmentFund. This chapter would make theAdministrator of the Office of Electronic Government responsible for carrying out a variety of informationresources management (IRM) functions. Some ofthese responsibilities would include; advising the Director of OMB on IRM resources and strategies, providing"overall leadership and direction on electronicgovernment," promoting the effective and innovative use of information technology by agencies especially throughmultiagency collaborative projects,administering and distributing funds from the E-Government Fund (discussed in greater detail below), consultingwith GSA "to promote electronic governmentand the efficient use of information technologies by agencies," lead activities on behalf of the Deputy Director ofManagement, who serves as the Chair of the CIOCouncil, assist the Director "in establishing policies which shall set the framework for information technologystandards" to be developed by the National Institutefor Standards and Technology,"sponsor an ongoing dialogue with federal, state, local, and tribal leaders to encouragecollaboration and enhance consultation oninformation technology best practices and innovation, promoting electronic procurement initiatives, andimplementing accessibility standards. Section 101 would also establish the CIO Council by law, with the Deputy Director of Management of OMB as chairperson, detailing its organizational structureand mandate. In addition, Section 101 would establish an E-Government Fund for interagency informationtechnology projects. The fund would be administeredby the Administrator of the General Service Administration (GSA), with the assistance of the Administrator of theOffice of Electronic Government. Theprovision authorizes appropriations for the E-Government Fund in the following amounts: $45 million for FY 2003,$50 million for FY 2004, $100 million for FY2005, $150,000 million for FY 2006, and "such sums as necessary for fiscal year 2007." The provision would alsoallow funds be made available until expendedand require the Director of OMB to submit annual reports to the President and Congress regarding the operation ofthe fund. Section 102 consists of conforming amendments. Title II focuses on enhancing a variety of e-government services, establishing performance measures, and clarifies OMB's role as the leader and coordinator offederal e-government services. The provisions most directly connected to the responsibilities of the proposed Officeof Electronic Government are described ingreater detail while those less so are described in less detail. Section 201 focuses on definitions used. Section 202covers federal agency responsibilities as theyrelate to the Director of OMB. Some of these responsibilities include participation in the CIO Council, developingperformance measures for e-governmentinitiatives, and submitting annual agency e-government status reports to the Director of OMB. Section 203 would require executive agencies to adopt electronic signature methods that would ensure acceptability and compatibility with OMB standards. Section 204 would direct the Director of OMB to work with the Administrator of the General Service Administration (GSA) to "maintain and promote anintegrated Internet-based system of providing the public with access to Government information and services." Section 205 would direct the federal courts to develop web sites containing information about the operation of the court, dockets, and related materials. Similarly,section 206 would direct regulatory agencies to establish web sites containing relevant public information. Section 207 would outline the responsibilities of the Director of OMB for maintaining accessibility, usability, and preservation of government information. Among its provisions this section would establish an Interagency Committee on Government Information with itsmembers drawn from executive branchagencies, the National Archives and Records Administration (NARA), as well as the federal legislative and judicialbranches. The Committee would be tasked toconduct studies and submit recommendations to the Director of OMB and Congress regarding the development ofinteroperable cataloguing and indexingstandards by federal agencies and ensuring permanent public access to information disseminated by the federalgovernment online. Section 208 would establish privacy requirements regarding agency use of personally identifiable information and require the Director of OMB to establishprivacy guidelines for federal web sites. Section 209 would provide for the establishment of a Federal Information Technology Training Center to train federal government personnel in informationtechnology and information resource management skills. Section 210 would direct the Secretary of the Interior, working with the Director of OMB through an interagency working group, to facilitate the development ofcommon protocols for geographic information systems. Section 211 would amend the Share-in-Savings procurement provisions of the Clinger-Cohen Act by allowing executive agencies to retain a portion of the savingsrealized from this type of procurement method, and extend the pilot-phase of the program. It would also requirethe Director of OMB, after the completion of fivepilot projects but no later than three years after the effective date of the provision, to submit a report to the SenateCommittee on Governmental Affairs and theHouse Committee on Government Reform regarding the results of the pilot projects. Section 212 would require the Director of OMB to conduct a feasibility study on integrating federal information systems across agencies and implement up to fivepilot projects integrating data elements. Section 213 would mandate an interagency study on the best practices offederally-funded community technology centers. Section 214 would direct the Federal Emergency Management Agency (FEMA) to contract a study "on using information technology to enhance crisis responseand consequence management of natural and manmade disasters." It would also direct FEMA to conduct pilotprojects based on the results of the study. Section 215 would direct the Director of the National Science Foundation (NSF) to contract with the National Research Council to examine disparities in Internetaccess based on demographic characteristics. Section 216 would require the Director of OMB to notify Congressif any of the provision in the act were obsoleteor counter-productive to its purposes. Section 301 would repeal the expiration date on the Government Information Security Act (44 USC Sec. 3536). Section 401 and 402 authorize appropriations for the bill through fiscal 2007 and has the bill take effect 120 days after it is enacted. CRS Report RL30153 , Critical Infrastructures: Background and Early Implementation of PDD-63 , by [author name scrubbed]. CRS Report RL30745, Electronic Government: A Conceptual Overview , by Harold C. Relyea. CRS Report RL31088, Electronic Government: Major Proposals and Initiatives , by [author name scrubbed]. CRS Report RL30661(pdf) , Government Information Technology Management: Past and Future Issues (The Clinger-Cohen Act) , by [author name scrubbed]. CRS Report 98-67 STM, Internet: An Overview of Key Technology Policy Issues Affecting Its Use and Growth , by [author name scrubbed], [author name scrubbed], [author name scrubbed], Glenn J.McLoughlin, and [author name scrubbed]. CRS Report RL31057 , A Primer on E-Government: Sectors, Stages, Opportunities, and Challenges of Online Governance , by [author name scrubbed]. | Debate over the creation of a federal Chief Information Officer (CIO) position has ebbed and flowed over the past five years as Congress has sought to addressgovernment information technology (IT) management issues. In private sector organizations, a CIO is often a seniordecisionmaker providing leadership anddirection for information resource development, procurement, and management, with a focus on improvingefficiency and the quality of services delivered. Originally considered in an early draft of the Clinger-Cohen Act in 1995 ( P.L. 104-106 ), the idea of a single federalCIO was dropped in favor of creating CIOpositions within the executive agencies. The mixed results of agency-level CIOs, combined with a growing interestin better managing government IT resources,has renewed attention in this issue. Efforts to coordinate electronic government (e-government) initiatives has alsoled some observers to call for an"e-government czar" or a federal CIO. During the 106th Congress a number of lawmakers made proposals to establish a federal CIO. In the House of Representatives one bill ( H.R. 4670 ,Turner) would have established a federal CIO in an office outside of the Office of Management and Budget (OMB). A second bill ( H.R. 5024 ,Davis) had similar provisions but also provided a federal CIO with a broad mandate and budget authority tocarry out federal IT projects, and thepower to coordinate and execute government-wide information security efforts. Neither bill was passed in the lastCongress. In May 2001 a Senate bill wasintroduced ( S. 803 , Lieberman), which included many of the House bills' provisions as well as new ones suchthe creation of a Federal IT TrainingCenter. A companion House bill ( H.R. 2458 , Turner) was introduced in July 2001. On March 21, 2002, theGovernmental Affairs Committeereported S. 803 (now renamed the E-Government Act of 2002) with an amendment. The Senate passed thebill unanimously on June 27, 2002. Although the Bush Administration has opposed creating a separate federal CIO, in June 2001 OMB announced the creation of a new position, the AssociateDirector of Information Technology and E-Government, who will report to the Deputy Director of Management(DDM) at OMB. The DDM, will be the federalCIO. Despite the OMB announcement, some policymakers suggest that many issues remain unresolved. One issue is the organizational placement of the position.There is disagreement over whether the federal CIO should be placed in OMB or if a new office should beestablished within the White House. A second issue is the scope of responsibility of the position. Some proponents suggest that the federal CIO should coordinate information security issues. Criticsargue that individual agencies may believe they have a reduced obligation or will devote fewer resources toinformation security at a time when threats toinformation resources are climbing. Another area of concern is budgetary authority. Many observers consider somecontrol over funding of IT projects critical tothe success of a federal CIO, either by controlling a portion of the various agencies' budgets for IT projects orproviding the federal CIO with a fund to supportinteragency projects. |
A variety of proposals were made in the 110 th Congress regarding granting the Delegate of the District of Columbia voting rights in the House. On January 19, 2007, Representative Hoyer introduced H.Res. 78 , which proposed House Rule changes allowing the District of Columbia delegate (in addition to the Resident Commissioner of Puerto Rico and the delegates from American Samoa, Guam, and the Virgin Islands) to vote in the Committee of the Whole, subject to a revote in the full House if such votes proved decisive. H.Res. 78 was approved by the House on January 24, 2007. Then, on April 19, 2007, Congress passed a bill introduced by Delegate Eleanor Holmes Norton, H.R. 1905 , the District of Columbia House Voting Rights Act of 2007, which would have granted the District a voting representative in the full House. A similar bill, S. 1257 , was considered by the Senate on September 18 of that year, but a motion to invoke cloture failed by a vote of 57-42. Similar bills to give the Delegate a vote in the Full House— H.R. 157 and S. 160 —have been introduced in the 111 th Congress. S. 160 was approved by the Senate on February 26, 2009, by a vote of 61-37. Under the proposals relating to the full House, the House would be expanded by two Members to a total of 437 Members, and the first of these two positions would be allocated to create a voting Member representing the District of Columbia. Although it is generally accepted that the Delegate for the District of Columbia could be given a vote in the House of Representatives by constitutional amendment, questions have been raised whether such a result can be achieved by statute. H.R. 157 , for instance, provides the following: "Notwithstanding any other provision of law, the District of Columbia shall be considered a Congressional district for purposes of representation in the House of Representatives." That proposal also provides that regardless of existing federal law regarding apportionment, "the District of Columbia may not receive more than one member under any reapportionment of members." The proposal also contains a non-severability clause, so that if a provision of the act is held unconstitutional, the remaining provisions of H.R. 157 would be treated as invalid. In contrast, H.Res. 78 only granted the District of Columbia delegate a vote in the Committee of the Whole, a procedural posture of the full House which is invoked to speed up floor action. Specifically, the resolution amends House Rule III, cl. 3(a) to provide that "in a Committee of the Whole House on the state of the Union, the Resident Commissioner to the United States from Puerto Rico and each Delegate to the House shall possess the same powers and privileges as Members of the House." An additional change to the House Rules, however, limited the effect of this voting power when it would be decisive. H.Res. 78 also amended House Rule XVIII, cl. 6 to provide that "whenever a recorded vote on any question has been decided by a margin within which the votes cast by the Delegates and the Resident Commissioner have been decisive, the Committee of the Whole shall automatically rise and the Speaker shall put that question de novo without intervening debate or other business. Upon the announcement of the vote on that question, the Committee of the Whole shall resume its sitting without intervening motion." Both of these provisions of H.Res. 78 are similar to amendments to the House Rules that were in effect during the 103 rd Congress. Residents of the District of Columbia have never had more than limited representation in Congress. Over the years, however, efforts have been made to amend the Constitution so that the District would be treated as a state for purposes of voting representation. For instance, in 1978, H.J.Res. 554 was approved by two-thirds of both the House and the Senate, and was sent to the states. The text of the proposed constitutional amendment provided, in part, that "[f]or purposes of representation in the Congress, election of the President and Vice President, and Article V of this Constitution, [ ] the District constituting the seat of government of the United States shall be treated as though it were a State." The Amendment was ratified by 16 states, but expired in 1985 without winning the support of the requisite 38 states. Since the expiration of this proposed Amendment, a variety of other proposals have been made to give the District of Columbia representation in the full House. In general, these proposals would avoid the more procedurally difficult route of amending the Constitution, but would be implemented by statute. Thus, for instance, bills were introduced and considered which would have (1) granted statehood to the non-federal portion of the District; (2) retroceded the non-federal portion of the District to the State of Maryland; and (3) allowed District residents to vote in Maryland for their representatives to the Senate and House. Efforts to pass these bills have been unsuccessful, with some arguing that these approaches raise constitutional and/or policy concerns. Unlike the proposals cited above, H.R. 157 uses language similar to that found in the proposed constitutional amendment, but would instead grant the District of Columbia a voting member in the House by statute. As noted above, H.J.Res. 554 would have provided by constitutional amendment that the District of Columbia be treated as a state for purposes of representation in the House and Senate, the election of the President and Vice President, and ratification of amendments of the Constitution. H.R. 157 , is more limited, in that it would only provide that the District of Columbia be treated as a state for purposes of representation in the House. Nonetheless, the question is raised as to whether such representation can be achieved without a constitutional amendment. As noted previously, a resolution similar to the H.Res. 78 was adopted in the 103 rd Congress. It was soon challenged, but it was upheld at both the District Court and the Court of Appeals level. It would appear, however, that the proposal was upheld primarily because of the provision calling for a revote when the vote of the delegates or residents was decisive in the Committee of the Whole. As Congress has never granted the Delegate from the District of Columbia a vote in the full House or Senate, the constitutionality of such legislation has not been before the courts. The question of whether the District of Columbia should be considered a state for purposes of having a vote in the House of Representatives, however, was considered by a three-judge panel of the United States District Court of the District of Columbia in the case of Adams v. Clinton . In Adams , the panel examined the issue of whether failure to provide congressional representation for the District of Columbia violated the Equal Protection Clause. In doing so, it discussed extensively whether the Constitution, as it stands today, allows such representation. The court began with a textual analysis of the Constitution. Article I, § 2, clause 1 of the Constitution, the "House Representation Clause," provides [t]he House of Representatives shall be composed of Members chosen every second Year by the People of the several States, and the Electors in each State shall have the Qualifications requisite for Electors of the most numerous Branch of the State Legislature. The court noted that, while the phrase "people of the several States" could be read as meaning all the people of the "United States," that the use of the phrase later in the clause and throughout the article makes clear that the right to representation in Congress is limited to states. This conclusion has been consistently reached by a variety of other courts, and is supported by most, though not all, commentators. The plaintiffs in Adams v. Clinton , however, suggested that even if the District of Columbia is not strictly a "state" under Article I, § 2, clause 1, that the citizens of the United States could still have representation in Congress. The plaintiffs in Adams made two arguments: (1) that the District of Columbia, although not technically a state under the Constitution, should be treated as one for voting purposes or (2) that District citizens should be allowed to vote in the State of Maryland, based on their "residual" citizenship in that state. The first argument was based primarily on cases where the Supreme Court has found that the District of Columbia was subject to various constitutional provisions despite the fact that such provisions were textually limited to "states." The second argument is primarily based on the fact that residents of the land ceded by Maryland continued to vote in Maryland elections during the period between the act of July 16, 1790, by which Virginia and Maryland ceded lands to Congress for formation of the District, and the Organic Act of 1801, under which Congress assumed jurisdiction and provided for the government of the District. Whether the District of Columbia can be considered a "state" within the meaning of a particular constitutional or statutory provision appears to depend upon the character and aim of the specific provision involved. Accordingly, the court in Adams examined the Constitution's language, history, and relevant judicial precedents to determine whether the Constitution allowed for areas which were not states to have representatives in the House. The court determined that a finding that the District of Columbia was a state for purposes of congressional representation was not consistent with any of these criteria. First, the court indicated that construing the term "state" to include the "District of Columbia" for purposes of representation would lead to many incongruities in other parts of the Constitution. One of several examples that the court noted was that Article I requires that voters in House elections "have the Qualifications requisite for the Electors of the most numerous branch of the State Legislature." The District, as pointed out by the court, did not have a legislature until home rule was passed in 1973, so this rule would have been ineffectual for most of the District's history. This same point can be made regarding the clause providing that the "Times, Places and Manner of holding Elections for Senators and Representatives shall be prescribed in each State by the Legislature thereof...." Similar issues arise where the Constitution refers to the Executive Branch of a state. The court went on to examine the debates of the Founding Fathers to determine the understanding of the issue at the time of ratification. The court concluded that such evidence as exists seems to indicate an understanding that the District would not have a vote in Congress. Later, when Congress was taking jurisdiction over land ceded by Maryland and Virginia to form the District, the issue arose again, and concerns were apparently raised precisely because District residents would lose their ability to vote. Finally, the court noted that other courts which had considered the question had concluded in dicta or in their holdings that residents of the District do not have the right to vote for Members of Congress. The second argument considered by the court was whether residents of the District should be permitted to vote in congressional elections through Maryland, based on a theory of "residual" citizenship in that state. As noted above, this argument relied on the fact that residents of the land ceded by Maryland apparently continued to vote in Maryland elections for a time period after land had been ceded to Congress. The court noted, however, that essentially the same argument had been rejected by a previous three-court panel decision of the District of Columbia Court of Appeals, and the Supreme Court had also concluded that former residents of Maryland had lost their state citizenship upon the separation of the District of Columbia from the State of Maryland. The court continued by setting forth the history of the transfer of lands from Maryland and Virginia to the federal government under the act of July 16, 1790. While conceding that residents of the ceded lands continued to vote in their respective states, the court suggested that this did not imply that there was an understanding that they would continue to do so after the District became the seat of government; it reflected the fact that during this period the seat of government was still in Philadelphia. Thus, upon the passage of the Organic Act of 1801, Maryland citizenship of the inhabitants of these lands was extinguished, effectively ending their rights to vote. The argument has been made, however, that the Adams case, which dealt with whether the Equal Protection Clause compels the granting of a vote to the District of Columbia, can be distinguished from the instant question—whether Congress has power to grant the District a voting representative in Congress. Under this argument, the plenary authority that Congress has over the District of Columbia under Article I, Section 8, clause 17 (the "District Clause") represents an independent source of legislative authority under which Congress can grant the District a voting Representative. Although the question of whether Congress has such power under the District Clause has not been directly addressed by the courts, the question of whether Congress can grant the District of Columbia representation under a different congressional power was also addressed by the United States Court of Appeals for the District of Columbia. In the case of Michel v. Anderson , the court considered whether the Delegate for the District of Columbia could, by House Rules, be given a vote in the Committee of the Whole of the House of Representatives. The primary objection to the rule in question was that, while Delegates have long been able to vote in Committee, only a Member can vote on the floor of the House. The district court below had agreed with this argument, stating that [o]ne principle is basic and beyond dispute. Since the Delegates do not represent States but only various territorial entities, they may not, consistently with the Constitution, exercise legislative power (in tandem with the United States Senate), for such power is constitutionally limited to "Members chosen ... by the People of the several States." U.S. Const. art. I, § 8, cl. 1. The Court of Appeals also agreed, stating that [the language of ] Article I, § 2 ... precludes the House from bestowing the characteristics of membership on someone other than those "chosen every second Year by the People of the several States." Based on these statements, it is unlikely that these courts would have seen merit in an argument that Congress could grant the Delegate a vote in the House. An argument might be made, however, that the decision in Michel v. Anderson can be distinguished from the instant proposal, because Michel concerned a House Rule, not a statute. Under this argument, the House in Michel was acting alone under its power to "Determine the Rules of its Proceedings" pursuant to Article I, section 5. Arguably, the court did not consider the issue of whether Congress as a whole would have had the authority to provide for representation for the District of Columbia under the District Clause. Under this line of reasoning, the power of Congress over the District represents a broader power than the power of the House to set its own rules. At first examination, it is not clear on what basis such a distinction would be made. The power of the House to determine the Rules of its Proceedings is in and of itself a very broad power. While the House may not "ignore constitutional restraints or violate fundamental rights ... within these limitations all matters of method are open to the determination of the House.... The power to make rules, ... [w]ithin the limitations suggested, [is] absolute and beyond the challenge of any other body or tribunal." In fact, the Supreme Court has found that in some cases, the constitutionality of a House Rule is not subject to review by courts because the question is a "political question," and not appropriate for judicial review. It is true that the power of Congress over the District of Columbia has been described as "plenary." To a large extent, this is because the power of Congress over the District blends the limited powers of a national legislature with the broader powers associated with a local legislature. Thus, some constitutional restrictions that might bind Congress in the exercise of its national power would not apply to legislation which is limited to the District of Columbia. For example, when Congress created local courts for the District of Columbia, it acted pursuant to its power under the District Clause and thus was not bound by to comply with Article III requirements which generally apply to federal courts. Or, while there are limits to Congress's ability to delegate its legislative authorities, such limitations do not apply when Congress delegates its local political authority over the District to District residents. It is not clear, however, that the power of Congress at issue in H.R. 157 would be easily characterized as falling within Congress's power to legislate under the District Clause. While the existing practice of allowing District of Columbia residents to vote for a non-voting Delegate would appear to fall comfortably within its authority under the District Clause, giving such Delegate a vote in the House would arguably have an effect that went beyond the District of Columbia. Such a change would not just affect the residents of the District of Columbia, but would also directly affect the structure of and the exercise of power by Congress. More significantly, if the Delegate were to cast the decisive vote on an issue of national import, then the instant legislation could have a significant effect nationwide. The Supreme Court has directly addressed the issue of whether the District Clause can be used to legislate in a way that has effects outside of the District of Columbia. In National Mutual Insurance Co. v. Tidewater Transfer Co. , the Court considered whether Congress could by statute require that federal courts across the country consider cases brought by District of Columbia residents under federal diversity jurisdiction. This case has been heavily relied upon by various commentators as supporting the proposed legislation. The Tidewater Transfer Co. case appears to provide a highly relevant comparison to the instant proposal. As with the instant proposal, the congressional statute in question was intended to extend a right to District of Columbia residents that was only provided to citizens of "states." In 1805, Chief Justice John Marshall, in the case of Hepburn v. Ellzey , had authored a unanimous opinion holding that federal diversity jurisdiction, which exists "between citizens of different states," did not include suits where one of the parties was from the District of Columbia. Despite this ruling, Congress enacted a statute extending federal diversity jurisdiction to cases where a party was from the District. The Court in Tidewater Transfer Co. upheld this statute against a constitutional challenge, with a three-judge plurality holding that Congress, acting pursuant to the District Clause, could lawfully expand federal jurisdiction beyond the bounds of Article III. On closer examination, however, the Tidewater Transfer Co. case may not support the constitutionality of the instant proposal. Of primary concern is that this was a decision where no one opinion commanded a majority of the Justices. Justice Jackson's opinion (the Jackson plurality), joined by Justices Black and Burton, held that District of Columbia residents could seek diversity jurisdiction based on Congress exercising power under the District Clause. Justice Rutledge's opinion (the Rutledge concurrence) joined by Justice Murphy, argued that the provision of Article III that provides for judicial authority over cases between citizens of different states, the "Diversity Clause," permits such law suits, even absent congressional authorization. Justice Vinson's opinion (the Vinson dissent), joined by Justice Douglas, and Justice Frankfurter's opinion (the Frankfurter dissent), joined by Justice Reed, would have found that neither the Diversity Clause nor the District Clause provided the basis for such jurisdiction. Of further concern is that those concurring Justices who did not join in the three-judge plurality opinion were not silent on the issue of Congress's power under the District Clause. Consequently, it is possible that a majority of the Justices would have reached a differing result on the breadth of Congress's power. In addition, it would appear that even the three-judge plurality might have distinguished the instant proposal from the legislation which was at issue in the Tidewater Transfer Co . Thus, a closer analysis of this case should consider the different opinions, how the Justices framed the questions before them, and then the reasoning they used to resolve the issue. To help understand the issues raised by this case and by the instant bill, this analysis should focus on four different issues: (1) whether the District of Columbia is a "state" for purposes of diversity jurisdiction; (2) whether the District of Columbia is a "state" for purposes of voting representation; (3) whether Congress can grant diversity jurisdiction under the District Clause; and (4) whether Congress can provide for a voting Delegate under the District Clause. As noted, the Court has held since the 1805 case of Hepburn v. Ellzey that federal diversity jurisdiction under Article III does not include suits where one of the parties was from the District of Columbia. Presaging the Adams v. Clinton case by nearly two centuries, this unanimous decision briefly considered the use of the term "state" throughout the Constitution. The Chief Justice noted that the plain meaning of the term "state" in the Constitution did not include the District of Columbia, and further noted that this was the term used to determine representation in the Senate, the House, and the number of Presidential Electors. As there was little doubt that state did not include the District of Columbia in those instances, the Court found no reason that the term should take on a different meaning for purposes of diversity. In the Tidewater Transfer Co. case, however, the Rutledge concurrence took issue with Hepburn. Justice Rutledge noted that the term "state" had been found in some cases to include the District of Columbia. The main thrust of the opinion was that the use of the term state in the Constitution occurred in two different contexts: (1) in provisions relating to the organization and structure of the political departments of the government, and (2) where it was used regarding the civil rights of citizens. The Rutledge concurrence argued that the latter uses of the term should be considered more expansively in the latter case than the former. For instance, the Court noted that the Sixth Amendment, which provides that "In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State ... wherein the crime shall have been committed ...," had been held to apply to the citizens of the District of Columbia. Next, the Rutledge concurrence sought to establish that of these two categories, access to the federal courts under diversity jurisdiction fell into the latter. The opinion suggested that the exclusion of the District of Columbia from diversity jurisdiction served no historical purpose, and that the inclusion of the District would be consistent with the purposes of the provision. The opinion essentially rested on the premise that such a distinction between the citizens of the District of Columbia and the states made no sense: "I cannot believe that the Framers intended to impose so purposeless and indefensible a discrimination, although they may have been guilty of understandable oversight in not providing explicitly against it." The opinion of the these two Justices, however, was not shared by any of the other seven Justices of the Court. The Jackson plurality opinion, for instance, specifically rejected such an interpretation. That opinion noted that while one word may be capable of different meanings, that such "such inconsistency in a single instrument is to be implied only where the context clearly requires it." The Jackson plurality found no evidence that the Founding Fathers gave any thought to the issue of the District of Columbia and diversity jurisdiction, and that if they had that they would not have included the District by use of the term "state." Nor did the Court find this oversight particularly surprising, as the District of Columbia was still a theoretical political entity when the Constitution was ratified, and its nature and organization had not yet been established. The Vinson dissent summarily dismissed the argument that the Hepburn v. Ellzey decision be overruled. The Frankfurter dissent argued vehemently that the use of the term "state" in the clause at issue was one of the terms in the Constitution least amenable to ambiguous interpretation. "The precision which characterizes these portions of Article III is in striking contrast to the imprecision of so many other provisions of the Constitution dealing with other very vital aspects of government." This, combined with knowledge of the distrust that the Founding Fathers had towards the federal judiciary, left Justice Frankfurter with little interest in entertaining arguments to the contrary. While there has been some academic commentary suggesting that the term "state" could be construed more broadly for purposes of representation than is currently the case, there is little support for this proposition in case law. Starting with Chief Justice Marshall in the Hepburn case, and as recently as Adams v. Clinton and Michel v. Anderson , the Supreme Court and lower courts have generally started with the basic presumption that the use of the term "state" for purposes of representation in the House did not include the District of Columbia. In fact, in Hepburn , Chief Justice Marshall had referred to the "plain use" of the term "state" in the clauses regarding representation as the benchmark to interpret other clauses using the phrase. The opinions of the Justices in Tidewater Transfer Co. appear to be no different. As noted above, seven of the nine Justices in that case accepted the reasoning of the Hepburn case as regards diversity jurisdiction, and would certainly have been even less likely to accept the argument that the District of Columbia should be considered a state for purposes of the House of Representatives. It also seems likely that the Justices associated with the Rutledge concurrence would have similarly rejected such an interpretation. As noted, that opinion suggested that the error in Hepburn was the failure to distinguish between how the term "state" should be interpreted when used in the context of the distribution of power among political structures and how it should be interpreted when it is used in relation to the civil rights of citizens. Although Justice Rutledge found that a restrictive interpretation of the term state was unnecessarily narrow in the context of diversity jurisdiction, there is no indication that the Justice would have disputed the "plain use" of the term "state" in the context of representation for the District in Congress. The Jackson plurality opinion considered whether, despite the Court's holding in Hepburn , Congress, by utilizing its power under the District Clause, could evade the apparent limitations of Article III on diversity jurisdiction. The plurality noted that the District Clause had not been addressed in Chief Justice Marshall's opinion, and that the Chief Justice had ended his opinion by noting that the matter was a subject for "legislative not for judicial consideration." While admitting that it would be "speculation" to suggest that this quote established that Congress could use its statutory authority rather than proceed by constitutional amendment, the Court next considered whether such power did in fact exist. As noted previously, the power of Congress over the District includes the power to create local courts not subject to Article III restrictions. The plurality suggested that there would be little objection to establishing a federal court in the District of Columbia to hear diversity jurisdiction. Instead, the concerns arose because the statute in question would operate outside of the geographical confines of the District. Further, the statute would require that Article III courts be tasked with functions associated with an Article I court. The Jackson plurality had little trouble assigning the tasks of an Article I court to an Article III court, suggesting that such assignments had been approved in the past, including in the District of Columbia. A more difficult question was the exercise of diversity jurisdiction by federal courts outside of the geographical confines of the District. While noting that Congress's power over the District was not strictly limited by territory, it admitted that the power could not be used to gain control over subjects over which there had been no separate delegation of power. Thus, the question arose as to whether a separate power beyond the District Clause was needed here. Essentially, the Court held that the end that Congress sought (establishing a court to hear diversity cases involving District of Columbia citizens) was permissible under the District Clause, and that the choice of means that Congress employed (authorizing such hearings in federal courts outside of the District) was not explicitly forbidden. As a result, the Court held that it should defer to the opinions of Congress when Congress was deciding how to perform a function that is within its power. It should be noted that even the plurality opinion felt it necessary to place this extension in a larger context, emphasizing the relative insignificance of allowing diversity cases to be heard in federal courts outside of the District. The Court noted that the issue did not affect "the mechanics of administering justice" or involve the "extension or a denial of any fundamental right or immunity which goes to make up our freedoms," nor did the legislation "substantially disturb the balance between the Union and its component states." Rather, the issue involved only whether a plaintiff who sued a party from another state could require that the case be decided in a convenient forum. The Rutledge concurrence, on the other hand, explicitly rejected the reasoning of the plurality, finding that Congress clearly did not have the authority to authorize even this relatively modest authority to District of Columbia citizens. In fact, the concurring opinion rejected the entire approach of the plurality as unworkable, arguing that it would allow any limitations on Article III courts to be disregarded if Congress purported to be acting under the authorization of some other constitutional power. The Vinson dissent and the Frankfurter dissent also rejected the reasoning of the plurality as regards Congress power to grant diversity to the District, citing both Article III limitations on federal court and separation of powers. The Vinson dissent argued that the question as to whether Congress could use its legislative authority to evade the limitations of Article III had already been reached in cases regarding whether Congress could require federal courts to hear cases where there was no case or controversy. The Frankfurter dissent made similar points, and also noted the reluctance by which the states had even agreed to the establishment of diversity jurisdiction. Thus, considering both the dissents and the concurrence, six Justices rejected the plurality's expansive interpretation of the District Clause. The positions of the various Justices on the question of whether Congress can grant diversity jurisdiction for District of Columbia residents would seem to also inform the question as to whether such Justices would have supported the granting of House representation to District citizens. As noted, six Justices explicitly rejected the extension of diversity jurisdiction using Congress's power under the District Clause. It is unlikely that the Justices in question would have rejected diversity jurisdiction for District of Columbia residents, but would then approve voting representation for those same residents. The recurring theme of both the Hepburn and Tidewater Transfer Co. decisions was that the limitation of House representation to the states was the least controversial aspect of the Constitution, and that the plain meaning of the term "state" in regards to the organization of the federal political structures was essentially unquestioned. Consequently, only the three Justices of the plurality in Tidewater Transfer Co. might arguably have supported the doctrine that Congress's power over the District of Columbia would allow extension of House representation to its citizens. However, even this conclusion is suspect. As noted, the plurality opinion took pains to note the limited impact of its holding—parties in diversity suits with residents of the District of Columbia would have a more convenient forum to bring a law suit. As noted, the plurality specifically limited the scope of its decision to legislation that neither involved an "extension or a denial of any fundamental right" nor substantially disturbed "the balance between the Union and its component states." Arguably, granting the Delegate a vote in the House involves an extension of a fundamental right. Further, the possibility that a non-state political entity could cast a deciding vote on an issue of national significance could well be seen as a substantial disturbance to the existing federalism structure. Thus, even the Justices in the Jackson plurality might distinguish the instant proposal from their holding in Tidewater Transfer Co . These three Justices might also have had other concerns that would weigh against such an extension of their holding. The act before the Justices in that case did not affect just the District of Columbia, but also extended diversity jurisdiction to the territories of the United States, including the then-territories of Hawaii and Alaska. Although the question of diversity jurisdiction over residents of the territories was not directly before the Court, subsequent lower court decisions have found that the reasoning of the Tidewater Transfer Co. case supported the extension of diversity jurisdiction to the territories, albeit under the "Territory Clause." Thus, a concern that the plurality Justices might have had about the instant proposal would be whether its approval would also validate an extension of House representation to other political entities, such as the territories. While the extension of diversity jurisdiction to residents of territories has been relatively uncontroversial, a decision to grant a voting Delegate to the territories might not. Under the Territory Clause, Congress has plenary power over the territories of American Samoa, Guam, the Virgin Islands, Puerto Rico, and the Commonwealth of the Northern Marianas Islands. Thus, extending the reasoning of the Tidewater Transfer Co. case to voting representation might arguably allow each of these territories to seek representation in the House. Although an analysis of the constitutionality of such an extension goes beyond the scope of this report, providing House representation to the territories would clearly represent a significant change to the national political structure. Of particular note would be the relatively small number of voters in some of these territories. For instance, granting House representation to American Samoa, with a population of about 58,000, most of whom are not citizens of the United States, would appear to depart significantly from the existing makeup of the House. Similarly, a holding that the District could be treated as a state for purposes of representation would arguably also support a finding that the District could be treated as a state for the places in the Constitution which deal with other aspects of the national political structure. Under this reasoning, Congress could arguably authorize the District of Columbia to have Senators, Presidential Electors, and perhaps even the power to ratify Amendments to the Constitution. As the above discussion is directed at the full House, the question can be raised as to whether it should also apply to the Committee of the Whole. The Committee of the Whole is not provided for in the Constitution, and the nature of the Committee of the Whole appears to have changed over time. Established in 1789, the Committee of the Whole appears to be derived from English Parliamentary practices. It was originally intended as a procedural device to exclude the Speaker of the House of Commons, an ally of the King, from observing the proceedings of the House. Since that time, the Committee has evolved into a forum where debate and discussion can occur under procedures more flexible than those otherwise utilized by the House. At present, the Committee of the Whole is simply the Full House in another form. Every legislator is a member of the Committee, with full authority to debate and vote on all issues. By resolving into the Committee of the Whole, the House invokes a variety of procedural devices which speed up floor action. Instead of the normal quorum of one-half of the legislators in the House, which is generally more than 200 legislators, the Committee of the Whole only requires a quorum of 100 members. In addition, amendments to bills are debated under a five-minute rule rather than the one hour rule. Finally, it is in order to close debate on sections of bills by unanimous consent or a majority of members present. Assuming that the Delegate for the District of Columbia could not cast a vote in the full House, a separate question arises as to whether, as provided for by the House Rules amended by H.Res. 78 , the Delegate (along with the territorial delegates) could cast a vote in the Committee of the Whole, subject to a revote when such a vote is determinative. Under Article I of the Constitution, all legislative authority for the United States is to be vested in the Senate and the House of Representatives, and under §2 of that Article, the House of Representatives shall be composed of "Members" chosen in conformity with the qualifications and requirements of the Constitution. As the Delegate for the District of Columbia is not a Member for purposes of Article § 2, the question arises as to the basis on which delegate could vote in the Committee of the Whole. The Constitution does not provide for representatives of the District of Columbia or the territories such as the delegate for the District of Columbia or the resident commissioners or delegates for the territories; nor does it appear that these delegates and resident commissioners are required to meet the qualifications or electoral requirements required of Members of Congress. Consequently, the Constitution does not appear to provide the basis for a delegate to exercise the power of Members under the Constitution. However, the Constitution does not specify whether or not all legislative activities which a Member might engage in are restricted to those Members, thus leaving open the possibility that a delegate may engage in some legislative activities which are not limited to Members. Historically, delegates have engaged in a number of legislative activities which, although preliminary to final passage of legislation and thus arguably advisory, appear to involve the exercise of some modicum of legislative authority. These activities have included introducing legislation, serving on standing congressional committees, voting on these committees, and debating on the floor of the house. The line between what legislative activities are limited to Members of Congress and those which are not, however, is not well developed. As noted previously, the question of whether a vote in the Committee of the Whole, subject to a revote, is advisory in nature was addressed by the United States Court of Appeals in Michel v. Anderson . In Michel, the court noted the long-standing traditions of allowing territorial delegates to vote in standing committees. However, despite a variety of arguments that the procedures of Committee of the Whole made it constitutionally distinct, the court also found that the operational similarities between the Committee and the whole House were significant enough to raise constitutional issues. Nonetheless, because the revote provision rendered the vote largely "symbolic," the court held that "we do not think this minor addition to the office of delegates has constitutional significance." The question has arisen as to who might have the ability to challenge a statute which provides a representative of the District of Columbia a vote in the Committee of the Whole or in the full House. Article III of the Constitution requires that the federal courts may only consider lawsuits which involve actual "cases or controversies." This limitation is enforced through the doctrine of standing, which provides that, in order to bring a suit in federal court, a plaintiff must have a personal stake in the outcome of the controversy. The Supreme Court has indicated that there is a four-part test to determine whether a party has standing: (1) there must be an injury in fact (2) to an interest arguably within the zone of interests protected by the statute or constitutional guarantee at issue (3) resulting from the putatively illegal conduct and (4) which could be redressed by a favorable decision of the court. Thus, an evaluation of whether a particular plaintiff would have standing would require an evaluation of these four factors. There would appear to be at least three groups of plaintiffs who might be in a position to bring a suit based on the above factors. First, voters in a state (or perhaps the state itself) could argue that the vote of their Representative in the House was diluted by the provision of a vote to non-states. Second, Representatives themselves could argue that their vote had been diluted or nullified by vote from a representative of the District. Finally, were a representative from the District to cast a deciding vote regarding legislation that became law, persons affected by such legislation might be able to bring suit. The United States Court of Appeals for the District of Columbia has directly addressed the issue of whether voters from a state would have the authority to challenge the provision of District of Columbia voting representation in the House. In the case of Michel v. Anderson , the Court of Appeals reviewed a district court opinion which had considered whether state voters would have standing to challenge a House Rule from the 103 rd Congress that provided a vote by the District of Columbia and territorial delegate in the Committee of the Whole of the House. In considering this issue, the district court used the four-part test set forth above to determine the existence of a "case or controversy." In Michel , the district court evaluated the injury to state voters as being related to the injury to the voting power of their Representatives. Thus, the first question was whether the injury the court was asked to consider was too generalized or speculative to establish a true case or controversy. For example, a claim that the alleged unconstitutional action merely diminishes a legislator's effectiveness, but does not actually diminish his legal authority, is generally considered too amorphous an injury to confer standing. By contrast, the court had found previously that the loss of a vote or deprivation of a particular opportunity to vote to be a sufficiently particularized injury to warrant judicial scrutiny. In Michel , the district court found that the specific injury alleged was sufficient to confer standing. For instance, the court noted that the Apportionment Clause of the Constitution provides that Members of the House should be apportioned among the states according to the number of inhabitants in the states. By allowing representation from a non-state, the voting power of each Representative would be less than that authorized under the Apportionment Clause. The court found that the alleged dilution of the representational voting power set forth in the Constitution satisfied the requirement of injury-in-fact. The district court also noted that the harm fell within the zone of interest protected by Article I of the Constitution, and the court was able to trace the injury to the actions of the House majority in passing the rule. Finally, the court held that the alleged injury was capable of redress as the plaintiffs only sought a ruling that the vote of the territorial delegates in the Committee of the Whole was unconstitutional. As the plaintiffs met the requirements of all four prongs of the test for standing, the court concluded that the state-voter plaintiffs could proceed. The Court of Appeals for the District of Columbia, in reviewing this decision, noted that the fact that an injury is widespread is not a bar to a suit, as long as each person can be said to have suffered a distinct and concrete harm. The court also noted the many times that the Supreme Court has held that voters who were placed in a voting district that had significantly fewer voters than another district ("one-man, one-vote") had standing because the significance of their vote was diluted. Although in the Michel case, the vote dilution which occurred was of the Representative's vote, not the voters, the court did not find this distinction was of significance for purpose of establishing injury. Thus, the court concluded that sufficient particularized injury had been alleged to establish standing. A separate question arises as to whether Members of the House themselves can bring a suit challenging the allocation of voting representation to the District of Columbia. In addition to the state voters who brought suit in the case of Michel v. Anderson, the plaintiffs in that case included Members of the House. The court found that, like the state voters, the Members themselves had suffered particularized injury. However, a further question, which had not been considered by the Supreme Court at that time, was whether there were separation of powers and prudential concerns which would preclude a court from allowing Members to maintain a suit in such a case. As the Supreme Court has since considered this issue in Raines v. Byrd , this latter case would appear to be the most relevant to consider regarding the question of whether Members have standing to bring suit. The question of congressional standing appears to involve issues that go beyond the strict constitutional requirements of "case and controversy." In general, standing is a mixture of constitutional requirements and prudential considerations, and the cases do not always clearly distinguish between the constitutional and prudential aspects. It should be noted that Congress can eliminate some of the prudential barriers to standing, but not the constitutional requirements. However, it should also be noted that S. 1257 does not currently contain an explicit right for House Members or other plaintiffs to challenge the law. In Raines v. Byrd , six Members of Congress who had voted against the Line Item Veto Act brought suit against the Secretary of the Treasury and the Director of the Office of Management and Budget, alleging that the act unconstitutionally increased the President's power by authorizing him to "cancel" certain spending and tax benefit measures after he signed them into law, without complying with the requirements of bicameral passage and presentment to the President. The Court found that an Article III court should have a "restricted role" in resolving disputes between the political branches, and held that plaintiffs lacked standing because their complaint did not establish that they had suffered an injury that was personal, particularized, and concrete. The majority was of the view that a congressional plaintiff may have standing in a suit against the executive if it is alleged that the plaintiff has suffered either a personal injury (e.g., loss of a Member's seat) or an institutional one that is not "abstract and widely dispersed" but amounts to vote nullification. In the view of the Court, the Raines plaintiffs alleged an institutional injury which damaged all Members (a reduction of legislative and political power generally), rather than a personal injury to a private right, which would be more particularized and concrete. The Court in Raines was willing to find an institutional injury to be sufficient if that injury amounted to nullification of a particular vote and if the plaintiffs' votes "would have been sufficient to pass or defeat a specific bill." Additionally, the Raines Court indicated that it would not find a nullification of a vote if some means of legislative redress was available to the plaintiffs. Based on the Raines case, it could be argued that if a representative of the District of Columbia cast a deciding vote, then a court might find this to constitute vote "nullification," and thus would represent a sufficient institutional injury so as to allow a suit. For instance, if a legislator was part of group of Members whose votes would have been sufficient to defeat the passage of a bill (because a majority had not voted for its passage), allowing such bill to go into effect would appear to be a nullification of those Members' votes. Further, an attempt by that group of legislators to overturn the vote by the District representative would also be subject to the risk that the District could cast a deciding vote on this proposal. Absent such an example of specific injury, however, it is less clear that an individual or group of House Representatives could bring a challenge to a vote by a District of Columbia representative if the vote had not yet had a specific effect on the vote of such plaintiffs. In particular, the fact that Congress could repeal the rule or law granting such a vote would indicate that a court might require that legislators seek redress from Congress. Finally, it would seem likely that, in the event that a representative from the District of Columbia were to cast the deciding vote on a piece of legislation, individuals directly affected by such legislation could bring a case. In this situation, a plaintiff could arguably demonstrate an injury in fact and a substantial likelihood that judicial relief could redress the claimed injury. The specific injury requirement would be met by noting the application of the statute to a particular plaintiff, and redress would be accomplished by a finding of unconstitutionality and the issuance of an injunction. In sum, it is difficult to identify either constitutional text or existing case law which would directly support the allocation by Congress of the power to vote in the full House on the District of Columbia Delegate. Further, that case law which does exist would seem to indicate that not only is the District of Columbia not a "state" for purposes of representation, but that congressional power over the District of Columbia does not represent a sufficient power to grant congressional representation. In particular, at least six of the Justices who participated in what appears to be the most relevant Supreme Court case, National Mutual Insurance Co. of the District of Columbia v. Tidewater Transfer Co. , authored opinions rejecting the proposition that Congress's power under the District Clause was sufficient to effectuate structural changes to the political structures of the federal government. Further, the remaining three Justices, who found that Congress could grant diversity jurisdiction to District of Columbia citizens despite the lack of such jurisdiction under Article III, specifically limited their opinion to instances where there was no extension of any fundamental right nor substantial disturbance of the existing federalism structure. To the extent that providing District residents with House representation could be so characterized, then one could argue that all nine Justices would have found the instant proposal to be unconstitutional. Although not beyond question, it would appear likely that Congress does not have authority to grant voting representation in the House of Representatives to the District of Columbia as contemplated by H.R. 157 . On the other hand, because the provisions of H.Res. 78 allowing Delegates a vote in the Committee of the Whole would be largely symbolic, these amendments to the House Rules are likely to pass constitutional muster. | A variety of proposals were made in the 110th Congress regarding granting the Delegate of the District of Columbia voting rights in the House. On January 24, 2007, the House approved H.Res. 78, which changed the House Rules to allow the D.C. delegate (in addition to the Resident Commissioner of Puerto Rico and the delegates from American Samoa, Guam, and the Virgin Islands) to vote in the Committee of the Whole, subject to a revote in the full House if such votes proved decisive. A bill introduced by Delegate Eleanor Holmes Norton, H.R. 1905, the District of Columbia House Voting Rights Act of 2007, would have given the District of Columbia Delegate a vote in the Full House. On April 19, 2007, H.R. 1905 passed the House by a vote of 241 to 177. A related bill, S. 1257, was considered by the Senate on September 18 of that year, but a motion to invoke cloture failed by a vote of 57-42. Similar bills to give the Delegate a vote in the Full House—H.R. 157 and S. 160—have been introduced in the 111th Congress. S. 160 was approved by the Senate on February 26, 2009, by a vote of 61-37. These two approaches appeared to raise separate, but related, constitutional issues. As to granting the Delegate a vote in the full House, it is difficult to identify either constitutional text or existing case law that would directly support the allocation by statute of the power to vote in the full House to the District of Columbia Delegate. Further, that case law that does exist would seem to indicate that not only is the District of Columbia not a "state" for purposes of representation, but that congressional power over the District of Columbia does not represent a sufficient power to grant congressional representation. In particular, at least six of the Justices who participated in what appears to be the most relevant Supreme Court case on this issue, National Mutual Insurance Co. of the District of Columbia v. Tidewater Transfer Co., authored opinions rejecting the proposition that Congress's power under the District Clause was sufficient to effectuate structural changes to the federal government. Further, the remaining three Justices, who found that Congress could grant diversity jurisdiction to District of Columbia citizens despite the lack of such jurisdiction in Article III, specifically limited their opinion to instances where the legislation in question did not involve the extension of fundamental rights or substantially disturb the political balance between the federal government and the states. To the extent that granting the Delegate a vote in the house would be found to meet these distinguishing criteria, all nine Justices in Tidewater Transfer Co. would arguably have found the instant proposal to be unconstitutional. H.Res. 78, on the other hand, is similar to amendments to the House Rules that were adopted during the 103rd Congress and survived judicial scrutiny at both the District Court and the Court of Appeals level. It would appear, however, that these amendments were upheld primarily because of the provision calling for a revote by the full House when the vote of the delegates was decisive in the Committee of the Whole. In conclusion, although not beyond question, it would appear likely that Congress does not have authority to grant voting representation in the House of Representatives to the Delegate from the District of Columbia as contemplated under H.R. 1905. As the revote provisions provided for in H.Res. 78 would render the Delegate's vote in the Committee of the Whole largely symbolic, however, the amendments to the House Rules would be likely to pass constitutional muster. |
The average spot market price for West Texas Intermediate (WTI), a reference grade of U.S. crude oil, was up 9.5% in 2007 compared to 2006, while the New York Mercantile Exchange (NYMEX) futures price for WTI approached $100 per barrel (p/b) in December 2007. Refinery capacity utilization rates approached 90% or more for much of the year, while oil supply disruptions from Nigeria, Venezuela, and the Persian Gulf remained both a threat and a sometime reality. As the strength of product demand began to weaken in the latter stages of the year, responding to high petroleum product prices as well as a possible slow down of economic growth, refinery margins began to narrow, suggesting that the companies were less able to pass through the increased cost of crude oil to consumers. However, even in the face of uncertainty and weakening markets, the oil industry enjoyed record revenues and profits in 2007. In 2007, the oil industry recorded revenues of approximately $1.9 trillion, of which 78% was accounted for by the five major integrated oil companies. Profits for the industry totaled over $155 billion, 75% of which were earned by the five major oil companies, with the largest, ExxonMobil, earning over 25% of the total profit. Although the financial results for the industry were at record levels, the performance of different sectors of the industry varied, as did the performance of individual companies within those sectors, leaving some firms as relative under-performers compared to the industry leaders. This report analyzes the industry's profit performance in 2007. While recent profit levels in the oil industry are of interest to policy makers, investors, and analysts, among others, the financial results of 2007 should be put in a longer term perspective to understand the performance of the industry. For example, as recently as 2002, the financial picture in the oil industry was far different, with declining earnings in key sectors, such as refining. The oil industry historically has been cyclic, with periods of high earnings often followed by sharp declines, driven by movements in the world price of crude oil. For this reason, projections of future industry performance, based on current performance, are unlikely to be reliable. Integrated oil companies operate in both the upstream (exploration and production) and the downstream (refining and marketing) segments of the industry. Among the integrated oil companies listed in Table 1 , the five largest companies are usually identified as the major oil companies, or the super-majors. ExxonMobil is the largest such company; its profits in 2007 were over 90% of the profits earned by both of its largest international competitors, Royal Dutch Shell and BP. Revenue growth among the integrated oil companies in 2007 was driven by increases in the price of crude oil, especially in the last two quarters of the year. Even though five of the nine companies experienced a decline in oil production, and one of the nine experienced a decline in natural gas production, as shown in Table 2 , their revenues increased on average by 7.1% in 2007. With output declining, it is likely that revenue growth was based on increasing prices. Two profit rates, return on sales and return on equity, are presented in Table 1 . In a report that appears periodically, most recently after the oil companies announced their third quarter earnings in 2007, the American Petroleum Institute (API) compared the returns earned in the oil industry to other American industries. The API comparisons are based on returns on revenue. They found that the oil and natural gas industries earned 7.6 percent on revenues, compared to 5.8 percent for all U.S. manufacturing industries. Although this result implies a 31 percent margin over the returns earned by all U.S. manufacturing industries, it is less than the 9.2 percent earned by all U.S. manufacturing industries excluding the automobile and auto parts industries, that had a negative 26 percent return for the third quarter of 2007. Calculating return on revenues dilutes the effect of growing total profits of the oil industry due to higher prices and growing revenues, another standard percentage measure of profitability, return on equity, is presented in Table 1 . This measure indicates the success of the companies, and industry, in earning profit by utilizing the invested capital of the owners, i.e., the shareholders of the company. This measure is widely used by investors and financial analysts in evaluating the performance of firms seeking access to capital markets. By this measure, the integrated oil companies returned 22.7% in 2007, over twice the return on revenue. The industry leader, ExxonMobil, earned 33.4%. These rates of return are likely to assure these firms', and the industry's, position as a desirable investment as long as the price of oil remains high. Table 2 and Table 3 separate the upstream and downstream performance of the integrated oil companies in 2007. Table 1 and Table 2 show that upstream net income growth led overall corporate net income growth for most of the companies, and they earned almost 80% of their total net income from upstream activities. Oil and gas production declined for each product, almost 3% in oil, and less than one half of one percent in natural gas. Four of the five largest oil producers had declining output. In natural gas, only BP and Shell experienced declining output in 2007. Table 3 presents financial results for the downstream activities of the integrated oil companies for 2007. Net incomes declined by more than twice as much as product sales, suggesting that profit margins per barrel of crude oil refined had declined. In the fourth quarter of 2007, only ExxonMobil and ConocoPhillips were able to produce positive net income growth, with all the other firms showing negative net income growth, or in the case of BP, financial losses from downstream activities. Crude oil prices increased rapidly during the second half of 2007, and reached over $110 per barrel in March 2008. During this period gasoline price increases were thought by many to have lagged behind crude oil price increases. A potential weakening of the demand for gasoline in the United States was thought to be responsible for the lag. With a perception of weakening demand, passing through cost increases to consumers was not thought to be economically feasible. The result was a decline in refining margins. Table 4 presents data for 2007 for the independent oil and gas producers. Although they are large companies, with revenues of more than $10 billion in 2007 for the industry leaders, their total revenues are only about 5% of the integrated oil companies. Their net incomes, however, were approximately 15% of the net incomes of the integrated companies. Although all of the companies in this category experienced increases in revenue, six out of ten experienced negative net income growth. All of the companies, except Andarko and Newfield experienced increases in production of oil and natural gas, or both. With prices for both oil and natural gas rising late in 2007, these companies seemingly should have performed better with respect to net income growth. A possible explanation for the declining net income experienced by some companies might be the large outlays the companies made investing in unconventional oil asset exploration and development. Many of these companies are involved in shale oil work in Texas, Arkansas, and South Dakota. Valero is the leading firm among the group of independent refiners and marketers. Valero accounted for over one half of the sector's revenue, and two thirds of its net income. Valero is the largest refiner in the United States, with a total capacity of over 2.2 million barrels per day, approximately 13% of the total U.S. capacity. Independent refiners experienced the same pressure on refining margins as the integrated oil companies. The difference was that these companies produce no crude oil and therefore were not positioned to take advantage of the increases in the price of crude oil during the second half of 2007. The severity of the economic pressure on refiners in the fourth quarter of 2007 is shown in Table 6 . Although revenues for the group grew by 53.4%, net incomes declined by two thirds. Four of the seven companies in the group not only had negative growth in net income in the fourth quarter of 2007, but generated losses from business operations. Valero, the sector's leading firm, earned 53% of the revenue, but fully 97% of the earned net income. Not only was the cost of crude oil rising for the independent refiners, but relatively weaker demand conditions made it harder for the firms to quickly pass cost increases on to consumers. Valero was able to remain profitable because it was able to purchase and utilize lower cost heavy, sour crude oil at its refineries. Crude oil prices spot prices reached $110 per barrel in the first quarter of 2008. Should the price of crude oil remain at, or above, $100 per barrel for large portions of the year, the profits of oil producing firms should be high. However, the economic conditions will likely be difficult for firms that refine crude oil, but do not have their own supplies. It is likely that a greater effort will be made by refiners to adapt technologies that allow them to use heavy, sour, oil stocks. These lower quality crude oils are more readily available than high quality oils and sell at a price discount relative to the reference oils, West Texas Intermediate, for example. Another key factor in the industry's profitability is whether demand for petroleum products continues to grow in the United States and the rest of the world. U.S. gasoline demand is arguably beginning to weaken as a result of high prices. Some projections see $4 per gallon gasoline in the second and third quarters of 2008. While prices at that level might allow refiners to recover the cost of crude oil, they might also reduce demand, putting downward pressure on price. Demand for petroleum products outside the United States remains strong, and will likely remain strong as consumers in developing nations use their higher incomes to fuel additional consumption. A world-wide economic slowdown is the most likely factor that would lead to slower demand growth. The oil industry, in general, continued to generate high profits, as it has since 2004. However, it might be that the first sign of problems, in at least part of the industry, have arisen. Weakening demand for petroleum products, specifically the U.S. demand for gasoline, has put pressure on the downstream side of the industry. While demand growth, political uncertainty, the weak U.S. dollar, tight spare capacity, and other factors make it likely that the price of crude oil will remain high in 2008, the weakening U.S. economy, coupled with the demand reducing effects of higher prices, may make it more difficult to raise petroleum product prices. New capacity investments in refineries, one possible source of gasoline price relief for consumers, are likely to be slowed by the poor profit performance of the refining sector. If new capacity does not come on line the need for imported gasoline will remain a key factor in avoiding shortages in the U.S. market. | Increases in the price of crude oil that began in 2004 pushed the spot price of West Texas Intermediate (WTI), a key oil in determining market prices, to nearly $100 per barrel in the third quarter of 2007. Tight market conditions persisted through the remainder of 2007, with demand growth in China, India, and other parts of the developing world continuing. Uncertain supply related to political unrest in Nigeria, Venezuela, Iraq, and other places continued to threaten the market and contribute to a psychology that pushed up prices. The decline of the value of the U.S. dollar on world currency markets, as well as the investment strategies of financial firms on the oil futures markets, has also been identified by some as factors in the high price of oil. The profits of the five major integrated oil companies remained high in 2007, as they generally accounted for approximately 75% of both revenues and net incomes. For this group of firms, oil production led the way as the most profitable segment of the market, even though oil and gas production growth was not strong. The refining segment of the market performed relatively poorly. Independent oil and natural gas producers are small relative to the integrated oil companies, and their financial performance was weaker, with more than half of the firms reporting declines in net income. Independent refiners and marketers also experienced a difficult year that was reflected in profits in 2007. The combination of high crude oil prices that raised their costs and the inability to quickly pass cost increases on to consumers lowered refining margins, resulting in generally declining profits. The potential volatility of the world oil and financial markets, coupled with the weakness of the U.S. and other economies, makes any profit forecast for 2008 highly speculative. While continued high oil prices are likely—the price of oil reached $110 per barrel in the first quarter of 2008—the ability of the industry to pass those prices on to consumers of gasoline and other products during 2008 is uncertain due to possibly weakening demand. |
In early 2005, the United States began advertizing in mass-circulation Urdu-languagenewspapers and on radio and television stations in Pakistan's Northwest Frontier Province topromote a rewards program for wanted Al Qaeda suspects. In May, Al Qaeda fugitive Abu Farajal-Libbi, a Libyan native wanted in connection with lethal December 2003 attempts to assassinatePresident Musharraf, was captured in the northwestern Pakistani city of Mardan. Informationprovided by Libbi reportedly led to the arrest of six suspected Al Qaeda members, including twoArabs and four Pakistanis, and the targeted killing of an alleged Al Qaeda bomb expert near theAfghan border. Musharraf claimed that Pakistan had "broken their [Al Qaeda's] back" with recentarrests. Two months later, in the wake of deadly July bombings in Britain and Egypt, Musharrafagain declared that Al Qaeda's ability to operate in Pakistan had been destroyed. (7) Debate over the whereaboutsof fugitive Al Qaeda founder Osama bin Laden continues to focus on the rugged Afghan-Pakistaniborder region: Pakistani officials generally insist there is no evidence that bin Laden is hiding there,but numerous U.S. officials have suggested otherwise. In June, Director of Central Intelligence Gossclaimed to have "an excellent idea of where [bin Laden] is" and suggested that "sanctuaries insovereign states" and "our sense of international obligation" present obstacles to his capture. (8) The Pakistani president hasissued contradictory statements on the topic. Efforts to kill or capture Al Qaeda and Taliban militants near the Afghanistan-Pakistanborder continue to bring mixed results. An apparently resurgent Taliban has suffered majorbattlefield losses in eastern and southern Afghanistan during the spring and summer of 2005, butU.S. and Afghan officials continue to claim that insurgents are able to cross into Afghanistan toattack U.S.-led forces before returning to Pakistan and, in June, Afghan officials were complainingof a "steady stream of terrorists" entering their country from Pakistan. The Afghan-Pakistani riftdeepened, spurring President Bush to make a personal call to Musharraf in an effort to smoothrelations between two key U.S. allies in the region. In July, Pakistan reported moving 4,000additional troops to the border region, bringing the total to some 80,000, and Prime Minister Azizvisited Kabul, where he vowed "seamless cooperation" with the Afghan government in fightingterrorism and Islamic extremism. Still, U.S. officials continue to urge Islamabad (and Kabul) to "domore" to end insurgent operations in the region and some reports indicate that Taliban recruiting andtraining continues to take place on Pakistani territory without government interference. (9) Pakistan's western tribal regions continue to be the site of tensions and sporadic Islamicmilitant-related violence. Pakistani military operations in South Waziristan wound down in 2004. Late in that year, the regional Pakistani corps commander declared that "peace has been restored inWana," the area where the bulk of combat had taken place. Attention has become focused on theNorth Waziristan district, where scores and possibly hundreds of "unwanted foreigners" have foundrefuge. The Islamabad government is using a carrot-and-stick approach, offering economic andinfrastructure development incentives to encourage cooperation from tribal chieftains whilethreatening use of force in those areas where militants are given haven. Yet cooperative triballeaders have come under lethal attack by militants and resistance to Islamabad's cooperation withU.S.-led efforts in Afghanistan remains widespread. On July 15, U.S. forces based in Afghanistanexchanged heavy weapons fire with militants just across the border in Pakistan, killing 24 of them. Thousands of Pakistani tribesmen later denounced the U.S. action and Pakistan told the United Statesthat border violations would not be tolerated. (10) Pakistan continues to struggle with a virulent strain of belligerent Islamism that someanalysts say threatens the survival of the country. In December 2004, President Musharraf called his"biggest fear" the extremism, terrorism, and militancy that has "really polluted society in Pakistan." He also conceded that some of Pakistan's religious schools are part of the problem: "There are many[madrassas] which are involved in militancy and extremism." (11) Major sectarian bombattacks in May again raised questions about the ability of Pakistan's security forces to maintain orderin the country's urban centers (where, not incidentally, the great majority of top Al Qaeda fugitiveshave been found). Positive news did come with July announcements that the Islamabad governmentwould reinvigorate its efforts to curtail indigenous terrorism by detaining suspected militants,shuttering the offices of extremist groups, and regulating the activities of the country's thousands ofreligious schools, some of which are involved in the teaching of militancy. Pakistan-U.S. counterterrorism cooperation continues apace. In November 2004, thePentagon notified Congress of three possible major Foreign Military Sales to Pakistan involvingeight P-3C maritime reconnaissance aircraft, 2,000 TOW anti-armor missiles, and six Phalanx navalguns. The deals could be worth up to $1.2 billion for Lockheed Martin and Raytheon, the primecontractors. The Department of Defense characterized the P-3Cs and TOW missiles as havingsignificant anti-terrorism applications (a claim that elicited skepticism from some analysts), and itasserted that the proposed sales would not affect the military balance in the region. India's externalaffairs minister later "cautioned the United States" against any decision to sell F-16 fighter jets toPakistan, adding that the "U.S. arms supply to Pakistan would have a negative impact on thegoodwill the United States enjoys with India, particularly as a sister democracy." (12) Yet, in March 2005, theBush Administration announced that the United States would resume sales of F-16 fighters toPakistan after a 16-year hiatus (see CRS Report RS22148, Combat Aircraft Sales to South Asia ). Separatist-related violence and terrorism in Kashmir has increased in the summer of 2005. The India-Pakistan peace initiative begun in April 2003 continues, most concretely with a formalcease-fire agreement along the Kashmiri Line of Control (LOC) and the entire international border(the cease-fire has held for nearly two years). In April 2005, a new bus service was launched in thedisputed Kashmir region and the Indian and Pakistan leaders called the bilateral peace process"irreversible." However, while New Delhi indicates that rates of militant infiltration across the LOCare down significantly as compared to past years, ongoing separatist-related violence in India'sJammu and Kashmir state has claimed scores of lives and Indian officials have renewed criticismsthat Pakistan has not acted to eliminate the "terrorist infrastructure" on Pakistani territory. In India's northeastern states , decades-old separatist movements continue. After twoAssamese separatist leaders reportedly surrendered in February, United Liberation Front of Assamterrorists conducted a series of coordinated bomb attacks in March, spurring Indian security forcesto launch a 2,000-man operation against militants there in April. In May, New Delhi signed a trucewith the National Democratic Front of Bodoland, a leading Assamese separatist group designatedas terrorists by the Indian government. Moreover, rebels continue to make deadly assaults ongovernment forces in Manipur. (13) Meanwhile, attacks perpetrated by Maoist "Naxalites" operating in India (the two largest organizations being U.S.-designated terrorist groups) became morenumerous and have cost scores of lives 2005. Maoist militants are said to have expanded theiroperations into more than half of India's 28 states, spurring some observers to issue dire warningsabout India's deteriorating internal security circumstances. New Delhi vows to bolster thecapabilities of security forces battling the militants. (14) Other recent terrorist violence in India included a July incidentin which six militants, including a suicide bomber, were killed in the midst of an unsuccessful attackon the site of a controversial temple that is claimed by both Hindus and Muslims in the Uttar Pradeshcity of Ayodhya. Ensuing protests by Hindu activists led to thousands of arrests. The culpritsreportedly were linked to the Pakistan-based Lashkar-e-Taiba terrorist group. (15) India-U.S. counterterrorism cooperation appears set to further expand. In June, the UnitedStates and India signed a ten-year defense framework agreement which lists "defeating terrorism andviolent religious extremism" as one of four key shared security interests, and which calls for abolstering of mutual defense capabilities required for such a goal. (16) On August 17, about 350 small bombs exploded almost simultaneously across Bangladesh ,killing at least two people and injuring more than 125 others. No one claimed responsibility for theattacks, but leaflets produced by the banned militant Jamatul Mujahideen and calling for Islamic lawin Bangladesh were found at most sites. Numerous suspects subsequently were arrested, includingmany suspected members of the Jamatul Mujahideen. The United States offered law enforcementassistance to Dhaka in its ongoing investigation of the blasts. (17) After meeting with U.S.Assistant Secretary of State Christina Rocca, on May 12, 2005, in Dhaka, Bangladesh ForeignMinister M. Morshed Khan reportedly stated that he was optimistic that Bangladesh would receiveAmerican assistance for capacity building to improve the law and order situation inBangladesh. (18) It wasalso reported that the two discussed the need to better protect the coastal zone from piracy and tobuild up Bangladesh's capacity to face any terrorist challenges. (19) During her visit, Roccareportedly urged Bangladesh to "go after those who would undermine its long tradition of tolerance,moderation and peace." Rocca welcomed Bangladesh's ban on the Jamatul Mujahideen and theJagrata Muslim Janata Bangladesh for their alleged role in recent bombings. (20) Foreign Minister MorshedKhan met with Secretary of State Rice during his visit to Washington later in May 2005. At thattime, he reiterated Bangladesh's commitment to work with the United States in the war against terror.Rice described Bangladesh as "a democratic force and a voice of moderation." (21) Foreign Minister Khanreportedly described the U.S. view of Bangladesh as "an unavoidable partner" in bridging religiousdivides across the world." (22) Bangladesh recently assumed the Chair of the BIMSTECgrouping comprised of Bangladesh, Bhutan, India, Nepal, Burma, Sri Lanka, and Thailand. The June1, 2005 BIMSTEC meeting in Dhaka reportedly reviewed progress of a joint working group onterrorism which met in Delhi in December 2004. (23) Assistant Secretary Rocca also traveled to Nepal during her May 2005 trip to South Asia.There is rising concern among some analysts that King Gyanendra's February 1, 2005 takeover hasbroadened the divide between the king and democratic elements in the country and thereby weakenedthe government's ability to fight the Maoists. Such a situation favors the Maoists as it appears topreclude a unified front against them. Violence has increased in recent months and the death toll ofthe conflict with the Maoists is now thought to exceed 11,500. India may be increasingly concernedthat the conflict in Nepal could spill over into neighboring areas. Maoist tactics are reportedlychanging with increased daytime attacks and increased use of roadblocks and blockades. In August,Kathmandu accused Maoist rebels of "executing" 40 captured soldiers in the deadliest incident sincethe king's February power seizure, spurring analysts to again conclude that the government'scounterinsurgency efforts are making little headway. (24) The Sri Lanka peace process has come under new threat after the August 12 assassinationof Foreign Minister Lakshman Kadirgamar, an ethnic Tamil known for his vehement anti-rebelstance. Kadirgamar also was one of President Kumaratunga's closest allies. The Liberation Tigersof Tamil Eelam (LTTE) denied playing any role in the murder, but the cease-fire may not hold. (25) The peace process hadalready been stalled with growing instability as divisions within the LTTE ranks has devolved intointernecine warfare and targeted assassinations amongst the Northern and Eastern factions. TheLTTE leadership has also attempted to apply pressure on both the Sri Lankan Government and theNorwegian-backed Sri Lanka Monitoring Mission (SLMM) by staging isolated attacks on Sri Lankanunits accompanied by monitors. The LTTE also announced in May 2005 that it is looking atacquiring an air capability, which is in violation of the cease-fire and could be destabilizing due tothe possibility that such capabilities could be used in terrorist suicide-bombings. Divisions withinthe Sri Lankan government have hampered talks as well, as there are internal disagreements overnegotiating strategies and possible concessions to the LTTE in any eventual peace agreement. TheU.S. Administration has voiced continuing support for negotiations and the possibility of peace inSri Lanka and continues to call on the LTTE to disarm and disavow violence. Among the central goals of Operation Enduring Freedom are the destruction of terroristtraining camps and infrastructure within Afghanistan, the capture of Al Qaeda and Taliban leaders,and the cessation of terrorist activities in Afghanistan. (27) Most, but not all, of these goals have been achieved. However,since the Taliban's ouster from power in Kabul and subsequent retreat to the rugged mountain regionnear the Afghanistan-Pakistan border, what the U.S. military calls its "remnant forces" have beenable to regroup and to conduct "hit-and-run" attacks against U.S.-led coalition units, often in tandemwith suspected Al Qaeda fugitives. These forces are then able to find haven on the Pakistani sideof the border. (28) Onesenior Pakistani official was quoted as saying that South Waziristan, a district of the traditionallyautonomous Federally Administered Tribal Areas (FATA), had by mid-2002 become "the hub of AlQaeda operations in the whole world." Three years later, some analysts continue to call Pakistan "theglobal center for terrorism and for the remnants of Al Qaeda." (29) Al Qaeda founder Osamabin Laden and his lieutenant, Egyptian Islamic radical leader Ayman al-Zawahiri, are believed bymany to be in Pakistan's North West Frontier Province, an area roughly the size of Virginia. Pakistani officials generally insist there is no evidence that bin Laden is hiding in the borderregion, (30) but numerousU.S. officials have suggested otherwise. (31) In June 2005, Director of Central Intelligence Goss claimed tohave "an excellent idea of where [bin Laden] is" and suggested that "sanctuaries in sovereign states"and "our sense of international obligation" present obstacles to his capture. (32) The Pakistani presidenthas issued contradictory statements on the topic of bin Laden's whereabouts. (33) Some analysts speculatethat bin Laden's capture in Pakistan could create a backlash among his sympathizers there and somereports suggest growing U.S. frustration with the lack of progress in finding "high value targets" inthe region. (34) Pakistan-Afghanistan Relations. The frequencyof attacks on U.S.-led coalition forces in southern and eastern Afghanistan increased throughout2003 and, in October of that year, then-U.S. Special Envoy and Ambassador to Afghanistan ZalmayKhalilzad warned that resurgent Taliban and Al Qaeda forces presented a serious threat to Afghanreconstruction efforts. In the wake of spring 2004 military operations by Pakistan near the Afghanborder, the Afghan foreign minister praised Pakistan for its role in fighting terrorism, but AfghanPresident Karzai expressed concern that militants trained on Pakistani territory continue to cross intoAfghanistan to mount anti-government attacks there. (35) Karzai paid a visit to Islamabad in August 2004, where PresidentMusharraf assured him that Pakistan would not allow extremists to use Pakistani territory to disruptupcoming Afghan elections. Just days before those October 2004 elections, Islamabad announcedhaving moved extra troops and "quick reaction forces" near the Afghan border to prevent militantinfiltrations. Although the top U.S. general in Afghanistan had earlier expressed concerns that AlQaeda-linked operatives were actively encouraging militants to disrupt the elections, the successfuland mostly peaceful polling led him to later declare that the Taliban were no longer a meaningfulthreat to Afghan stability. (36) However, the influence of Pashtun tribal animosities and lingering pro-Taliban sentiments-- combined with reports that some elements of Pakistan's security apparatus and Islamist religiousparties remain sympathetic to anti-U.S. forces -- have some analysts concerned that the Musharrafgovernment is insufficiently committed to pacifying the border. (37) Political tensions relatedto Afghan instability and Pakistan's role again rose in 2005, reaching alarming levels in mid-year. In January, a "misunderstanding" led to a cross-border exchange of artillery and machinegun firebetween Afghan and Pakistani troops. (38) In April, a top U.S. military commander in Afghanistan claimedthat Pakistan was preparing to launch military operations in North Waziristan near the Afghanborder. A Pakistani general later denied the claim and called the comments "highlyirresponsible." (39) AMay Newsweek magazine report claimed that a Koran had been desecrated at the U.S. facility atGuantanamo Bay, allegedly spurring violent anti-U.S. protests in both Afghanistan and Pakistan(senior U.S. and Afghan officials later disputed the connection). (40) Subsequent questions wereraised about a possible role of Pakistan's intelligence service in sparking the riots; some Pakistanistrategists may oppose a long-term U.S. presence in Afghanistan, viewing it as inimical toIslamabad's interests in the region. (41) Revived Taliban insurgent activity killed many hundreds in Afghanistan during the springof 2005. In May, a U.S. Army colonel in Kabul commended Pakistan's "considerable" militaryefforts in Waziristan, but said insurgents continue to cross into Afghanistan to attack U.S.-led forcesbefore returning to Pakistan. (42) By June, Afghan officials were complaining of a "steady streamof terrorists" entering their country from Pakistan, and the Afghan president made a personal appealto his Pakistani counterpart to halt the exfiltration. President Musharraf issued assurances of fullsupport for the Kabul government, but Afghan authorities reported arresting three Pakistani nationalsminutes before they planned to kill the outgoing U.S. Ambassador to Afghanistan, Zalmay Khalilzad,in Kabul. The Afghan-Pakistani rift deepened, spurring President Bush to make a personal call toMusharraf in an effort to smooth relations between two key U.S. allies in the region. (43) In July 2005, Pakistanreported moving 4,000 additional troops to the border region, bringing the total to some 80,000, andPrime Minister Aziz visited Kabul, where he vowed "seamless cooperation" with the Afghangovernment in fighting terrorism and Islamic extremism. Still, U.S. officials continue to urgeIslamabad (and Kabul) to "do more" to end insurgent operations in the region and some reportsindicate that Taliban recruiting and training continues to take place on Pakistani territory withoutgovernment interference. (44) Al Qaeda and Related Groups in Pakistan. Linksbetween Al Qaeda and Pakistani Islamic militant groups, while possibly extensive, are believed tobe mostly informal, with existing Pakistani religious extremists facilitating Al Qaeda activities inthat country without being considered "members." (45) Al Qaeda reportedly was linked to several anti-U.S. andanti-Western terrorist attacks in Pakistan during 2002, although the primary suspects in most attackswere members of indigenous Pakistani groups. (46) With the post-9/11 capture of numerous Arab Al Qaeda leaders(most of them in Pakistani cities), there are indications that a new wave of ringleaders is made upof Pakistani nationals. (47) President Musharraf's further efforts to crack down on outlawed groups -- along with his suggestionsthat Pakistan may soften its long-held Kashmir policies -- may have fueled even greater outrageamong radical Islamists already angered by Pakistan's September 2001 policy reversal, whenMusharraf cut ties with the Afghan Taliban regime and began facilitating U.S.-led anti-terrorismoperations in the region. (48) Musharraf and his top lieutenants themselves became targets ofAl Qaeda and Al Qaeda-linked violent extremism: (49) On December 13, 2003, a remote-controlled bomb destroyed a Rawalpindibridge less than one minute after Musharraf's motorcade had passed over it. A U.S.-suppliedelectronic jamming device is believed to have delayed detonation. On December 25, 2003, dual suicide car bomb attacks on Musharraf'smotorcade in Rawalpindi failed to harm the Pakistani president, but killed 15 people, including theattackers. (50) On June 10, 2004, militants attacked the motorcade of a top Pakistan Armycommander and Musharraf ally in Karachi, killing ten, but leaving the generalunharmed. On July 30, 2004, a suicide bomber killed eight other people in a failed attemptto assassinate the Prime Minister-designate, Shaukat Aziz, who was unharmed. The F.B.I. played a role in the investigations into attempts on President Musharraf's life andthe United States has undertaken to provide improved training to Musharraf's bodyguards. Nonetheless, it is considered likely that future assassination attempts on Musharraf will occur. (51) Low-level Pakistanisecurity officers and soldiers were convicted for involvement in the attacks on Pakistani leaders,heightening concerns that the Musharraf government is finding it difficult to control domesticextremism, especially among some elements of Pakistan's security apparatus. (52) As more evidence arisesexposing Al Qaeda's deadly new alliance with indigenous Pakistani militants -- and militaryoperations continue to cause death and disruption in Pakistan's western regions -- concern aboutPakistan's fundamental political and social stability has increased. (53) The United States also notes past indications of links between Al Qaeda and Pakistani armyofficers, intelligence agents, weapons experts, and militant leaders. There also have been reports thatPakistan allows Taliban militants to train in Pakistan for combat in Afghanistan and that Al Qaedacamps near the Afghan Pakistani border remain active. (54) Signs of collusion between some elements of Al Qaeda,Lashkar-e-Taiba, and influential Pakistanis fuel skepticism among those who doubt the sincerity ofPakistan's commitment to moderation. For example, of three major Al Qaeda figures captured inPakistan, one (Abu Zubaydah) was found at a Lashkar-e-Taiba safehouse in Faisalabad, suggestingthat some LeT members have facilitated the movement of Al Qaeda members in Pakistan. (55) Another (Khalid SheikhMohammed) was seized at the Rawalpindi home of a member of the Jamaat-i-Islami (JI), one ofPakistan's leading religious Islamist political parties. In fact, at least four top captured Al Qaedasuspects had ties to JI. In August 2004, Pakistan's interior minister asked the JI leadership to explainwhy several important Al Qaeda fugitives were captured in the homes of party workers, and a leaderof the ruling Muslim League party acknowledged that terrorists were linked to "individual" JIleaders. JI chief Qazi Hussain Ahmed responded by denying that the party had any ties to Al Qaeda. When asked about the issue, President Musharraf expressed "the greatest disappointment ... thatthere are some political elements" in Pakistan that "keep on instigating" foreign terrorists. He deniedimplicating any specific religious parties as a whole while conceding that individual terroristsuspects have been JI members. (56) During the time that Islamabad was actively supporting the Afghan Taliban regime it hadhelped to create, Pakistan's powerful Inter-Services Intelligence (ISI) agency is believed to have haddirect contacts with Al Qaeda figures. (57) Sympathetic ISI officials may even have provided shelter to AlQaeda members in both Pakistan and Kashmir. (58) At least one source suggests the ISI collaborated with Al Qaeda'sshift into South Waziristan in 2002. (59) Two senior Pakistani nuclear scientists reportedly met withOsama bin Laden in 2001 to conduct "long discussions about nuclear, chemical and biologicalweapons." (60) In July2005, six Pakistan army officers, including two colonels, were convicted on charges of plotting withAl Qaeda members. (61) Moreover, known Islamic extremists with ties to Al Qaeda appear to have remained active onPakistani territory. For example, longtime Pakistani terrorist chief Fazlur Rehman Khalil, whoco-signed Osama bin Laden's 1998 edict declaring it a Muslim's duty to kill Americans and Jews,has lived openly in Rawalpindi, not far from Pakistan's Army General Headquarters. (62) Khalil is the leader ofHarakat ul-Mujahideen, one of the many Pakistan-based terrorist groups opposed to both thecontinued rule of President Musharraf and to U.S. policy in the region. Mid-2004 saw significant developments in the fight against Al Qaeda-linked militants inPakistan, including the capture or killing of several allegedly senior Al Qaeda operatives and otherwanted fugitives (Al Qaeda suspects Masrab Arochi, Ahmed Khalfan Ghailani, and MohammedNaeem Noor Khan were captured in Pakistani cities in June and July; see "Notable Al Qaeda FiguresCaptured or Killed in Pakistan," below). Pakistan's interior minister said that security agencies hadcaptured 12 foreign and 51 Pakistani "terrorists" between mid-July and mid-August 2004. As manyas ten of these were suspected Al Qaeda members whom the Pakistani government said wereplanning attacks on Pakistan government and Western targets, including the U.S. Embassy, tocoincide with Pakistani Independence Day. (63) In mid-August 2004, Pakistan published pictures of six"most-wanted terrorists" along with offers of major monetary rewards for information leading totheir capture. (64) InSeptember, Pakistan reported having killed one of these fugitives, suspected top Al Qaeda operativeAmjad Farooqi, and two other militants during a 4-hour gunbattle in the southern city of Nawabshah. Farooqi was described as having been the chief Al Qaeda contact in Pakistan and a longtimeassociate of Khalid Sheik Mohammed. (65) Within days, Pakistan said 11 more militants had been captured,including members of Jaish-e-Mohammed wanted in connection with a May 2002 car bombing inKarachi that killed 11 French military technicians. Pakistan's interior minister declared that thearrests had "broken the back of Al Qaeda in Pakistan," a claim identical to that made by another topPakistani official two years earlier. In September 2004, then-Deputy Secretary of State Armitagecalled the activities of Pakistani security forces "very noteworthy" and "extraordinarilyappreciated." (66) While developments in 2004 marked notable strides in Pakistani and multilateral efforts toeliminate Al Qaeda and other Islamic extremist elements in the region, the problem for Pakistan isfar from resolved. Reports indicate that Pakistan's western border regions -- especially thetraditionally autonomous Wazir districts of the FATA -- remain a sanctuary for scores or evenhundreds of non-Pakistani militants with Al Qaeda links or sympathies. (67) Pakistani forces continueto hunt suspected Al Qaeda members in both urban areas and western border regions. (68) In a controversial turn,the Islamabad government has made large cash payments to Pashtun tribal commanders in an effortto sever Wazir ties to Al Qaeda (see "Pakistani Military Operations" section below). (69) In 2005, the United States has bolstered efforts to capture wanted Al Qaeda fugitives in partwith local-language television, radio, and newspaper advertising offering large monetary rewardsfor information leading to the arrest of 14 most wanted terrorists. (70) An apparent rift betweenArab Al Qaeda members and their Central Asia (primarily Uzbek) allies reportedly has beenexploited by U.S. and Pakistani intelligence services; such internal Al Qaeda conflict may haveallowed for the capture of Abu Faraj al-Liby in May 2005. (71) The arrest spurredPresident Musharraf and Pakistan's interior minister to (again) insist that their security forces had"broken the back" of Al Qaeda in Pakistan. (72) Yet, in June 2005, a senior fugitive Taliban leader appeared onPakistani television to claim that Osama bin Laden and Taliban chief Mullah Omar were both aliveand in good health, spurring the outgoing U.S. Ambassador to Afghanistan to claim that the twofugitives were not in Afghanistan. (73) Following deadly July 7, 2005 bombings in London, and subsequent confirmation that atleast two of the culprits had made recent visits to Pakistan, Islamabad was faced with renewedinternational scrutiny of the country's links to Islamic extremism. President Musharraf launched anew nationwide crackdown on suspected militants and officials began investigating possible tiesbetween the London attack and Pakistan-based terrorist groups with known links to Al Qaeda. Bymonth's end, Musharraf was again declaring that Al Qaeda's operational structure in Pakistan hadbeen destroyed and he excluded the possibility that the terrorist network could have carried outrecent attacks in Britain or Egypt. (74) Notable Al Qaeda Figures Captured or Killed in Pakistan Narcotics. Compounding the difficulty of battling regional extremists has been a major spike in Afghan opium production, spurring acute concerns thatAfghanistan may become or already is a "narco-state," and that terrorist groups and their supportersin both Afghanistan and Pakistan are reaping huge profits from the processing and trafficking ofheroin. (75) A bumperopium crop in 2004 was two-thirds larger than the previous year's, with Afghan opium now said tocomprise up to 90% of the world's supply and the opium trade accounting for about half ofAfghanistan's gross domestic product. The director of Pakistan's Anti-Narcotics Force has estimatedthat 70% of narcotics produced in Afghanistan is trafficked through Pakistan. Some analysts expressworry that Pakistan is forced to divert scarce security resources to counternarcotics efforts. (76) There is congressionalconcern that heroin trafficking has become a major source of funding for Al Qaeda. (77) Pakistan is known to be a base for numerous indigenous terrorist organizations. Manyanalysts locate the genesis of this now serious problem in the Islamization process initiated by Z.A.Bhutto after 1971 and greatly accelerated by Gen. Zia-ul-Haq in the 1980s. Some also hold theUnited States complicit, given its overt support for Zia, an authoritarian military leader whorepresented a "frontline ally" against Soviet expansionism. Zia sought greater domestic politicallegitimacy in part by strengthening the country's conservative religious elements which would laterplay a major role in Pakistan's Afghan and Kashmir policies. (78) Pakistan has in the past demonstrated inconsistency in its efforts to rein in Islamic militantsoperating inside its borders. The United States has for many years been aware of the existence ofoutlawed groups both in Pakistan-held Kashmir and within Pakistani cities. In July 2000 testimonybefore the House International Relations Committee, a senior U.S. counterterrorism official calledPakistan's record on combating terrorism "mixed," noting that "Pakistan has tolerated terrorists livingand moving freely within its territory" and is believed to have provided "material support for someof these militants, including the Harakat ul-Mujahidin, a group that [the United States] hasdesignated as an FTO [Foreign Terrorist Organization]." (79) In the past, sectarian and Kashmir-oriented militant groups in Pakistan generally operatedwithin their own distinct geographic and functional spheres, separate from one another and also frommostly non-Pakistani militants who came to the region intent on fighting an international jihad. These distinctions have become less clear in the post-9/11 period. (80) In January 2002, Pakistanbanned five extremist groups, including Lashkar-e-Taiba (LeT), Jaish-e-Mohammed (JeM), andSipah-e-Sahaba Pakistan (SSP). The United States officially designates LeT and JeM as terroristgroups; SSP appears on the State Department's list of "other selected terrorist organizations." (81) Following Al Qaeda's2001-2002 expulsion from Afghanistan and ensuing relocation of some core elements to Pakistanicities such as Karachi and Peshawar, some Al Qaeda activists are known to have joined forces withindigenous Pakistani Sunni militant groups, including LeT, JeM, SSP, and Lashkar-i-Jhangvi (LJ),an FTO-designated offshoot of the SSP that has close ties to Al Qaeda. (82) The United Nations listsJeM and LJ as "entities belonging to or associated with the Taliban and Al Qaedaorganization." (83) In his landmark January 2002 speech, President Musharraf vowed to end Pakistan's use asa base for terrorism, and he criticized religious extremism and intolerance in the country. In thewake of the speech, about 3,300 extremists were detained, though most of these were soon released(including one man who later tried to assassinate Musharraf). (84) Among those releasedwere the founders of both Lashkar-e-Taiba and Jaish-e-Muhammad. Although officially banned,these groups continued to operate under new names: LeT became Jamaat al-Dawat; JeM becameKhudam-ul Islam. (85) In November 2003, just two days after the U.S. Ambassador expressed particular concern over thecontinuing activities of banned organizations, Musharraf moved to arrest members of these groupsand shutter their offices. Six groups were formally banned, including offshoots of both the JeM andSSP, and more than 100 offices were raided. Musharraf vowed to permanently prevent bannedgroups from resurfacing, and his government moved to seize their financial assets. (86) Some analysts called theefforts cosmetic, ineffective, and the result of external pressure rather than a genuine recognition ofthe threat posed. (87) Nearly two years later, and in the wake of deadly July 2005 bombings in London that had apossible Pakistan connection, both President Musharraf and Prime Minister Aziz restated theirstrident intention to combat religious extremism. From 800 to as many as 3,000 arrests were madein nationwide sweeps when security forces raided numerous mosques and religious seminaries. However, there is widespread scepticism among analysts that Musharraf's most recent initiatives willlead to more effective action; many contend that such assurances have been given by the Pakistanileader numerous times in the past without meaningful result. (88) Moreover, reports thatmilitant training facilities remain operative on Pakistani-controlled territory have become morecommon in mid-2005 and emanate from such disparate quarters as government officials in Kabuland New Delhi, as well as from local and Western media. (89) Since 2003, Pakistan's domestic terrorism mostly has involved Sunni-Shia conflict. Sectarianviolence has plagued Pakistan for decades. (90) According to one report, Pakistan's sectarian conflict is "thedirect consequence of state policies of Islamization and marginalization of secular democratic forces"wherein Sunni orthodoxy and militancy have been bolstered and manipulated by successivemilitary-dominated governments in Islamabad. (91) Repression of religious minorities in Pakistan is noted by theUnited States. (92) Majorsuicide bombings in Islamabad and Karachi left dozens dead in May 2005, and again raised concernsabout Pakistan's sectarian violence and domestic stability. Some analysts believe that, by redirectingPakistan's internal security resources, an increase in such violence may ease pressure on Al Qaedaand affiliated groups and so allow them to operate more freely there. (93) The Taliban movement itself began among students attending Pakistani religious schools(madrassas). Among the 10,000-20,000 or more madrassas training up to two million children inPakistan are a small percentage that have been implicated in teaching militant anti-Western,anti-American, anti-Hindu, and even anti-Shia values. Secretary of State Powell identified these as"programs that do nothing but prepare youngsters to be fundamentalists and to be terrorists." Thereis, however, little evidence that madrassas are producing known anti-Western terrorists. (94) Many of these madrassasare financed and operated by Pakistani Islamist political parties such as Jamaat-e-Ulema Islam (JUI,closely linked to the Taliban), as well as by multiple unknown foreign entities, many in SaudiArabia. (95) As many astwo-thirds of Pakistan's seminaries are run by the Deobandi sect, known in part for a traditionallyanti-Shia sentiment and at times linked to the Sipah-e-Sahaba terrorist group. (96) Some senior members ofJUI reportedly have been linked to several U.S.-designated Foreign Terrorist Organizations. (97) The JUI chief, FazlurRehman, is a vocal critic of Pakistan's cooperation with the United States. In May 2004, he wasnamed Leader of the Opposition in Pakistan's Parliament. In September 2004, Musharraf reportedlyassured an audience of leading Pakistani religious seminarians that his government would notinterfere in the affairs of madrassas and was under no foreign pressure to do so. He did, however,acknowledge that a small number of seminaries are "harboring terrorists" and he asked religiousleaders to help isolate these by openly condemning them. (98) In July 2005, international attention to Pakistan's religious schools intensified after Pakistaniofficials acknowledged that three of the four suspects in the 7/7 London bombings visited Pakistanduring the previous year and two may have spent time at a madrassa near Lahore. (99) An ensuing crackdownon Pakistani religious extremists included a (new) government deadline for madrassa registration,the expulsion of 1,400 foreign nationals from Pakistani religious schools, and police raids on somesuspect seminaries. Pakistani Islamist leaders criticized the government's moves as human rightsabuses and vowed to take action to block them. Moreover, a small percentage of seminaries haverefused to participate in the registration program and the country's leading madrassa grouping -- theWafaq-ul-Madaris -- has been critical of certain requirements, including an obligation to reportfunding sources. (100) Since 2002, the U.S. Congress has allocated tens of millions of dollars to assist Pakistan inefforts to reform its education system, including changes that would make madrassa curriculumcloser in substance to that provided in non-religious schools. The 9/11 Commission Report recommends U.S. support for better Pakistani education and legislation passed by the 108th Congress( P.L. 108-458 ) calls for the devotion of increased U.S. government attention and resources to thisissue. (101) WhilePresident Musharraf has in the past pledged to crack down on the more extremist madrassas in hiscountry, there is little concrete evidence that he has done so. According to two observers,Musharraf's promises "came to nothing. His military government never implemented any programto register madrassas, follow their financing or control their curricula." (102) Many speculate thatMusharraf's reluctance to enforce reform efforts is rooted in his desire to remain on good terms withPakistan's Islamist political parties, which are seen to be an important part of his political base. (103) The Muttahida Majlis-e-Amal (MMA) -- a coalition of six Islamist opposition parties -- holdsabout 20% of Pakistan's National Assembly seats, while also controlling the provincial assembly inthe North West Frontier Province (NWFP) and leading a coalition in the provincial assembly ofBaluchistan. Pakistan's Islamists denounce Pakistani military operations in western tribal areas, resistgovernmental attempts to reform religious schools that teach militancy, and harshly criticizeIslamabad's cooperation with the U.S. government and movement toward rapprochement with India. The leadership of the MMA's two main constituents -- the Jamaat-i-Islami and theJamiat-Ulema-Islami-Fazlur -- are notable for their rancorous anti-American rhetoric; they have attimes called for "jihad" against what they view as the grave threat to Pakistani sovereignty thatalliance with Washington entails. (104) One senior MMA leader went so far as to suggest thatWestern governments may have "engineered" the 7/7 London bombings. (105) In addition to decryingand seeking to end President Musharraf's cooperation with the United States, many also are viewedas opposing the U.S.-supported Kabul government. In September 2003, Afghan President Karzaicalled on Pakistani clerics to stop supporting Taliban members who seek to destabilize Afghanistan. Two months later, the Afghan foreign minister complained that Taliban leaders were operatingopenly in Quetta and other cities in western Pakistan. In the wake of a March 2004 battle betweenthe Pakistan Army and Islamic militants in the traditionally autonomous western FederallyAdministered Tribal Areas (FATA), Pakistan's interior minister accused MMA politicians of givinga "free hand" to terrorists. (106) Musharraf repeatedly has called on Pakistan's Muslim clericsto assist in fighting extremism and improving Pakistan's image as a moderate and progressive state,but there continues to be evidence that Pakistan's religious parties are becoming even more brazenin challenging these efforts. (107) According to the U.S. Departments of State and Defense, Pakistan has afforded the UnitedStates unprecedented levels of cooperation by allowing the U.S. military to use bases within thecountry, helping to identify and detain extremists, and deploying tens of thousands of its ownsecurity forces to secure the Pakistan-Afghanistan border. The State Department's Country Reportson Terrorism 2004 characterized Pakistan as one of the most important U.S. partners in the war onterrorism. A revived high-level U.S.-Pakistan Defense Consultative Group -- moribund since 1997-- has meet three times since 2001. Pakistan was designated as a Major Non-NATO Ally of theUnited States in June 2004, and top U.S. officials regularly praise Pakistan's anti-terrorismefforts. (109) The StateDepartment indicates that Islamabad has captured more than 600 alleged terrorists and theirsupporters. Several hundred of these have been transferred to U.S. custody, including some topsuspected Al Qaeda leaders. (110) Pakistan also has been ranked third in the world in seizingterrorists' financial assets. (111) In July 2005, President Bush said Pakistani PresidentMusharraf "has been a good partner in the global war on terrorism and in the ideological struggle thatwe're now engaged in." (112) In August 2004, then-State Department Coordinator for Counterterrorism Cofer Black wasin Pakistan for a meeting of the U.S.-Pakistan Joint Working Group on Counterterrorism and LawEnforcement, the first since April 2003. In September 2004, President Bush met with PresidentMusharraf in New York, where the two leaders reaffirmed their commitment to broaden and deepenthe U.S.-Pakistan relationship, and Musharraf also visited Washington to inaugurate a newCongressional Pakistan Caucus at present comprised of 65 U.S. Representatives. In December 2004,Musharraf made a brief stopover in Washington, where President Bush praised the Pakistani leaderfor working to combat terrorism, saying that the Pakistani army "has been incredibly active and verybrave in southern Waziristan." Four months later, President Bush said that the United States is moresecure "because Pakistani forces captured more than 100 extremists across the country [in 2004],including operatives who were plotting attacks against the United States." Top U.S. government andmilitary officials regularly meet with Musharraf in Islamabad to discuss counterterrorism and forconsultations on regional security. (113) Many experts aver that, beginning most substantively with the policies of President Gen. Ziain the early 1980s, Islamabad's leaders have for decades supported and manipulated Islamicextremism as a means of forwarding their perceived strategic interests in the region. Thus, despitePakistan's "crucial" cooperation, there continue to be doubts about Islamabad's full commitment tocore U.S. concerns in the vast "lawless zones" of the Afghan-Pakistani border region where Islamicextremists find shelter. (114) Until September 2001, Islamabad's was one of only threeworld governments to recognize the Afghan Taliban regime, and Pakistan had been providingmaterial support to the Taliban movement throughout the 1990s. Especially worrisome areindications that members of the Taliban continue to receive logistical and other support insidePakistan. Senior U.S. Senators reportedly have voiced such worries, including concern that elementsof Pakistan's intelligence agencies might be helping members of the Taliban and other Islamicmilitants. (115) InAugust 2003, at least three Pakistani army officers, including two colonels, were arrested onsuspicion of having ties to Al Qaeda. Soon after, then-Deputy Secretary of State Armitage wasquoted as saying he does "not think that affection for working with us extends up and down the rankand file of the Pakistani security community." (116) In October 2003 testimony before the Senate Foreign Relations Committee, AssistantSecretary of Defense Peter Rodman said, "There are elements in the Pakistani government who wesuspect are sympathetic to the old policy of before 9/11," adding that there still existed innorthwestern Pakistan a radical Islamic infrastructure that "spews out fighters that go into Kashmiras well as into Afghanistan." In July 2004, a senior Pakistan expert told the same Senate panel that,"in the absence of greater U.S. guarantees regarding Pakistan's long-run security interests, it isdangerous [for the Pakistani military] to completely remove the threat of extremism to Kabul andDelhi." He went on to characterize a full and sincere decision by Islamabad to eradicate extremismas "tantamount to dismantling a weapons system." (117) Until mid-2004, the number of Al Qaeda figures arrested inPakistan had been fairly static for more than one year, causing some U.S. military officials toquestion the extent of Islamabad's commitment to this aspect of U.S.-led counterterrorismefforts. (118) A July 2004 hearing of the Senate Foreign Relations Committee focused specifically onPakistan and counterterrorism. One area in which there appeared to be consensus among thethree-person panel of veteran Pakistan watchers was the potential problems inherent in a U.S.over-reliance on President Gen. Pervez Musharraf as an individual at the potential cost of morepositive development of Pakistan's democratic institutions and civil society. Many analysts believesuch development is key to the long-term success of stated U.S. policy in the region. According toone expert, the United States is attempting to deal with Pakistan through "policy triage and byfocusing on the personal leadership of President Musharraf," both of which are "flawed concepts." Another provided similar analysis, asserting that Musharraf is best seen as a "marginal satisfier" whowill do only the minimum expected of him. This analyst recommended that, "The United Statesmust alter the impression our support for Pakistan is essentially support for Musharraf," a sentimentechoed by many Pakistani commentators, as well. These perspectives suggest that many observersreject the specific conclusion of the 9/11 Commission Report that Musharraf's government is the"best hope for stability in Pakistan and Afghanistan." (119) Background. In an effort to block infiltrationalong the Pakistan-Afghanistan border, Islamabad had by the end of 2002 deployed some 70,000troops to the region. In April 2003, the United States, Pakistan, and Afghanistan formed a TripartiteCommission to coordinate their efforts to stabilize the border areas. In June 2003, in what may havebeen a response to increased U.S. pressure, Islamabad for the first time sent its armed forces into theFederally Administered Tribal Areas (FATA) in search of Al Qaeda and Taliban fighters who haveeluded the U.S.-led campaign in Afghanistan. By September 2003, Islamabad had up to 25,000troops in the tribal areas, and a major operation -- the first ever of its kind -- took place incoordination with U.S.-led forces on the Afghan side of the border. A firefight in early October sawPakistani security forces engage suspected Al Qaeda fugitives in South Waziristan, the southernmostof the FATA's seven districts which borders Afghanistan's Paktika province. (120) The operationsencouraged U.S. officials, who saw in them a positive trend in Islamabad's commitment to trackingand capturing wanted extremists on Pakistani territory. Still, these officials admitted that thePakistani government was finding it more difficult politically to pursue Taliban members who enjoyethnic and familial ties with Pakistani Pashtuns. (121) After the two December 2003 attempts on President Musharraf's life, the Pakistan militaryincreased its efforts in the FATA. Many analysts speculated that the harrowing experiences broughta significant shift in Musharraf's attitude and caused him to recognize the dire threat posed by radicalgroups based in his country. In February 2004, Musharraf made his most explicit admission to datethat Muslim militants were crossing from Pakistan into Afghanistan to battle coalition troops there. In the same month, the Vice Chairman of the U.S. Joint Chiefs of Staff told a Congressional panelthat the Islamabad government had "taken some initiatives to increase their military presence on theborder, such as manned outposts, regular patrols, and security barriers." By August 2004, 75,000Pakistani troops were in the western border areas. Islamabad's more energetic operations in thewestern tribal regions brought vocal criticism from Musharraf's detractors among Islamist groups,many of whom accuse him of taking orders from the United States. (122) Operations in 2004. In March 2004, up to 6,000Pakistani soldiers took part in a pitched, 12-day battle with Islamic militants in South Waziristan. More than 130 people were killed in the fighting, including 46 Pakistani soldiers, but no"high-value" Al Qaeda or Taliban fugitives were killed or captured. Pakistani officials called theoperation a victory, but the apparent escape of militant leaders, coupled with the vehement and lethalresistance put up by their well-armed cadre (believed to be remnants of the Islamic Movement ofUzbekistan), led many observers to call the operation a failure marked by poor intelligence and hastyplanning. (123) Duringthe course of the battle, Pakistani troops began bulldozing the homes of Wazirs who were suspectedof providing shelter to "foreign terrorists," and the United States made a short-notice delivery of2,500 surplus protective vests to the Pakistani military. (124) Concurrent with these developments, the Islamabad government made progress inpersuading Pashtun tribal leaders to undertake their own efforts by organizing tribal "lashkars," ormilitias, for the purpose of detaining (or at least expelling) wanted fugitives. (125) Political administratorsin the district, impatient with the slow pace of progress, issued an "ultimatum" that included threatsof steep monetary fines for the entire tribe, as well as for any individuals who provide shelter to"unwanted foreigners." (126) After March's military setback, a deadline was set forforeigners living in the tribal areas to register with the government and surrender their weapons withthe understanding that they would be allowed to remain in Pakistan if they forswore terrorism. Theoriginal date passed without a single registrant coming forward and the government extended thedeadline on several occasions. On April 24, 2004, the five most-wanted Pashtun tribesmen "surrendered" to governmentauthorities and were immediately granted amnesty in return for promises that they would not provideshelter to Al Qaeda members or their supporters. All five were reported to be supporter's of MaulanaFazlur Rehman's JUI Islamist party. Islamabad insisted that this "Shakai agreement" would markno diminution of its counterterrorism efforts, but the top U.S. military officer in Afghanistan at thetime, Lt. Gen. David Barno, expressed concern that Pakistan's strategy of seeking reconciliation withmilitants in western tribal areas "could go in the wrong direction." Almost immediately uponmaking the deal, the most outspoken of the tribal militants, 27-year-old Nek Mohammed, who hadfought with the Taliban in Afghanistan, issued threats against Islamabad and pledged his fealty tofugitive Taliban chief Mohammed Omar. During the following weeks, a series of what someanalysts called "spurious" deals were struck between the government and foreign militants, but theseproved unsuccessful after the foreigners failed to register, and numerous tribal militias sought butfailed to capture any of them. (127) In response to this apparent failure of its conciliatory approach, Islamabad ordered authoritiesin South Waziristan to shutter more than 6,000 merchant shops in an effort to use economic pressureagainst uncooperative tribesmen, and a "massive mobilization" of federal troops was reported. Then,in June, the government rescinded its amnesty offer to the five key militants noted above and issueda "kill or capture" order against them. The next day, fixed-wing Pakistani warplanes bombed threecompounds being used by militants in South Waziristan, including one that was described as aterrorist training camp. More than 20,000 troops were said to be involved in a sweep operation thatleft about 72 people dead, including 17 soldiers, after three days of fighting. (128) On June 18, NekMohammed was located, apparently through signals intelligence, and was killed along with sevenothers by a missile that may have come from an American Predator drone. (129) In early September 2004, some 55 suspected Islamic militants were killed when Pakistanwarplanes attacked an alleged Al Qaeda training camp in South Waziristan. The military claimedthat 90% of the dead were foreigners (mostly Uzbeks and Chechens), but other reports said half werelocals, and eyewitnesses told of numerous civilian casualties. Intense fighting continued throughoutthe month, bringing renewed criticism of the government by both human rights groups and Islamistleaders. The Islamabad government is said to be paying reparations for property damage, and forthe death or injury of innocents. (130) In mid-September 2004, Abdullah Mahsud -- a Pakistani Pashtun militant who lost a legfighting for the Taliban in Afghanistan and who was held for more than two years at the U.S. facilityat Guantanamo Bay before being released in 2004 -- reportedly refused to allow Pakistan securityforces to use a key road connecting North and South Waziristan. Mahsud was believed to be tryingto fill the shoes of Nek Mohammed, a leading tribal militant killed in June. In October, two Chineseengineers traveling through South Waziristan along with two Pakistani security officers werekidnaped by Mahsud and his followers, who threatened to kill their hostages. Pakistani commandosstormed the militants' hideout and killed five kidnappers inside, but Mahsud was not found (oneChinese national was freed, but the other was killed in the shootout). Later in the month, a groupof tribal leaders who had been trying to broker Mahsud's surrender came under attack from what themilitary called rockets fired by "miscreants." Fourteen were killed in a sign of growing intra-tribalconflict over government policy in the FATA. (131) In the midst of ongoing and lethal military operations, the five most-wanted Pashtun tribalmilitant leaders in South Waziristan "surrendered" to government authorities in November 2004 bypromising to remain peaceful and provide no shelter to foreign militants. In return, the governmentreportedly vowed to pay reparations for property damage and to release tribal prisoners. Soon after,the regional corps commander declared that "peace has been restored in Wana," the area where thebulk of combat took place in 2004. The general also announced that all but 3,000 troops and ninecheck posts would be withdrawn from the Wana region, where less than one hundred militants weresaid to remain. A U.S. State Department spokesman later said the United States was assured thatPakistani forces were not withdrawing from Waziristan and that Pakistan remained "fully committedto continuing the campaign against Al Qaeda and Al Qaeda supporters." (132) The Peshawar CorpsCommander reported that 35 military operations in Waziristan left 250 militants (and 175 Pakistanisoldiers) dead and 600 captured in 2004, but no "high-value targets" are known to have been amongthese, and the militants swept out of South Waziristan were believed to have found refuge in otherareas where Pakistani troops are not active. (133) Operations in 2005. During 2005, attentionshifted to the North Waziristan district where Pakistani security forces made sporadic raids in whichscores of suspected militants -- local Pashtun tribals, Afghans, and other foreigners such as Uzbeksand Arabs -- were killed or captured. (134) In early spring, Pakistani commanders issued warnings toWazir tribal leaders that failure to expel foreign militants from the region would result in large-scalemilitary operations and, in April, hundreds of Pakistani troops reportedly launched search operationsfor foreign militants in North Waziristan near the Afghan border. (135) A top U.S. militarycommander in Afghanistan claimed Pakistan was launching new major operations in the region,eliciting strong denials from a Pakistani commander who called the claim "highlyirresponsible." (136) Reports suggest that tensions in North Waziristan remain high. (137) The Islamabad government's "peace deals" with South Waziristan militants appear to havelargely ended overt conflict there in 2005. (138) However, there are indications that underlying tensions remainsignificant and could bring future unrest. (139) In March, Islamic militants in the Wana area warned the peacethere could unravel if the government reneged on promises to remove checkpoints and paycompensation for damage to local homes and, in May, a bomb exploded at the home of a tribal leaderin South Waziristan, killing two women and four children. On the first anniversary of NekMohammed's June 2004 death, Muslim clerics and "thousands" of Taliban in South Waziristanreportedly marked occasion by vowing to continue their jihad against America. One month later,gunmen killed nine tribesmen, including five pro-government tribal elders, in three separate attacksin South Waziristan. The elders had been assisting army efforts to capture or kill fugitive Islamicmilitants in the region. (140) Despite this violence, Pakistani officials insist that AlQaeda-linked militants have been completely eradicated from South Waziristan. (141) Fallout. As was noted above, PresidentMusharraf's post-September 2001 policy reversals and his efforts to crack down on Islamic extremistgroups likely motivated the two deadly December 2003 attempts to assassinate the Pakistani leader. As Pakistan's coercive counterterrorism policies became more vigorous, numerous observers warnedthat increased government pressure on tribal communities and military operations in the FATA werecreating a backlash, sparking unrest and strengthening pro-Al Qaeda sentiments both there and inPakistan's southern and eastern cities. (142) Developments in 2004 appeared to have borne out theseanalyses. As his army battled militants in South Waziristan in June of that year, President Musharraftold an interviewer that he was concerned about "fallout" from the recent military operations, anda Pakistan Army spokesman drew direct links between a six-week-long spate of mostly sectarianbombings and killings in Karachi and government efforts to root out militants in South Waziristan. A leading pro-Taliban militant in the tribal areas accused Islamabad of "conniving" with the U.S.government to kill Nek Mohammed, and he warned that military operations in South Waziristanwould lead to further violence across Pakistan. Several international aid organizations suspendedtheir operations in the Baluchistan province after receiving threats of suicide attacks. (143) Islamic militant outrage appeared to again peak in mid-summer 2004: During the weekspanning July and August, a suicide bomber killed a senior Pakistani intelligence officer in Kohatnear the tribal areas; another suicide bomber murdered nine people in a failed attempt to assassinatePakistan's Prime Minister-designate (an Al Qaeda-affiliated group claimed responsibility for theattack); and gunmen killed a police officer in a failed effort to assassinate the Baluchistan ChiefMinister. As conflict and bloodshed in Pakistan increased, analysts again expressed acute concernsabout the country's fundamental political stability. (144) The issue of small-scale and sporadic U.S. military presence on Pakistani soil is a sensitiveone, and reports of even brief incursions from neighboring Afghanistan have caused tensionsbetween Islamabad and Washington. (145) In March 2004, U.S. and Afghan forces conducted OperationMountain Storm southern and eastern Afghanistan, employing new tactics and in coordination withPakistani troops across the international border. (146) A press report earlier in the year had suggested that the U.S.military in Afghanistan had plans for a spring offensive that would "go into Pakistan withMusharraf's help" to neutralize Al Qaeda forces, a suggestion that President Musharraf's said was"not a possibility at all." The Commander of U.S. Central Command, Gen. Abizaid, stated that hehad no plans to put U.S. troops in Pakistan against Islamabad's wishes, and a senior U.S. diplomatand senior U.S. military officer later told a House Armed Services Committee panel that it is"absolutely" the policy of the United States to keep its troops on the Afghan side of theAfghan-Pakistani border. In April 2004, the U.S. Ambassador to Afghanistan caused some furtherannoyance in Islamabad when he said that the Pakistani leadership must solve the ongoing problemof militant infiltration into Afghanistan or "we will have to do it for ourselves." American artilleryreportedly can be fired onto militant forces with Islamabad's permission. (147) U.S. military officialsin Kabul say that Pakistan has agreed to allow "hot pursuit" up to ten kilometers into Pakistaniterritory, although this is officially denied by the Islamabad government. (148) Since the spring of 2002, U.S. military and law enforcement personnel reportedly have beenengaging in direct, low-profile efforts to assist Pakistani security forces in tracking and apprehendingfugitive Al Qaeda and Taliban fighters on Pakistani territory, especially with signals and otherintelligence. U.S. forces in Afghanistan reportedly provide significant support to Pakistani forcesoperating near the Afghan border -- including spy satellites, electronic surveillance planes, armedaerial drones, and sophisticated ground sensors -- and law enforcement efforts within Pakistanreportedly benefit from CIA- and FBI-supplied surveillance equipment and other backing. Therealso have been reports that the United States is assisting Pakistan in the creation of a 700-man"Counter-Terrorism Cell," and Pakistan's air force chief said in September 2004 that U.S. forcescontinued to make use of several air bases near the Afghan border. (149) Security-related U.S. assistance programs for Pakistan are said to be aimed at bolsteringIslamabad's counterterrorism and border security efforts, and have included U.S.-fundedroad-building projects in the Northwest Frontier Province and Federally Administered Tribal Areas,the provision of night-vision equipment, communications gear, protective vests, 26 transporthelicopters, and, currently in the pipeline, six used C-130 transport aircraft. The United States alsohas undertaken to train and equip new Pakistan Army Air Assault units that can move quickly to findand target terrorist elements. (150) The Chairman of the U.S. Joint Chiefs of Staff reports thatthe Pakistani Army has "significantly improved their counterterrorism capabilities, thanks in part toequipment we are providing them, and has played a vital role in enhancing security in thisregion." (151) In September 2004, the Pentagon notified Congress of the possible Foreign Military Sale toPakistan of $78 million worth of military radio systems meant to improve Pakistani communicationcapabilities and to increase interoperability between Pakistani and U.S.-led counterterrorist forces. In November, potential sales to Pakistan of eight P-3C maritime reconnaissance aircraft, six Phalanxnaval guns, and 2,000 TOW anti-armor missiles were announced. The deals could be worth up to$1.2 billion for Lockheed Martin and Raytheon, the prime contractors. The Department of Defensecharacterizes the P-3Cs and TOW missiles as having significant anti-terrorism applications (a claimthat has elicited skepticism from some analysts), and it asserted that the proposed sales would notaffect the military balance in the region. India's external affairs minister has "cautioned the UnitedStates" against any decision to sell F-16 fighter jets to Pakistan, adding that the "U.S. arms supplyto Pakistan would have a negative impact on the goodwill the United States enjoys with India,particularly as a sister democracy." The Pentagon reports Foreign Military Sales agreements withPakistan worth $27 million in FY2002, $167 million in FY2003, and $176 million in FY2004. (152) With FY2005 appropriations included, Pakistan will have received $1.1 billion in direct U.S.security-related assistance since September 2001 (Foreign Military Financing totaling nearly $675million plus about $437 million for other programs, see Figure 1). (153) Congress also hasallocated billions of dollars in additional defense spending to reimburse Pakistan and othercooperating nations for their support of U.S. counterterrorism operations. Pentagon documentsindicate that Pakistan received coalition support funding of more than $1.3 billion for the periodJanuary 2003-September 2004, an amount roughly equal to one-third of Pakistan's total defenseexpenditures during that period. A report of the House Armed Services Committee ( H.Rept. 109-89 )said the Secretary of Defense expects to disburse another $1.2 billion to Pakistan in FY2005. Figure 1. U.S. Assistance to Pakistan, FY2001-FY2005 and 2006Administration Request Sources: U.S. Department of State and U.S. Agency for International Development Notes: P.L. 109-13 During 2004, there were clear indications that both the United States and Pakistan werere-invigorating their efforts to find and capture those terrorists and their supporters remaining inPashtun-majority areas of Afghanistan and Pakistan. Moreover, during mid-2005, PresidentMusharraf has taken further steps to crack down on indigenous Pakistani extremist groups. Manyof these groups have links not only to individuals and organizations actively fighting in Afghanistanand Pakistan, but also with groups that continue to pursue a violent separatist campaign in thedisputed Kashmir region along Pakistan's northeast frontier. A November 2003 cease-fire agreementbetween Pakistan and India holds at the time of this writing, and appears to have contributed to whatNew Delhi officials acknowledge is a major decrease in the number of "terrorist" infiltrations. (154) However, separatistmilitants vowed in January 2004 to continue their struggle regardless of the status of the nascentPakistan-India dialogue. As a vast mosaic of ethnicities, languages, cultures, and religions, India can be difficult togovern. Internal instability resulting from diversity is further complicated by colonial legacies suchas international borders that separate members of the same ethnic groups, creating flashpoints forregional dissidence and separatism. Separatist movements in the northwestern Jammu and Kashmirstate, and in remote and underdeveloped northeast regions, confound New Delhi and createinternational tensions by operating out of neighboring Pakistan, Bangladesh, Burma, Bhutan, andNepal. Moreover, indigenous Maoist rebels continue to operate in eastern states, possibly incollusion with Nepali Maoists at war with the Kathmandu government. The Indian Home Ministryreported to Parliament that a total of 7,458 people were killed in 10,788 incidents of separatist andMaoist "Naxalite" violence in India during the year ending October 31, 2004. More than half ofthese deaths and incidents occurred in Kashmir. (156) Separatist violence in India's Jammu and Kashmir state has continued unabated since 1989. New Delhi has long blamed Pakistan-based militant groups for lethal attacks on Indian civilians, aswell as on government security forces, in both Kashmir and in major Indian cities. (157) India holds Pakistanresponsible for providing material support and training facilities to Kashmiri militants. Pakistandenies rendering anything more than diplomatic and moral support to separatists, and it remainscritical of India's allegedly severe human rights violations in Jammu and Kashmir. (158) Disagreement over themeaning of the word "terrorism" has been a sticking point in India-Pakistan relations. (159) According to the U.S.government, several anti-India militant groups fighting in Kashmir are based in Pakistan and areclosely linked to Islamist groups there. Many also are said to maintain ties with international jihadiorganizations, including Al Qaeda: Harakat ul-Mujahideen (an FTO-designate), based in Muzaffarabad (AzadKashmir) and Rawalpindi, is aligned with the Jamiat Ulema-i-Islam Fazlur Rehman party (JUI-F),itself a main constituent of the MMA Islamist coalition in Pakistan's NationalAssembly; Hizbul Mujahideen (on the State Department's list of "other selected terroristorganizations"), believed to have bases in Pakistan, is the militant wing of Pakistan's largest Islamicpolitical party and leading MMA member, the Jamaat-i-Islami; Jaish-e-Mohammed (JeM) (an FTO-designate), based in both Peshawar andMuzaffarabad, also is aligned with JUI-F; and Lashkar-e-Taiba (LeT) (an FTO-designate), based in Muzaffarabad and nearLahore, is the armed wing of a Pakistan-based, anti-U.S. Sunni religious organization formed in1989. (160) JeM claimed responsibility for an October 2001 suicide bomb attack on the Jammu and Kashmirstate assembly building in Srinagar that killed 31 (it later denied the claim). In December 2001, theUnited States designated both LeT and JeM as Foreign Terrorist Organizations shortly after theywere publically implicated by New Delhi for an attack on the Indian Parliament complex that killednine and injured 18. This assault spurred India to fully mobilize its military along the India-Pakistanfrontier. An ensuing 10-month-long standoff in 2002 involved one million Indian and Pakistanisoldiers and was viewed as the closest the two countries had come to full-scale war since 1971,causing the U.S. government to become "deeply concerned ... that a conventional war ... couldescalate into a nuclear confrontation." (161) Pakistan's powerful and largely autonomous ISI is widely believed to have providedsignificant support for militant Kashmiri separatists over the past decade and a half in what isperceived as a proxy war against India. (162) In March 2003, the chief of India's Defense IntelligenceAgency reported providing the United States with "solid documentary proof" that 70 Islamic militantcamps were operating in Pakistani Kashmir. In May 2003, the Indian defense minister claimed thatabout 3,000 "terrorists" were being trained in camps on the Pakistani side of the Line of Control(LOC). Some Indian officials have suggested that Al Qaeda may be active in Kashmir. (163) Then-U.S. DeputySecretary of State Armitage reportedly received a June 2002 pledge from Pakistani PresidentMusharraf that all "cross-border terrorism" would cease, followed by a May 2003 pledge that anyterrorist training camps in Pakistani-controlled areas would be closed. Yet, in September 2003,Indian PM Vajpayee reportedly told President Bush that continued cross-border terrorism fromPakistan was making it difficult for India to maintain its peace initiative, and a series of bloodyattacks seemed to indicate that infiltration rates were on the rise. (164) President Musharraf adamantly insists that his government is doing all it can to steminfiltration at the LOC and he has called for a joint Pakistan-India monitoring effort there. Positivesigns have come with a November 2003 cease-fire agreement between Pakistan and India along theentire LOC and their shared international border (holding at the time of this writing) and a January2004 pledge by Musharraf reassuring the Indian Prime Minister that no territory under Pakistan'scontrol could be used to support terrorism. Ensuing statements from Indian government officialsconfirmed that infiltration rates were down significantly. However, separatist-related violencespiked in Indian Kashmir in the summer of 2004, with shootouts and bombings causing scores ofdeaths. While on a July 2004 visit to New Delhi to meet with top Indian leaders, then-DeputySecretary of State Armitage told reporters that "the infrastructure [in Pakistan] that supportscross-border activities [in Kashmir] has not been dismantled." Still, by year's end, the Indiangovernment acknowledged that infiltration rates were at their lowest ebb in many years, perhapspartly due to the completion of fence structures along the entire LOC. (165) New Delhi hasconfirmed that "the level of violence and tension in Jammu and Kashmir in 2004 was significantlylower as compared to 2003." (166) Despite waning rates of infiltration, the issue continues to rankle leaders in New Delhi andremains a serious potential impediment to progress in the current India-Pakistan peace initiative. InAugust 2004, India's ruling Congress Party claimed that Pakistan continues to support ongoing"cross-border terrorism" in Kashmir (Pakistan's outgoing prime minister rejected the claims). InSeptember, former Indian Prime Minister Vajpayee said that President Musharraf was not fulfillinghis January 2004 pledge to end the use of Pakistani territory by terrorist groups and, just beforemeeting Musharraf in New York, current Indian Prime Minister Singh said that India would continuetalks with Pakistan "provided that the threat by terrorist elements can be kept under control." India'sforeign minister issued an even stronger statement of the same demand in October. In May 2005,in a somewhat anomalous departure from the milder rhetoric associated with improvedIndia-Pakistan relations, the Indian prime minister again chided Pakistan for doing too little todismantle the "terrorist infrastructure" on Pakistani-controlled territory. (167) Even as thenormalization of India-Pakistan relations continues -- and to some extent in reaction to their apparentmarginalization in the face of such developments -- separatist militants continue their attacks on bothcivilians and Indian security forces, and some in India believe that active support for Kashmirimilitants remains Pakistani policy. In August 2005, India's national security advisor expressedconcern that terrorist attacks by or on behalf of Kashmiri separatists were showing a "much higherlevel of sophistication" and were taking place in many areas of India beyond Kashmir. (168) Northeastern Separatism. Since the time ofIndia's foundation, numerous separatist groups have fought for ethnic autonomy or independence inthe country's northeast region. Some of the tribal struggles in the small states known as the SevenSisters are centuries old. The United States does not designate as terrorist organizations most ofthose groups that continue violent separatist struggles in India's northeastern states. Many of thesegroups have, however, been implicated in lethal attacks on civilians and have been designated asterrorist organizations by New Delhi under the 2002 Prevention of Terrorism Act (POTA). (169) More than 6,000people, one-third of them insurgents, are estimated to have been killed since 1992 in related violencein the states of Nagaland, Assam, Manipur, and Tripura. (170) Among the dozens of insurgent groups active in the northeastare: the United Liberation Front of Assam (ULFA); (171) the Nationalist Social Council of Nagaland; the National Liberation Front of Tripura; the National Democratic Front of Bodoland (NDFB);and the United National Liberation Front (seeking an independentManipur). The Indian government has at times blamed Bangladesh, Burma, Nepal, and Bhutan for"sheltering" one or more of these groups beyond the reach of Indian security forces, and it hasaccused Pakistan's intelligence agency of training members and providing them with materialsupport. (172) InDecember 2003, after considerable prodding by New Delhi, Bhutan launched military operationsagainst ULFA and NDFB rebels based in border areas near India's Assam state. The leader andfounder of ULFA was captured and, two months later, India's army chief declared that nearly 1,000militants in Bhutan had been "neutralized" -- killed or captured. (173) Yet the rebelsappeared to regroup and attacks on civilians did not end: in August 2004, a bomb exploded at anIndependence Day parade in Assam, killing 18 people, many of them children. Police blamed ULFAfor the blast. Six weeks later, a spate of bombings and shootings in Assam and Nagaland left at least83 people dead in what was called a joint operation by ULFA and NDFB. Although two seniorULFA leaders surrendered in February 2005, the rebels later launched a series of coordinated bombattacks across the Assam state. In a further sign that Assamese rebels remain a serious problem,2,000 Indian security forces moved against ULFA positions in April 2005. (174) Both Burma andBangladesh may increase pressure on Indian rebels based on their territory; New Delhi has suggestedcoordinated military operations in the border areas and has increased its counterterrorism cooperationwith Kathmandu and Thimphu. (175) Maoist Militancy. Also operating in India are"Naxalites" -- communist insurgents ostensibly engaged in violent struggle on behalf of landlesslaborers and tribals. These groups, most active in inland areas of east-central India, claim to bebattling oppression and exploitation in order to create a classless society. Their opponents call themterrorists and extortionists. According to the U.S. Department of State, major Naxalite groups areenlarging the scope of their influence, and analysts contend that the abilities of Indian Maoistmilitants to conduct insurgency has spread to nearly half of India's 28 states, in part through theforging of cross-border links with Nepali insurgents. (176) As the Naxalites' range of operations has increased, so too hasrelated bloodshed. Most notable of India's Maoist groups are the People's War Group (PWG),mainly active in the southern Andhra Pradesh state, and the Maoist Communist Center of WestBengal and Bihar. In September 2004, the two merged to form the Communist Party of India -Maoist. In 2004, for the first time and without public explanation, these groups appeared on the U.S.State Department's list of "other terrorist groups" (it is likely that the move was spurred by a U.S.interest in assisting both New Delhi and Kathmandu in efforts to combat Maoist insurgents inNepal (177) ). Both alsoare designated as terrorist groups by New Delhi; each is believed to have about 2,000 cadres. PWGfighters were behind an October 2003 landmine attack that nearly killed the Chief Minster of AndhraPradesh. (178) In July 2004, the government of Andhra Pradesh lifted an 11-year-old ban on the PWG inpreparation for planned peace talks. A September 2004 rally in Hyderabad, the PWG's first since1990, attracted tens of thousands of supporters. Yet the concord was short-lived: in January 2005,the Maoists accused the state government of breaking a cease-fire by "staging" several encountersthat left 15 people dead and they withdrew from negotiations. (179) The U.S. Ambassadorto India later expressed concerns about Naxalite violence in Andhra Pradesh and the impact it mighthave on foreign investors in the state, and at least one Indian commentator has opined that the scaleand growth of Naxalite violence "is a direct challenge to [India's] vaunting pretensions to superpowerstatus, and its ambitious quest for dramatic economic growth and inclusion in the elite club of theworld's 'developed countries.'" In August, just days after suspected Maoist rebels shot dead tencivilians, the Andhra Pradesh government formally banned the Communist Party of India -Maoist. (180) One facet of the emerging "strategic partnership" between the United States and India isincreased counterterrorism cooperation. The U.S.-India Joint Working Group on Counterterrorismwas established in January 2000 to intensify bilateral cooperation; this body met for the sixth timein August 2004. In November 2001, President Bush and then-Indian Prime Minster Vajpayee agreedthat "terrorism threatens not only the security of the United States and India, but also our efforts tobuild freedom, democracy and international security and stability around the world." (181) In May 2002, Indiaand the United States launched the Indo-US Cyber Security Forum to safeguard criticalinfrastructures from cyber attack. The State Department believes that continued engagement withNew Delhi will lead to India's playing a constructive role in resolving terrorist insurgencies in Nepaland Sri Lanka. Calling New Delhi a "close ally of the United States in the global war on terrorism,"the Bush Administration has undertaken to provide India with better border security systems andtraining, and better intelligence in an effort to prevent future terrorist attacks. Moreover, the twocountries' militaries have continued to work together to enhance their capabilities to combatterrorism and increase interoperability. (182) U.S. military sales to India are to include $29 million worthof equipment meant to enhance the counterterrorism capabilities of India's special forces, and Indiamay also purchase chemical and biological protection equipment. (183) The seating of a new left-leaning national government in New Delhi in May 2004 had nosignificant effect on continued U.S.-India security ties. A sixth meeting of the bilateral DefensePolicy Group in June ended with a joint statement that recognized "growing areas of convergenceon fundamental values," including combating terrorism. Shortly after, while on a visit to New Delhito meet with top Indian leaders, then-U.S. Deputy Secretary of State Armitage told reporters that thenew Indian government appeared to be just as desirous of enhanced U.S.-India relations as theprevious one and that the United States has "absolute confidence that the U.S.-India relationship isgoing to grow in all its aspects." (184) President Bush met with new Indian Prime MinisterManmohan Singh in New York in September 2004 and noted the U.S.-India relations are as closeas they have ever been. Secretary of State Rice and the Indian external affairs minister separatelyhave echoed the sentiment in 2005. (185) In June 2005, the United States and India signed a ten-yeardefense framework agreement which lists "defeating terrorism and violent religious extremism" asone of four key shared security interests, and which calls for a bolstering of mutual defensecapabilities required for such a goal. (186) Bangladesh's political and economic development continues to be hampered by the forces ofcorruption, radicalism, and partisan fighting. Rivalry between the leaders of the nation's two largestpolitical parties has led to an ongoing series of demonstrations, strikes, and increasingly to politicallymotivated violence. The frustration caused by the combination of poverty, corruption, and the lackof good governance due to a stalemated political process is thought by some to contribute toincreasing radicalization of society and thereby to the recruitment of Islamist radicals to the causeof terrorism. Bangladesh's form of moderate Islam is increasingly under threat by radical elements. In early2005 there was increased concern over the rise of Islamic extremism in Bangladesh. Khaleda Zia'sBangladesh National Party (BNP) has coalition partners in government that are thought to have tiesto radical Islamist elements that give cause for concern. Some view the government's coalition withhardline Islamist coalition members as promoting the spread of violence. (188) The radicalHarkat-ul-Jihad-al-Islami (HuJI) is thought to have ties to both Al Qaeda and the Islamic Oikya Jote,which is a coalition partner in the government. HuJI is on the United States State Department list ofother terrorist organizations and is thought to have been behind an assassination attempt on thenPrime Minister Sheikh Hasina in July 2000. (189) HuJI also signed the 1998 fatwa by Usama bin Laden whichdeclared American civilians to be legitimate targets. (190) Fundamentalist leader Bangla Bhai, who promotes Islamic revolution in Bangladesh, hasbeen accused of having ties to the Jamaat-e-Islami (JI) which is another coalition partner with theBNP government. Bangla Bhai fought in Afghanistan and is thought to seek to install a Taliban-stylegovernment in Bangladesh particularly in areas bordering India. His supporters have reportedlyterrorized communists, leftists, liberal intellectuals, Hindus, Christians, members of the IslamicAhmadiyya sect and Buddhists in the cause of promoting Islamic extremism. (191) The government ofBangladesh was criticized by the Awami league for denying the existence of fundamentalistorganizations in Bangladesh. The Bangladesh government banned Bangla Bhai's organization in2005. (192) Political infighting is debilitating to Bangladesh. Former Prime Minister Sheik Hasina of theAwami League survived an assassination attempt in August 2004 when a grenade was thrown at herwhich killed 20 others. Hasina has accused the BNP-Jamaat alliance of being involved in theassassination attempt. (193) Prime Minister Khaleda Zia has reportedly stated that thereare no Islamic fundamentalists in Bangladesh. (194) Such attacks have undermined political stability in Bangladesh.A recent government of India report has found an "alarming rise" in political assassinations inBangladesh and is also concerned with the smuggling of arms to insurgents in India's northeast aswell as the rise of Islamic fundamentalism in Bangladesh. (195) Former State Department Coordinator for Counterterrorism Cofer Black reportedly stated thathe was concerned over "the potential utilization of Bangladesh as a platform for internationalterrorism" when visiting Dhaka in September 2004. (196) Media reports in India increasingly are concerned thatBangladesh has the potential to become a "center of extremist Wahhabi-oriented terrorism." (197) Harkat-ul-Jihad-al-Islami (HuJI) reportedly sent a letter to the Indian High Commission toBangladesh in December 2004 threatening to kill the Indian cricket team if they entered Bangladesh. The team planned to play a series of test matches in Bangladesh in December including in theChittagong region. (198) One source reported in September that the number of radicalmosques and madrassas in the Chittagong Hill Tracts (CHT) region of Bangladesh had grownconsiderably and that HuJI continued to maintain several terrorist training camps in the CHTregion. (199) Anothersource also linked the camps to Harkat and indicated that they receive funding from Islamic charitieswith ties to Al-Qaeda. (200) HuJI is thought to remain active in the area south fromChittagong to Cox's Bazar and the border with Burma. A report sourced to a former senior Indianintelligence official alleges that HuJI is training Burmese Rohingya, as well as small groups fromThailand, Cambodia, Indonesia and Brunei. (201) There is concern among analysts that Bangladesh might serve as a base from which bothSouth and Southeast Asian terrorists could regroup. There have been reports that up to 150 Talibanand Al Qaeda fighters fled to Bangladesh from Afghanistan in December 2001 aboard the MVMecca, which reportedly sailed from Karachi to Chittagong. (202) This was evidently notthe beginning of Al Qaeda connections with Bangladesh. Al Qaeda had reportedly recruited BurmeseMuslims, known as the Rohingya, from refugee camps in southeastern Bangladesh to fight inAfghanistan, Kashmir and Chechnya. (203) An Al Qaeda affiliate, Harkat-ul-Jihad-al-Islami (HuJI) wasfounded by Osama bin Laden associate Fazlul Rahman. (204) HuJI is also on the State Department's list of other terroristorganizations. (205) Rahman joined bin Laden's World Islamic Front for the Jihad Against the Jews and the Crusadersin 1998. (206) It hasthe objective of establishing Islamic rule in Bangladesh. HuJI has recruited its members, thought tonumber from several thousand to 15,000, from the tens of thousands of madrassas in Bangladesh,many of which are led by veterans of the "jihad" against the Soviets in Afghanistan. The organizationis thought to have at least six camps in Bangladesh as well as ties to militants in Pakistan. (207) The BangladeshNational Party coalition government includes the small Islamic Oikya Jote party which hasconnections to HuJI. (208) It was reported that French intelligence prompted the arrestof 16 Bangladeshis on December 4, 2003, in Bolivia for allegedly planning to hijack a plane to attackthe United States. According to reports, they were later released for lack of evidence. ElevenBangladeshis were arrested in Saudi Arabia on August 14, 2003, on suspicion of planning a terroristact. (209) The Rohingya Solidarity Organization (RSO) is the largest organization representing the over120,000 Rohingyas in Bangladesh. (210) The number of Rohingyas varies depending on the level ofpressure they are under in their homelands in Burma. The Rohingya also speak the same languageas Bangladeshis from the Chittagong area. These "destitute and stateless people" have proved to bea "fertile ground" for recruitment to various militant Islamist groups. (211) The RSO hasreportedly received support from the Jamaat-e-Islami in Bangladesh. Afghan instructors are reportedto have been seen in RSO camps. There are also reports, based on information derived from the interrogation of JemaahIslamiya (JI) leader Hambali, who was arrested in Thailand in August 2003, that indicate that he hadmade a decision to shift JI elements to Bangladesh in response to recent counter-terrorist activity inSoutheast Asia. The decision to move operations west may also be evident in the arrest of 13Malaysians and six Indonesians, including Hambali's brother Rusman Gunawan, in Pakistan inSeptember 2003. Bangladeshis have been among those arrested in Pakistan on suspicion of beinglinked to terrorist organizations. (212) Some have speculated that JI militants, thought to be fromMalaysia and Singapore, would not have made it to southeastern Bangladesh without some degreeof tacit agreement from the Directorate General of Forces Intelligence of Bangladesh which isthought, by some, to have close ties with ISI. (213) It is also thought that Fazlul Rahman's Rohingya SolidarityOrganization, which is based in southeast Bangladesh, has also established ties with JI. (214) These reports aredifficult to confirm. The Government of Bangladesh has denied that Bangladesh has become a haven for Islamicmilitants, such as the Taliban or Al Qaeda. (215) The Bangladesh government has also denied allegations madeby former Indian Deputy Prime Minister Advani that Bangladesh had aided Pakistan's Inter-ServicesIntelligence and Al Qaeda elements. (216) It has also been reported that the Bangladesh Rifles and police have captured weapons during anti-terrorist operations in the southeastern border region with Burmain August and September 2003. (217) (For further information on Bangladesh, see CRS Report RS20489, Bangladesh: Background and U.S. Relations , by [author name scrubbed].) The Communist Party of Nepal (Maoist)/ United Peoples Front has been identified as anOther Terrorist Group by the U.S. Department of State. (219) On October 31, 2003, the United States Government wentfurther and announced that for national security reasons it was freezing Maoist terrorist assets. Thesecurity situation in Nepal has deteriorated since the collapse of the cease fire between the Maoistsand the government on August 27, 2003. The numbers of Nepalese killed since August has risensignificantly. This brings the total number killed since 1996 to 11,500 by some estimates. Indiaremains concerned over linkages between the Maoists and leftist extremists in India. (220) The Maoists' message frequently calls for the end of "American imperialism" and for the"dirty Yankee" to "go home." The Maoists' Chief Negotiator and Chairman of the "People'sGovernment," Baburam Bhattarai, reportedly threatened the United States with "another Vietnam"if the United States expands its aid to Nepal. (221) In September, Bhattarai sent a letter to the U.S. Ambassadorin Kathmandu which called on the United States to stop "interfering" in the internal affairs ofNepal. (222) Maoistsclaimed responsibility for killing two off-duty Nepalese security guards at the American Embassyin 2002, (223) and theMaoists have made it known that American trekkers are not welcome in Maoist-controlledNepal. (224) Further,the Maoists stated on October 22nd that American-backed organizations would be targeted. Rebelleader Prachanda is reported to have stated that groups funded by "American imperialists" would notbe allowed to operate in Nepal. (225) After the cease fire, the Maoists appeared to be shifting from large-scale attacks on policeand army headquarters to adopting new tactics that focused on attacks by smaller cells conductingwidespread assassinations of military, police and party officials. (226) The unpopularity ofthis policy appears to have led the Maoists to shift policy again and declare that they would not carryout further political killings or further destroy government infrastructure. Despite this guarantee,attacks continue. In May 2005, Maoist commander in the Parsa District threatened attacks againstAmericans and American interests. (227) The Maoists' guarantee against terrorist attacks did not extendto projects "run directly by the United States." (228) The United States Agency for International Development andSave the Children both operate in Nepal. On October 27, Maoist leader Prachanda stated that "wewill ensure that no American citizens -- tourists or officials -- except those who come to thebattlefield with the Nepal Army would be caused any harm by the Maoist militia." (229) (For further details onthe Maoists and Nepal, see CRS Report RL31599 , Nepal: Background and U.S. Relations , by BruceVaughn.) The United States Department of State continues to designate the Liberation Tigers of TamilEelam (LTTE) as a Foreign Terrorist Organization in 2005. More than 64,000 people are thoughtto have died during this conflict over the last 20 years and the LTTE has consistently been one of themost effective and active users of suicide-bomber tactics in the world. In addition, some analystsclaim to have observed or heard of efforts by the LTTE recently to establish an air capability by theacquisition of two Cessna-class light aircraft. If true, this represents a worrisome event, as theLTTE's past history shows a penchant for adapting other means of transportation such as cars,motorbikes, and naval craft for suicide bomb attacks and it is not far-fetched to assume that the samecould be done with these aircraft. The Black Tigers unit, the elite special-operations cadre of theLTTE, are those charged with carrying out such terrorist operations and it could be appropriate towatch for signs that these cadre members are receiving flight training to further verify any new aircapabilities. A Norwegian-brokered peace process has produced notable successes, though it wassuspended by the LTTE in the spring of 2003 due to differences over interim administrationarrangements. In February 2002, a permanent cease-fire was reached and generally has beenobserved by both sides. In September 2002, the government in Colombo and the LTTE held theirfirst peace talks in seven years, with the LTTE indicating that it was willing to accept autonomyrather than independence for Tamil-majority regions. The two sides agreed in principle to seek asolution through a federal structure. However, LTTE leader Prabakaran has stated that there may bea return to fighting. The period from 2004 to early 2005 has witnessed increasing instability withinthe ranks of both the Sinhalese government and the LTTE which has led to increasing concern overthe future of the peace process. In June of 2005, Christina Rocca, the Assistant Secretary for SouthAsian Affairs, told a House International Relations Committee panel that the United States continues to support Norway'sfacilitation of a peace settlement in Sri Lanka. The cease-fire of 2002 is holding, although violenceis ongoing and the peace process has stalled. This is due in part to divisions within the Sri Lankangovernment and the absence of trust between the government and the LTTE, which continues to useassassinations and suicide bombers, underscoring their character as an organization wedded toterrorism and justifying their designation as a Foreign Terrorist Organization. (231) The LTTE has also, of late, experienced instability and intra-factional disagreements. InMarch 2004 there was a major rupture within the LTTE ranks. Vinayagamoorthi Muralitharan, aliasCol. Karuna (who, as Special Commander, Batticaloa-Amparai District, was in over-all charge ofthe LTTE's military operations in the Eastern Province) split with the Northern command of theLTTE headed by the supreme commander of the LTTE (Veluppillai Prabhakaran) and took anestimated 6,000 soldiers with him. Col. Karuna then called for a separate truce with the government. Factional fighting ensued between Karuna's splinter group and the Northern faction of the LTTE andresulted in Prabhakaran's reassertion of control over the eastern areas which Karuna had previouslyoperated. Since that time there have been numerous instances of political and military operatives beingkilled by each side as they jockey for power in the East. The LTTE has accused Col. Karuna andthose loyal to him of cooperating with Sri Lankan Army (SLA) paramilitaries and special forces inraids and targeted killings of forces under their command, which the SLA denies. Karuna has sincewithdrawn to a fortified base in the jungles of eastern Sri Lanka where they have repelled severalLTTE attacks. (232) Between February and April 2005 there were several recorded instances of serious violations of theceasefire. First was the death of a high level LTTE political officer, E. Kousalyane, in early Februarywhich was followed by an increase in politically motivated killings of individuals throughout theeastern provinces. (233) In early April there was also a much publicized incident when a Sea Tiger unit attacked a Sri LankanNavy vessel carrying a peace monitor, slightly wounding him. This led to a formal censure of theLTTE by the ceasefire monitoring group, the Sri Lanka Monitoring Mission (SLMM), and markeda particularly brazen attack as the Sri Lankan Navy vessel was flying the SLMM flag indicating thatmonitors were abroad. (234) Figure 2. Map of South Asia Adapted by CRS from Magellan Geographix. Boundary representations not authoritative. Figure 3. Map of Pakistan | This report reviews the recent incidence of terrorism in South Asia, concentrating on Pakistan and India, but also including Afghanistan, Bangladesh, Sri Lanka, and Nepal. The existenceof international terrorist groups and their supporters in South Asia is identified as a threat to bothregional stability and to the attainment of central U.S. policy goals. Al Qaeda forces that fled fromAfghanistan with their Taliban supporters remain active on Pakistani territory, and Al Qaeda isbelieved to have links with indigenous Pakistani terrorist groups that have conducted anti-Westernattacks and that support separatist militancy in Indian Kashmir. Al Qaeda founder Osama bin Ladenand his lieutenant, Ayman al-Zawahiri, are widely believed to be in Pakistan. A significant portionof Pakistan's ethnic Pashtun population is reported to sympathize with the Taliban and even AlQaeda. The United States maintains close counterterrorism cooperation with Pakistan aimedespecially at bolstering security and stability in neighboring Afghanistan. In the latter half of 2003,the Islamabad government began limited military operations in the traditionally autonomous tribalareas of western Pakistan. Such operations have since intensified in coordination with U.S. andAfghan forces just across the international frontier. The relationships between international terrorists, indigenous Pakistani extremist groups, andsome elements of Pakistan's political-military structure are complex and murky, but may representa serious threat to the attainment of key U.S. policy goals. There are past indications that elementsof Pakistan's intelligence service and Pakistani Islamist political parties provided assistance toU.S.-designated Foreign Terrorist Organizations (FTOs). A pair of December 2003 attempts toassassinate Pakistan's President Musharraf reportedly were linked to Al Qaeda. Lethal, but failedattempts to assassinate other top Pakistani officials in summer 2004 also were linked to AlQaeda-allied groups. Security officers in Pakistan have enjoyed notable successes in breaking upsignificant Al Qaeda and related networks operating in Pakistani cities, although numerous wantedmilitants remain at large. The 9/11 Commission Report contains recommendations for U.S. policy toward Pakistan,emphasizing the importance of eliminating terrorist sanctuaries in western Pakistan and near theAfghanistan-Pakistan border and calling for provision of long-term and comprehensive support tothe government of President Musharraf so long as that government remains committed to combatingextremism and to a policy of "enlightened moderation." Legislation passed by the 108th Congress( S. 2845 ) seeks to implement this and other Commission recommendations. The United States remains concerned by the continued "cross-border infiltration" of Islamicmilitants who traverse the Kashmiri Line of Control to engage in terrorist acts in India and IndianKashmir. India also is home to several indigenous separatist and Maoist-oriented terrorist groups. Moreover, it is thought that some Al Qaeda elements fled to Bangladesh. The Liberation Tigers ofTamil Eelam (LTTE) of Sri Lanka have been designated as an FTO under U.S. law, while Harakatul-Jihad-I-Islami/Bangladesh, and the Communist Party of Nepal (Maoist)/United Peoples Front,appear on the State Department's list of "other terrorist groups." |
On February 20, 2003, the President signed into law the FY2003 omnibusappropriations act ( P.L. 108-7 , H.J.Res. 2 ), which includes $74.25billion in regular FY2003 funding for USDA and related agencies. Of this amount,$17.545 billion is for discretionary programs. Not included in the total is $3.1 billionin supplemental disaster assistance provided by the measure, primarily for farmersand ranchers affected by a natural disaster in 2001 or 2002. The U.S. Department of Agriculture (USDA) carries out its widely variedresponsibilities through approximately 30 separate internal agencies and officesstaffed by some 100,000 employees. USDA is responsible for many activitiesoutside of the agriculture budget function. Hence, spending for USDA is notsynonymous with spending for farmers. USDA gross outlays for FY2002 (the most recently completed fiscal year) were $79.95 billion, including regular spending and supplemental spending forhomeland security following the September 11, 2001 terrorist attacks. The missionarea with the largest gross outlays ($37.5 billion or 50% of spending) was for foodand nutrition programs -- primarily the food stamp program (the costliest of allUSDA programs), various child nutrition programs, and the Women, Infants andChildren (WIC) program. The second largest mission area in terms of total spendingis for farm and foreign agricultural services, which totaled $22.9 billion, or 31% ofall USDA spending. Within this area are the programs funded through theCommodity Credit Corporation (e.g., the farm commodity price and income supportprograms and certain mandatory conservation and trade programs), crop insurance,farm loans, and foreign food aid programs. Figure 1 U.S. Department of Agriculture Actual Gross Outlays, FY2002 USDA spending in FY2002 also included $7.0 billion (9%) for an array ofnatural resource and environment programs, approximately three-fourths of whichwas for the activities of the Forest Service, and the balance for a number ofdiscretionary conservation programs for farm producers. (USDA's Forest Service isfunded through the Interior appropriations bill, and is the only USDA agency notfunded through the annual agriculture appropriations bill.) USDA programs for ruraldevelopment ($2.72 billion in gross outlays for FY2002); research and education($2.2 billion); marketing and regulatory activities ($1.5 billion); meat and poultryinspection ($717 million); and departmental administrative offices and otheractivities ($454 million) account for the balance of USDA spending. Approximately three-fourths of total spending within the U.S. Department ofAgriculture is classified as mandatory, which by definition occurs outside the controlof annual appropriations. Currently accounting for the vast majority of USDAmandatory spending are: the farm commodity price and income support programs(including ongoing programs authorized by the 2002 farm bill and emergencyprograms authorized by various appropriations acts); the food stamp program andchild nutrition programs; the federal crop insurance program; and various agriculturalconservation and trade programs. Although these programs have mandatory status, many of these accountsultimately receive funds in the annual agriculture appropriations act. For example,the food stamp and child nutrition programs are funded by an annual appropriationbased on projected spending needs. Supplemental appropriations generally are madeif and when these estimates fall short of required spending. An annual appropriationalso is made to reimburse the Commodity Credit Corporation for losses it incurs infinancing the commodity support programs and the various other programs itfinances. The other 25% of the USDA budget is for discretionary programs, which aredetermined by funding in annual appropriations acts. Among the major discretionaryprograms within USDA are Forest Service programs; certain conservation programs;most of its rural development programs and research and education programs;agricultural credit programs; the supplemental nutrition program for women, infants,and children (WIC); the Public Law (P.L.) 480 international food aid program; meatand poultry inspection, and food marketing and regulatory programs. Funding for allUSDA discretionary programs (except for the Forest Service) is provided by theannual agriculture appropriations act. Funding for Forest Service programs isincluded in the annual Interior appropriations act. Table 1. USDA and Related Agencies Appropriations, FY1995 to FY2003 (budget authority in billions of dollars) Note: Includes regular annual appropriations for all of USDA (except the Forest Service), the Foodand Drug Administration, and the Commodity Futures Trading Commission. Excludes all mandatoryemergency supplemental appropriations. Source: House Appropriations Committee. A key distinction between mandatory and discretionary spending involveshow these two categories of spending are treated in the budget process. Congressgenerally controls spending on mandatory programs by setting rules for eligibility,benefit formulas, and other parameters rather than approving specific dollar amountsfor these programs each year. Eligibility for mandatory programs is usually writteninto authorizing law, and any individual or entity that meets the eligibilityrequirements is entitled to the benefits authorized by the law. Spending fordiscretionary programs is controlled by annual appropriations acts. The thirteensubcommittees of the House and Senate Appropriations Committees originate billseach year which decide how much funding to devote to continuing current activitiesas well as any new discretionary programs. Administration's Request. As the first step in the FY2003 appropriations process, the BushAdministration released its budget request on February 4, 2002. Within the budget,the Administration requested FY2003 budget authority of $74.062 billion for the U.S.Department of Agriculture and related agencies (which includes all of USDA exceptthe Forest Service, and also includes the Food and Drug Administration and theCommodity Futures Trading Commission.) The $74.062 billion requested forFY2003 is $814 million above the FY2002 enacted appropriation of $73.187 billion. (The FY2002 enacted level includes two supplemental appropriations acts ( P.L.107-117 and P.L. 107-206 ), making nearly $500 million in net supplementalappropriations to various USDA programs, and FDA and CFTC ,in response to theSeptember 11, 2001 terrorist attacks.) The requested $17.421 billion for discretionary accounts was $1.145 billionabove the total FY2002 discretionary appropriation of $16.276 billion. Accountingfor $368 million of the requested increase in discretionary spending for USDA andrelated agencies is the Administration's assumption of a legislative proposal thatwould require all federal agencies to assume the full cost of accruing employeepensions and retiree health benefits beginning in FY2003, which ultimately was notadopted by appropriators. (1) Table 2. Congressional Action on FY2003 Appropriations for the U.S. Department of Agriculture and Related Agencies (1) The 107th Congress adjourned without passage of H.R. 5263 or S. 2801 by its respective chambers. The 108th Congress considered the FY2003 appropriations for USDAand related agencies in the context of an omnibus appropriations bill ( H.J.Res. 2 ) whichthe Senate amended and passed on January 23, 2003. House Action. The agriculture subcommittee of the House Appropriations Committee and the full HouseAppropriations Committee completed their respective markups of the FY2003agriculture bill for USDA and related agencies on June 26 and July 11, 2002,respectively. The bill ( H.R. 5263 ) and report ( H.Rept. 107-623 ) werefiled by the full committee on July 26, 2002. No floor action was held on the bill. Total appropriations in H.R. 5263 , as reported, were $74.306billion, of which $17.601 billion were for discretionary programs, and $56.705billion for mandatory USDA programs. The $17.601 billion for discretionaryprograms was exactly equal to the 302b allocation given to the subcommittee by thefull committee, and $180 million above the President's request for FY2003. Thediscretionary level in the House bill was $1.325 billion higher than the regularFY2002 appropriations, including supplementals. When the 108th Congress convened in early January 2003, the full Houseadopted a continuing resolution ( H.J.Res. 2 ), which also was intendedto serve as a vehicle for completing final funding decisions on the 11 remainingregular appropriations bills, including agriculture. Although the House-adoptedversion of H.J.Res. 2 was a temporary resolution extending fundingthrough January 31, 2003, the Senate-amended version was an omnibusappropriations measure that included the full-text of each of the outstanding regularbills, as amended. Until H.J.Res. 2 was enacted, FY2003 spending forUSDA and related agencies was governed temporarily by eight continuingresolutions enacted periodically over the first five months of FY2003, Senate Action. The SenateAppropriations Committee completed subcommittee and full committee markupduring the week of July 22, 2002, and reported its version of the FY2003 agricultureappropriations bill ( S. 2801 , S.Rept 107-223 ) on July 25. S. 2801 , as reported, provided total funding of $74.66 billion, which was$354 million above the House bill, $598 million above the Administration request,and $1 billion above the FY2002 enacted level including supplementals. Of the totalamount provided in S. 2801 , $17.98 billion was for discretionaryprograms, compared with $17.6 billion in the House bill, $17.4 billion in theAdministration's request and $16.55 billion provided in FY2002. The 107th Congress adjourned without completing action on S. 2801 or any other FY2003 agriculture spending bill. In early January 2003, Senateappropriators combined the FY2003 agriculture appropriations bill with ten otherunresolved appropriations bills, as amended, into an omnibus package which wasadopted as a substitute amendment ( S.Amdt. 1 ) to H.J.Res. 2 . H.J.Res. 2 was further amended on the Senate floor, and adopted bythe Senate on January 23, 2003. Funding levels for USDA and related agencies in H.J.Res. 2 were relatively close to the funding levels in S. 2801 for ongoing USDA programs. However, separate adopted amendments in H.J.Res. 2 provided $3.1 billion in farm economic and disasterassistance, and $500 million in additional P.L. 480 funds for emergency faminerelief in Africa. The $3.1 billion in farm assistance was offset by an across-the-boardreduction in all discretionary programs in the measure. No offsets were provided forthe supplemental P.L. 480 food aid. Conference Action. Conferenceaction on the FY2003 omnibus appropriations bill ( H.J.Res. 2 ) wascompleted on February 13, 2003, when the conference report ( H.Rept. 108-10 ) wasadopted by the House by a vote of 338-83, and later the same day by the Senate bya vote of 76-20. The President signed the measure into law ( P.L. 108-7 ) on February20, 2003. The final omnibus law combines the 11 appropriations bills that were notcompleted by the 107th Congress, with various other spending provisions, includinga supplemental $3.1 billion disaster assistance package for farmers and ranchers. Forthe regular annual appropriations for USDA and related agencies, P.L. 108-7 containsbudget authority of $74.25 billion, of which $17.55 billion is for discretionaryprograms and $56.70 billion is for mandatory programs. The discretionaryappropriation in the final measure is $56 million below the House-reported( H.R. 5263 ) level and $805 million below the Senate-passed level( H.J.Res. 2 ), but $124 million above the Administration request and$1.27 billion above the enacted FY2002 level including supplementals. The FY2003totals do not include the $3.1 billion in disaster assistance that was adopted in aseparate title of the bill. Spending for disaster assistance was offset by a comparablereduction in estimated spending for a mandatory conservation program over a 10-yearperiod. The appropriated totals do not reflect the effect of a 0.65% across-the-boardin almost all discretionary programs in the omnibus measure, which if appliedequally to all USDA and related agency programs, would reduce appropriations byapproximately $85 million. (The WIC program is the only USDA discretionaryaccount that is specifically exempted from the rescission.) The following sections compare the enacted conference agreement on theFY2003 omnibus appropriations bill ( P.L. 108-7 ), with the Senate-passed version ofthe bill ( H.J.Res. 2 ), the House-reported agriculture appropriations billin the 107th Congress ( H.R. 5263 ), the Administration's FY2003 request,and the FY2002 enacted level for various mission areas and agencies within USDA,and for the Food and Drug Administration. Also see the table at the end of thereport for a tabular summary of P.L. 108-8 , the House and Senate measures, the FY2003 request, and the FY2002 enacted appropriation levels, includingsupplementals. This report will continue to track congressional action on FY2003agriculture appropriations as the process continues. Most spending for USDA's mandatory agriculture and conservation programs, as authorized by the 2002 farm bill ( P.L. 107-171 ), is funded throughUSDA's Commodity Credit Corporation (CCC). The CCC is a wholly ownedGovernment corporation. It has the legal authority to borrow up to $30 billion at anyone time from the U.S. Treasury. These borrowed funds are used to finance thespending of ongoing programs such as farm commodity price and income supportactivities (including annual Direct and Counter-cyclical Payments and Milk IncomeLoss Contract Payments); and various agricultural conservation and trade programs.The CCC has also been the funding source for a large portion of emergencysupplemental spending over the years, particularly for ad-hoc farm disaster payments,and direct market loss payments to growers of various commodities which have beenprovided in response to low farm commodity prices. The CCC must eventually repay the funds it borrows from the Treasury. But,because the CCC never earns more than it spends, its losses must be replenishedperiodically through a congressional appropriation so that its $30 billion borrowingauthority (debt limit) is not depleted, which would render the corporation unable tofunction. Congress generally provides this infusion through the regular annualUSDA appropriation law. Because of the degree of difficulty in estimating itsfunding needs, which is complicated by crop and weather conditions and otheruncontrollable variables, the CCC in recent years has received a "current indefiniteappropriation," which in effect allows the CCC to receive "such sums as arenecessary" during the fiscal year for previous years' losses and current year's losses. Indefinite appropriations have become more common for the CCC in recent years,particularly in FY2000 when CCC net outlays in that year totaled $32 billion. Without an indefinite appropriation, the CCC would have exhausted its $30 billionborrowing limit. For FY2003, the Administration requested an indefinite appropriation for theCCC estimated at $16.285 billion, compared with an estimated $20.279 billion forFY2002. The FY2003 omnibus appropriations act ( P.L. 108-7 ) concurs with thisrequest and estimate. Not included in this amount is a separate supplementalappropriation of $3.1 billion in P.L. 108-7 for farm disaster assistance, which is tobe funded through the borrowing authority of the CCC. (See below.) With a large portion of the nation in extreme and severe drought for the pasttwo years, many farm groups were seeking supplemental federal disaster assistancefor 2001 and 2002 crop and livestock losses. The omnibus appropriations act ( P.L.108-7 ) contains an estimated $3.1 billion in economic and disaster assistance foragricultural producers in a separate title of the act (Division N, Title II). A similaramount was provided in the Senate-passed version of the measure( H.J.Res. 2 ). No comparable provisions were considered in the House.The cost of the package is offset by a spending limitation placed on a farmbill-authorized conservation program, the Conservation Security Program, over thenext 10 years. The Administration did not request any assistance, and insisted duringthe congressional debate that any assistance Congress provided must be offset withcomparable reductions in other farm spending. The following is a breakdown of the major provisions in the disasterassistance provisions in P.L. 108-7 . Crop Disaster Assistance. P.L.108-7 contains "such sums as are necessary" from the Commodity Credit Corporationto fully fund a disaster payment formula that is similar to the payment formula lastused for ad-hoc 2000 crop disaster payments. Regardless of whether a farmer is ina declared disaster area, a producer can be eligible for assistance if individual croplosses were in excess of 35% in either 2001 or 2002. For losses in excess of the 35%threshold, an eligible producer can receive a payment equal to 50% of the relevantprice for the commodity. Producers who had the opportunity to insure the crop andwaived insurance for that year will be slightly penalized and receive a payment equalto 45% of the relevant price. All commercially grown crops are eligible for a paymentunder this formula except for sugar and tobacco, which have separate disasterpayment programs in the program. All producers must choose between a 2001payment or a 2002 payment, and may not receive a payment for both years' losses.The act limits the amount of the disaster payment so that the payment, in combinationwith crop insurance payments and the value of the crop that was not lost, cannotexceed 95% of the value of the crop had there been no losses. A participatingproducer also must agree to purchase crop insurance for the next two crop years, or,when insurance is not available, purchase coverage under the noninsured assistanceprogram for two years. Congressional Budget Office cost estimate: $2.115 billion(subject to change, since "such sums as are necessary" are available for thisprovision.) Livestock Assistance. P.L. 108-7 provides $250 million to compensate for 2001 or 2002 livestock forage or feed lossescaused by a natural disaster. The program will be administered in the same fashionas the ad-hoc 1999 Livestock Assistance Program (LAP). To receive LAP assistance,a producer must be in a disaster-declared county (declared by the President or theSecretary of Agriculture) and must choose between 2001 or 2002 losses. Themeasure also removes date restrictions for eligibility for the Livestock CompensationProgram (LCP), which USDA administratively implemented in 2002. TheCBO-estimated cost of the LCP provision is $100 million . USDA funded the LCPthrough the use of Section 32 funds, which are traditionally used to make surpluscommodity purchases. The omnibus act requires any new spending to come from theCommodity Credit Corporation, instead of Section 32, and reimburses Section 32with $250 million in CCC funds to compensate for a portion of the past payments ofthe program. Other Assistance. P.L. 108-7 alsoprovides various forms of assistance to certain commodities, including: 1) $60million in disaster payments to sugar beet producers; 2) a CBO-estimated $60million in payments to sugarcane producers and processors for hurricane losses; 3)a CBO-estimated $54 million to compensate tobacco producers for losses associatedwith quota reductions, pests and diseases; and 4) $18.2 million to compensate Floridacitrus growers whose trees were quarantined for citrus canker. The federal crop insurance program is administered by USDA's RiskManagement Agency (RMA). It offers basically free catastrophic insurance toproducers who grow an insurable crop. Producers who opt for this coverage have theopportunity to purchase additional insurance coverage at a subsidized rate. Mostpolicies are sold and completely serviced through approved private insurancecompanies that have their program losses reinsured by USDA. The annualagriculture appropriations bill makes two separate appropriations for the federal cropinsurance program. It provides discretionary funding for the salaries and expensesof the RMA. It also provides "such sums as are necessary" for the Federal CropInsurance Fund, which funds all other expenses of the program, including premiumsubsidies, indemnity payments, and reimbursements to the private insurancecompanies. The omnibus appropriations act ( P.L. 108-7 ) provides an FY2003appropriation of $70.708 million for RMA salaries and expenses, the onlydiscretionary component of the federal crop insurance program. This appropriationis the same as in the Senate-passed version of the omnibus measure( H.J.Res. 2 ), slightly below the House-reported ( H.R. 5263 )level of $72.771 million. The House and Senate and final levels for FY2003 areslightly below the Administration request only because neither bill concurs with theAdministration request to shift GSA rent expenses from a central account toindividual agency accounts. The Administration request was $4 million below theFY2002 appropriation of $74.75 million. Most of the reduction in the FY2003funding request is attributable to one-time costs in FY2002 for implementing theAgricultural Risk Protection Act ( P.L. 106-224 ), which provided increased subsidiesand made other enhancements to the crop insurance program. For mandatory expenses of the crop insurance program (premium subsidy,program losses and reimbursements to private insurance companies), theAdministration requests "such sums as are necessary" and estimated an FY2003appropriation of $2.89 billion, which was virtually equal to the FY2002 estimate of$2.90 billion. P.L. 108-7 concurs with the FY2003 request. Annual spending on the crop insurance program is difficult to predict inadvance and is dependent on weather and crop growing conditions. The cropinsurance program received legislative enhancements in 2000 ( P.L. 106-224 ) whichhave contributed to significantly higher farmer participation in the program. TheAdministration maintains that the increased participation has resulted in windfallprofits for the private insurance companies. Hence, the FY2003 budget requestcontained a legislative proposal to require private insurance companies to absorbmore of the risk of the program by limiting their underwriting gains to 11.5% ofretained premiums. P.L. 108-7 does not address this proposal, and to date, nolegislative action has occurred. Senate report language accompanying S. 2801 directed USDA to follow current procedures in the Standard ReinsuranceAgreement between private companies and USDA before any risk-sharing changesare made. For more background on crop insurance, see CRS Report RL30739(pdf) , FederalCrop Insurance and the Agriculture Risk Protection Act of 2000 (P.L.106-224) . While the Commodity Credit Corporation serves as the funding mechanismfor the farm income support and disaster assistance programs, the administration ofthese and other farmer programs is charged to USDA's Farm Service Agency (FSA). In addition to the commodity support programs and most of the emergency assistanceprovided in recent supplemental spending bills, FSA also administers USDA's directand guaranteed farm loan programs, certain conservation programs and domestic andinternational food assistance and international export credit programs. FSA Salaries and Expenses. Thisaccount funds the expenses for program administration and other functions assignedto the FSA. These funds consist of appropriations and transfers from CCC exportcredit guarantees, from P.L. 480 loans, and from the various direct and guaranteedfarm loan programs. All administrative funds used by FSA are consolidated into oneaccount. For FY2003, the FY2003 omnibus appropriations act ( P.L. 108-7 ) providesan annual appropriation of $976.7 million for FSA salaries and expenses. Separatelyin the act, FSA is authorized to tap the Commodity Credit Corporation for up to anadditional $70 million to cover the administrative costs associated with implementingthe $3 billion farm disaster assistance package in the act, as well as the ongoing farmcommodity support programs. The regular appropriation of $976.7 million is equalto the amount provided in the House-reported appropriations bill ( H.R. 5263 ) and $10.2 million below the Senate-passed ( H.J.Res. 2 ) level of$986.9 million. The Senate measure also contained the $70 million supplementalauthority. The Administration had requested an FY2003 appropriation of $993.6 millionfor FSA salaries and expenses, compared with $939 million appropriated in FY2002. Most of the requested increase was attributable to increased pay costs and a lack ofcarryover funds from FY2002. (FY2002 funding was bolstered by a $29 millioncarryover from FY2001. No carryover was expected into FY2003.) The requestedlevel for FY2003 did not reflect any new activities associated with the recentlyenacted 2002 farm bill ( P.L. 107-171 ). The farm bill provides $50 million in newmandatory no-year funding for FSA salaries and expenses to administer new farm billprograms. Neither P.L. 108-7 nor the House-reported or Senate-passed measure concurs with the President's request to increase the FSA appropriation by $17 millionover FY2002 to cover FSA rental payments to GSA, which are currently paid out ofa central USDA account. FSA Farm Loan Programs. Through FSA farm loan programs, USDA serves as a lender of last resort for familyfarmers unable to obtain credit from a commercial lender. USDA provides directfarm loans and also guarantees the timely repayment of principal and interest onqualified loans to farmers from commercial lenders. FSA farm loans are used tofinance the purchase of farm real estate, help producers meet their operatingexpenses, and financially recover from natural disasters. Some of the loans are madeat a subsidized interest rate. An appropriation is made to FSA each year to cover thefederal cost of making direct and guaranteed loans, referred to as a loan subsidy. Loan subsidy is directly related to any interest rate subsidy provided by thegovernment, as well as a projection of anticipated loan losses caused by farmernon-repayment of the loans. The omnibus appropriations act ( P.L. 108-7 ) provides an appropriation of$228.3 million to subsidize the cost of total direct and guaranteed farm loans of$3.937 billion for FY2003. The appropriation is midway between the $212.1 million (supporting $3.8 billion in total loans) in the House-reported bill ( H.R. 5263 ) and the Administration request and the $243 million ($4.01 billion in loans)in the Senate-passed measure ( H.J.Res. 2 ). The enacted FY2003 levelwill allow FSA to make available nearly twice the level of direct operating loans thanin FY2002 ($104.4 million in FY2003 vs. $54.6 million authorized in FY2002.) FSA farm loan levels have been higher in recent years because an FY2000supplemental act ( P.L. 106-113 ) provided significant emergency funding for various USDA farm loan programs, from which balances were carried over into subsequentyears. Supplemental funding has been provided in recent years for federal farm loansin response to low farm commodity prices, which have limited the ability of farmersto secure commercial farm loans. USDA's agricultural trade and food aid activities include some programs thatare funded by appropriations and others that are funded through the borrowingauthority of the CCC. The FY2003 omnibus appropriations act ( P.L. 108-7 ) dealsmainly with programs for which appropriations are required. CCC-funded activitiesare dealt with primarily in budget proposals submitted by the President, althoughgeneral provisions in the annual appropriations act occasionally address fundinglevels and other aspects of the CCC-funded programs. Adding together appropriations and estimated spending for CCC-fundedactivities (some additional food aid programs, market development, export subsidies,export credit guarantees) results in a program level of about $6.1 billion for allUSDA international activities for FY2003. (2) The program level for USDA's internationalactivities was estimated at about $5.5 billion in FY2002. The program level reflectsnot only increased spending for food aid, but also Congress's rejection in the 2002farm bill of many of the food aid reforms proposed by the Administration in itsFY2003 budget proposals. FAS Salaries and Expenses. TheForeign Agricultural Service (FAS) administers USDA's international programs (bothappropriated and CCC-funded). The administration of P.L. 480 Food for Peace,however, is shared between USDA and the U.S. Agency for InternationalDevelopment (USAID). USDA is responsible for Title I of P.L. 480, which provideslow-interest, long-term loans to developing countries to finance the purchase of U.S.food products, while USAID is responsible for Title II (commodity donations) andTitle III (a bilateral food grant program). (FAS also administers several food aidprograms financed with CCC-funds) For salaries and expenses of FAS, P.L. 108-7 provides $129.9 million, which is $8.1 million above the FY2002 enacted amountand about $1.5 million less than requested by the President. Foreign Food Aid: Funding andIssues. P.L. 480 food aid accounts for $1.343 billion (more than90%) out of an appropriation of $1.477 billion for discretionary agricultural tradeprograms. P.L. 108-7 contains an appropriation of $1.477 billion for USDA'sinternational activities that are subject to annual appropriations (P.L. 480 food aid,salaries and expenses of the Foreign Agricultural Service, and administrativeexpenses for managing export credit guarantee programs). Of that amount, $1.2billion is authorized for humanitarian commodity donations under P.L. 480 Title II. In addition, P.L. 108-7 includes a supplemental appropriation of $250 million foremergency relief activities under P.L. 480, which will remain available throughFY2004. Not counting the additional $250 million, the total for appropriatedinternational programs is $344 million greater than enacted for FY2002 with mostof the increase going to humanitarian food donations. Additional spending forhumanitarian relief is a response to the Administration's decision to phase out foodaid based on commodity surpluses and to estimates by U.S. and international food aidagencies of large, urgent food needs in Sub-Saharan Africa, North Korea,Afghanistan and elsewhere. In light of estimated food needs around the world, theissue of food aid spending for emergency relief could be revisited during the 108thCongress. The increase in food aid appropriations in the FY2003 omnibusappropriations act is in response both to large estimated global food needs and to theAdministration's decision to phase out food aid based on commodity surpluses orCCC funding. Proposed reductions in Section 416(b) (which uses surpluscommodities and CCC funds) are based on the Administration's review of food aidthat also recommended (in the FY2003 budget proposal) that all programs now runthrough private voluntary organizations (PVOs), cooperatives, and the World FoodProgram be placed in USAID, with USDA food aid activities confined togovernment-to-government programs. Consistent with this approach, theAdministration recommended in the FY2003 budget proposal an increase in P.L. 480Title II commodity donations to compensate partially for the phase-out of Section416(b) commodity donations. Initial Administration budget proposals also excluded any CCC funding inFY2003 for Food for Progress (FFP) which provides U.S. commodities to developingcountries and emerging democracies. CCC funding of this program has averagedaround $100 million annually in recent years. Under the President's proposals, anyFFP activity would have been be limited to government-to-government programsfinanced with money appropriated for P.L. 480 Title I. However, reauthorization ofthe FFP program in the 2002 farm bill ( P.L. 107-171 ), with continued reliance onCCC funding, complicated the efforts of the Administration to phase outCCC-funded food aid programs. P.L. 108-7 goes further and amends the FFP statueby requiring a minimum volume of 400,000 metric tons of commodities (whicheffectively entails CCC funding) and by requiring the President to enter into FFPagreements not only with foreign governments, but also with PVOs, coops, andintergovernmental organizations. Consequently, the President's FY2003 estimatesfor international programs now include $158 million of CCC funding for FFP. On the international level, the use of commodity surpluses to augment U.S.food aid has been criticized by the European Union, Australia, and other agriculturalexporting countries as an effort by the United State to circumvent U.S. World TradeOrganization (WTO) export subsidy reduction commitments. These trading partnersargue that much of U.S. food aid is being used to manage supplies rather than to meetemergency needs and that large food aid shipments impede sales of agriculturalproducts by and between developing countries. The issue of food aid andinternational agricultural trading rules is being pursued by U.S. trading partners in thenew round of multilateral trade negotiations launched at the end of 2001. Consistent with its phase-out of Section 416(b), the President's budgetassumes that $118 million will be available for programming under Section 416(b)in FY2003. That would consist almost entirely of surplus nonfat dry milk held inCCC inventories. In contrast, $175 million of commodity assistance andtransport/distribution costs under Section 416(b) were funded in FY2002 and $948million in FY2001. Mandatory Trade Programs. Inaddition to Section 416(b) and Food for Progress (discussed above), many otherUSDA international programs are funded through CCC borrowing authority. By farthe largest component of program level is accounted for by an estimated $4.225billion of CCC export credit guarantees, which guarantee payment for commercialfinancing of U.S. agricultural exports. The actual export value of credit guaranteesmade available in FY2003 will depend ultimately on market conditions and demandsfor credit. Historically, the value of such guarantees has rarely reached (or exceeded)the levels anticipated in budget requests. U.S. export credit programs have also been raised as an issue in WTOagricultural trade negotiations. The EU and other trading partners charge that theprogram has a subsidy element (although it is much less than the subsidy representedby the EU's export restitution program) and gives the U.S. an unfair competitiveadvantage in exporting certain agricultural commodities. The United States took part in negotiations on export credit programs in the Organization for EconomicCooperation and Development (OECD), but these negotiations did not succeed and were suspended. Any changes in the U.S. program that might result from tradenegotiations would have to overcome strong congressional support of these programsas they are presently constituted. Two other CCC-funded programs assist trade organizations in their efforts to develop markets overseas for U.S. agricultural products. For the Market AccessProgram (MAP), the Administration assumes spending of $110 million and for theForeign Market Development (or "Cooperator") Program (FMDP), $34 million.These amounts are authorized in the 2002 farm bill ( P.L. 107-171 ). For one CCC-funded direct export subsidy program, the Export EnhancementProgram (EEP), the conference report limits CCC spending to $28 million. For itsreduction from the level authorized in the farm bill ($478 million), P.L. 108-7 scoressavings of $450 million. In the past, the Congressional Budget Office (CBO) hasscored no savings for proposed cuts to EEP funding since actual spending in theprogram has been negligible (e.g., $1 million in FY2001, $0 in FY2002). However,the conference report estimate of savings is based on Office of Management andBudget's (OMB) scoring method (rather than CBO's) which allows dollar-for-dollarsavings for cuts from the authorized EEP level. For the other export subsidyprogram, the Dairy Export Incentive Program (DEIP), the President's budgetanticipates that $57 million would be provided, an estimate that reflects the maximum permitted under international trade agreements. The 2002 farm bill established a new food aid program, the McGovern-DoleInternational Food for Education and Child Nutrition Program (IFED), and mandatedthat $100 million of CCC-funding be made available for FY2002. In subsequentfiscal years (FY2004-FY2007), "such sums as necessary" would be appropriated. IFED began as a pilot project during the Clinton Administration and was financed by$300 million in CCC-funds and commodities. Consistent with farm billrequirements, the Administration indicates that $100 million of CCC funds would beexpended on IFED in FY2003. For more information on agricultural trade and food aid, see CRS Issue Brief IB98006, Agricultural Export and Food Aid Programs and CRS Issue Brief IB10077, Agricultural Trade Issues in the 107th Congress. The natural resources and environment mission area within USDA isimplemented through the programs of the Natural Resources Conservation Service(NRCS), the Farm Service Agency (FSA), and the Forest Service. (Funding for theForest Service is provided in the annual Interior appropriations bill, and is discussedin CRS Report RL31306 , Appropriations for FY2003; Interior and RelatedAgencies .) Conservation spending combines discretionary spending, which is justover $1 billion in the FY2003 omnibus appropriations act ( P.L. 108-7 ), andmandatory funding, which is funded through the Commodity Credit Corporation, and is estimated at almost $3.0 billion, according to the January 2003 CongressionalBudget Office (CBO) estimate. Mandatory conservation spending includes $1 billion in new spendingauthorized by the recently enacted 2002 farm bill ( P.L. 107-171 ). The new farm billprovides legislative authority, including funding levels, for many of the mandatoryconservation programs through FY2007. When Congress was considering this law,the CBO estimated that overall mandatory conservation funding would grow byabout 80%, increasing by a total of $9.2 billion through FY2007 (and $17.1 billionthrough FY2011, assuming an extension of current policies, without modification,through that year.) Discretionary Programs. TheFY2003 omnibus appropriations act ( P.L. 108-7 ) provides $1.028 billion for alldiscretionary conservation programs within USDA, which is $7 million higher thanthe House committee-reported bill ( H.R. 5263 ), $9 million less than theSenate-passed measure ( H.J.Res. 2 ), and $22 million below theAdministration request of $1.049 billion. Much of the difference between thecongressional levels and the Administration request was a $48.7 million request forthe Emergency Conservation Program (funded under the Farm Service Agency) thatwas not included in P.L. 108-7 or either chamber's measure. The FY2003 enactedlevel is a decrease of $29 million from the FY2002 appropriation of $1.056 billion,which included $94 million of supplemental spending provided for watershed andflood prevention in P.L.107-206 . The largest discretionary conservation program is Conservation Operations(CO), most of which supports technical assistance. P.L. 108-7 provides $825 millionfor CO in FY2003, which is less than the Administration request of $841 million, buta significant increase from the $779 million provided in the FY2002 appropriation. A large portion of the requested increase, $48 million, would have paid for technicalassistance in helping animal feeding operations comply with clean water regulations. P.L. 108-7 provides less than either the House-reported bill ($844 million) or theSenate-passed measure ($840 million). The conference report accompanying the lawidentifies 114 earmarks for CO with a total cost of more than $110 million. Someof these are new this year, while others had been specified in appropriations bills inprevious years. Reports accompanying bills emerging from both chambers eachidentified numerous earmarks; S. 2801 , for example, includes 83earmarks allocating about $90 million. Some earmarks are for specific projects orsites and others are for activities. The largest earmark in the law, $21.5 million, is forthe grazing lands conservation initiative. The conference report also identifiespartners to be involved in many of these projects and activities. P.L. 108-7 , drawingfrom the House bill, requires NRCS to treat earmarks as additions to each state'sallocation. For watershed activities, P.L. 108-7 provides $110 million for Watershed andFlood Prevention Operations ($200 million appropriated in FY2002, including a $94million supplemental appropriation provided in P.L. 107-206 ), $11.2 million forWatershed Surveys and Planning ($11 million in FY2002) and $30 million forWatershed Rehabilitation Program ($10 million in FY2002). It identifies severalearmarks in the general provisions and in the conference report. The Administrationrequested no appropriation in FY2003 for these three watershed programs. Instead, it proposed a new approach, requesting $110 million for Emergency WatershedProtection, which is the average of annual spending over the past 10 years, so thatUSDA would have funds on hand to provide immediate assistance after a naturaldisaster. (Currently, emergency programs typically are funded in supplemental actsafter a disaster strikes, so assistance may not be available for several months orlonger after the damage occurs.) Neither chamber concurred with this Administration request to consolidatethree accounts into the Emergency Watershed Protection account. Instead, the Houserecommended $110 million for Watershed and Flood Prevention Operations (withnumerous earmarks), $11.2 million for Watershed Surveys and Planning, and nofunding for Emergency Watershed Protection or Watershed Rehabilitation, while theSenate recommended $105 million for Watershed and Flood Prevention Operations(with numerous earmarks), $11.0 million for Watershed Surveys and Planning, andno funding for Emergency Watershed Protection, and also $30 million for WatershedRehabilitation. P.L. 108-7 includes provisions from both bills that limit spending fortechnical assistance to $45.5 million of the total for Watershed and Flood PreventionOperations, and limit expenditures related to protecting threatened and endangeredspecies to $1 million. P.L. 108-7 provides no funds for the Emergency Conservation Program, anFSA-administered program which helps producers repair damaged farmlandfollowing a disaster. Traditionally, this program has been funded throughemergency supplemental appropriations. Congress rejected an Administrationproposal to move to a new funding approach. This proposal assumed that FY2003spending would be the average of the past 10 years, $48.7 million, and requests thislevel of funding in the regular FY2003 appropriations, so that it can more rapidlyrespond to emergencies. P.L.108-7 provides $51 million for the Resource Conservation andDevelopment (RC&D) Program to support activities in designated RC&D districts. This amount is almost $2 million more than the Administration request of $49.1million and $1 million more than the Senate provided, but $4.1 million less than theHouse-reported level. The act does not provide any funding for the ForestryIncentive Program administered by NRCS, which was eliminated by the 2002 farmbill. Technical Assistance Funding. In late 2002, the Office of Management and Budget, supported subsequently by theDepartment of Justice, issued an opinion that technical assistance funding formandatory programs remains limited under a cap that has been placed in section 11of the Commodity Credit Corporation charter under prior law. Members had thoughtthat the issue had been resolved through language included in the 2002 farm bill andwere supported in this conclusion by an opinion issued by the General AccountingOffice. The Administration proposed to address this limit in FY2003 through aJanuary 2003 proposal to create a new farm bill technical assistance line item, andto fund it at $333 million in FY2003. It stated that this line item combined with otherfunding would be adequate to fully fund all technical assistance necessary toimplement all mandatory and discretionary conservation programs. Congressstrongly rejected this proposal. Section 213 of the disaster assistance package(Division N, Title II) in P.L. 108-7 amends the farm bill by specifically prohibitingthe use of discretionary funds to implement any mandatory conservation programs. Mandatory Programs. TheAdministration's FY2003 request was submitted prior to enactment of the 2002 farmbill, which reauthorized and greatly increased funding for many conservationprograms slated to expire at the end of FY2002. Although the Administration hadstated its support for authorizing higher annual mandatory conservation fundinglevels in the 2002 farm bill, its request for FY2003 did not include any of theanticipated reauthorizations or increases, except that it requested then-level fundingat $200 million for the Environmental Quality Incentives Program (EQIP), a costsharing program to pay for installing conservation practices. Most of the othermandatory conservation programs had either reached their authorized ceilings (set indollars or acres), or had been unfunded because of limitations enacted in previousappropriations legislation. The $3.1 billion in agricultural disaster assistance provided in P.L. 108-7 isoffset by limiting spending on the new Conservation Security Program (CSP). TheCSP has not yet been implemented, but was designed to pay farmers to institute andmaintain conservation practices on land that is producing food and fiber. Thelimitation in P.L. 108-7 prohibits any funding in FY2003 and limits total ten-yearfunding (FY2004-2013) to $3.773 billion, providing an offset of $3.105 billion overthe time period. The farm bill had called for this program to be implemented inFY2003. The House-reported bill would have limited this program to a single state,Iowa, making it a pilot program with savings of $3 million, while the Senate-passedbill would have made it available in all states. P.L. 108-7 includes three other provisions that either limit or prohibit fundingfor certain mandatory conservation programs. The act: 1) limits FY2003 enrollmentin the Wetlands Reserve Program to 245,833 acres instead of the 250,000 acresauthorized in the farm bill (savings of $5 million); 2) limits FY2003 funds for theEQIP to $695 million instead of the $700 million authorized in the farm bill; and 3) prohibits the use of any of the $45 million in mandatory funds authorized in FY2003for the Small Watershed Rehabilitation Program. (However, the act does provide$30 million in discretionary funding for the Small Watershed RehabilitationProgram.) The FY2003 omnibus appropriations act does not comment on the mostcostly mandatory conservation program, the Conservation Reserve Program (CRP). It is administered by FSA and pays farmers to retire from production highly erodibleand environmentally sensitive land. Late last year, USDA reported that there wereabout 35.1 million acres enrolled in the CRP, almost 10% of the country's cropland. It has been approaching its ceiling of 36.4 million acres, which was raised to 39.2million acres by the 2002 farm bill. The budget assumes FY2003 outlays of $1.856billion to fund existing and new contracts. Most other mandatory funding programswill grow rapidly, as they were reauthorized by the 2002 farm bill. Examples includethe Wetlands Reserve Program, which will grow from 1.075 million acres (by250,000 acres per year) to 2.275 million acres and the EQIP, which will grow from$200 million in FY2001 to $1.3 billion in FY2007. For more information on USDA conservation issues, see CRS Issue Brief IB96030, Soil and Water Conservation Issues , and for more information on the farmbill conservation provisions, see CRS Report RL31486(pdf) , Resource Conservation Titleof the 2002 Farm Bill: A Comparison of New Law with Bills Passed by the Houseand Senate, and Prior Law . The FY2003 omnibus appropriations act ( P.L. 108-7 ) provides $2.506 billionfor USDA's four research, education, and economics (REE) agencies in FY2003,compared with $2.517 billion in the Senate-passed bill ( H.J.Res. 2 ) and$2.379 billion in the House-reported bill ( H.R. 5263 ). TheAdministration had requested $2.232 billion. The final law is $61 million above theFY2002 enacted level (including supplementals for counter-terrorism activities). Four agencies carry out USDA's REE function. The Department's in-houseresearch agency is the Agricultural Research Service (ARS), which providesscientific support to USDA's action and regulatory agencies and conducts long-term,high risk, basic and applied research on subjects of national and regional importance. The Cooperative State Research, Education, and Extension Service (CSREES) is theagency through which USDA sends federal funds to land grant Colleges ofAgriculture for state-level research, education and extension programs. TheEconomic Research Service (ERS) provides economic analysis of agriculture issuesusing its databases as well as data collected by the National Agricultural StatisticsService (NASS). Agricultural Research Service(ARS). The FY2003 omnibus appropriations actprovides $1.172 billion in total for ARS. Of that amount,$1.053 billion supports ARS's research programs (a $73 million increase from theregular FY2002 appropriation), and $119.5 million supports modernizing andbuilding ARS facilities (a $0.5 million increase from the regular FY2002appropriation). Overall, however, ARS will receive $64 million less in FY2003, ifthe additional $138 million ARS received in supplemental funding is included in theFY2002 agency total. (3) P.L. 108-7 provides virtually level funding with theSenate-passed omnibus measure for ARS research, and an increase over both theSenate-passed and House-reported measures in funds available for facilitiesconstruction ($95 million and $101 million, respectively). The Administration requested $971.4 million for ARS research and $16.6 million for ARS constructionprojects for FY2003. The conference report contains language calling for the continuation of allARS research projects and locations that the Administration had recommended fortermination or consolidation and closure. Conferees also adopted a provision fromthe House-reported spending bill that blocks the expenditure of any funds to conducta review of the quality and relevance of ARS research. Congress first authorized theUSDA secretary to request the National Academy of Sciences to conduct this reviewin the Agricultural Research, Extension, and Education Reform Act of 1998 ( P.L.105-185 ). However, the NAS study, which was released in December 2002, isinstead a review of the effect of publicly funded research on the structure of U.S.agriculture. The 2002 farm bill ( P.L. 107-171 ) reauthorized the ARS study asoriginally conceived, but the language in the final FY2003 appropriations law statesthat USDA should have time to review the existing NAS study before asking NASto undertake another. The Public Health Security and Bioterrorism Response Act of 2002 ( P.L.107-188 ) authorized additional appropriations for ARS in FY2003-06 to upgradebioterrorism-related research facilities in Plum Island, NY and Ames, IA. The Actalso authorized $190 million in FY2003 to be shared among ARS, APHIS, the ForestService, and cooperators in the states for research on bioterrorism prevention,preparedness, and response, among other things. The FY2003 omnibusappropriations act does not contain any appropriations under that authority. Cooperative State Research, Education, andExtension Service (CSREES). P.L. 108-7 provides $1.125 billionfor CSREES support of research and extension programs at the land grant collegesof agriculture. The Senate-passed omnibus measure would have provided $1.156billion, and the House-reported measure would have appropriated $1.07 billion. TheAdministration had requested $1.021 million. The $1.125 billion enacted total is a$97 million increase (almost 10%) over the FY2002 appropriation, most of which isallocated to research and education programs ($79 million) and extension programs($14 million), with a $4 million decrease in funding for integrated research andextension programs. P.L. 108-7 adopted the Administration's request for: (1) $180.1 million(FY2002 level) in formula funds for core research and extension programs at 1862land grant institutions; and (2) $21.8 million (FY2002 level) in formula funds forforestry research. The final law provided $35.6 million (+$1 million from FY2002)for research at 1890 (historically black) land grant colleges; $32.1 million forextension at 1890 colleges (+$1 million from FY2002), and $453.5 million (higherthan FY2002 and both the House-reported and Senate-passed measures) for extensionat 1862 institutions. The final FY2003 spending act increases funding for Special Research(earmarked) grants to $112.3 million, an amount higher than both the House-reportedand the Senate-passed measures ($102.8 million and $103.8 million, respectively).The Administration had proposed termination of most Special Research grants, witha funding recommendation of $3.3 million. FY2002 funding was $97 million. P.L.108-7 also provides $30 million for an additional group of earmarked grants underthe "Federal Administration" portion of the CSREES budget, which is more thanincluded in either chamber's initial bill, and more than in FY2002 ($21.7 million). The FY2003 budget request was $9.7 million. Finally, the conferees agreed toprovide $167.1 million for the National Research Initiative Competitive ResearchGrants (NRI) program, compared with $124.3 million in the Senate-passed omnibusmeasure, $130 million in the House-reported bill, and $120 million in FY2002. The Administration had proposed doubling that amount -- to $240 million -- for FY2003. The conference report retains the earlier concurrence between the House andSenate bills, and with the FY2003 budget request, to block the expenditure of $120million in mandatory funds for the Initiative for Future Agriculture and Food Systemsthat was created in separate legislation in 1998. The 2002 farm bill ( P.L. 107-171 ),reauthorizes the Initiative and gradually increases its authorized funding from $120million to $200 million annually in FY2006-07. The Public Health Security and Bioterrorism Preparedness and Response Actof 2002 ( P.L. 107-188 ) provides authority for security improvements at land grantcollege facilities and development of on-farm biosecurity education programs. TheFY2003 omnibus appropriations act contains no appropriations under this authority. Economic Research Service (ERS) and NationalAgricultural Statistics Service (NASS). P.L. 108-7 provides $69.1million for ERS, representing an increase from the Senate-passed measure ($65.1million) and a decrease from the House-reported bill ($73.3 million) and the budgetrequest ($79.2 million). FY2002 ERS funding was $67.2 million. The conferees didnot include the Administration's request (which was included in the House-reportedbill) to transfer funds from a central account to each individual agency to cover rentpaid by each agency to GSA. For NASS, the conference report contains $139.4million, which is only slightly below the Senate-passed measure ($140.9 million), butabove the House-reported level of $137.8 million. The FY2002 appropriationwas$113.8 million, and the budget request was $143.7 million. P.L. 108-7 reflectsearlier House and Senate concurrence on allocating $41.3 million of the NASSappropriation for the agency's work on the 2002 Census of Agriculture, as theAdministration requested. USDA's Food Safety and Inspection Service (FSIS) is responsible for themandatory inspection of meat, poultry, and processed egg products to insure theirsafety, wholesomeness, and proper labeling. The FY2003 omnibus appropriationsact ( P.L. 108-7 ) contains the Senate-proposed $759.8 million for FSIS, which ishigher than the $755.8 million in H.R. 5263 and fully funds thePresident's budget request. The FY2002 funding level (including a $15 millionsupplemental) was $730.6 million. FSIS also will have access in FY2003 to anadditional $101 million in user fee income to support its inspection activities. P.L.108-7 includes $5 million specifically for FSIS to hire at least 50 additionalpersonnel to enforce the Humane Methods of Slaughter Act. A provision in theSenate-passed measure calling for more stringent monitoring of foreignestablishments exporting meat and poultry to the United States, is not included. USDA's marketing and regulatory programs (MRP) are administered by threeagencies: the Agricultural Marketing Service (AMS), the Animal and Plant HealthInspection Service (APHIS), and the Grain Inspection, Packers, and StockyardsAdministration (GIPSA). The stated mission of these programs is to "expanddomestic and international marketing of U.S. agricultural products and to protect thehealth and care of animals and plants, by improving market competitiveness and thefarm economy for the overall benefit of both consumers and American agriculture."The FY2003 omnibus appropriations act ( P.L. 108-7 ) provides $868.1 million forUSDA's three marketing and regulatory agencies, which is about $18 million belowthe amounts contained in the House-reported ( H.R. 5263 ) andSenate-passed measure ( H.J.Res. 2 ). The amount provided in P.L. 108-7 is also $11 million below the Administration request of $879.2 million, but close tothe total FY2002 appropriation of $867.3 million (including FY2002 emergencysupplemental appropriations of $119.1 million, intended to protect the food supplyagainst agricultural terrorist threats). Animal and Plant Health InspectionService. The largest appropriation for marketing and regulatoryprograms goes to USDA's Animal and Plant Health Inspection Service (APHIS), theagency responsible for protecting U.S. agriculture from foreign pests and diseases. P.L. 108-7 contains $735.5 million for APHIS. This amount is $11.3 million lowerthat the FY2002 total ($746.8 million), which included supplemental appropriationsof $119.1 million under P.L. 107-117 . Disregarding the supplementals, the FY2003appropriation represents a $105 million increase in funds for APHIS salaries andexpenses over FY2002, and a $2.8 million increase for facilities renovation. TheAdministration had requested an FY2003 appropriation of $775.3 million for APHIS(which included a one-time shift of $26.7 million to cover GSA rental costs, whichwas not adopted in the conference report). Both the House-reported appropriationsbill ( H.R. 5263 ) and the Senate-passed omnibus measure would haveprovided $749 million. The conferees did not include a Senate proposal to increaseAPHIS salaries and expenses by $17 million for stepped-up border inspections. Thatappropriation has been used in the past primarily for purchasing new equipment andtraining inspectors (including new additions to the Beagle Brigade), whereas theinspection service itself is paid entirely for by user fees collected from passengers,importers, and shippers at U.S. ports of entry. The inspection function, equipment,Beagle Brigade, and up to 3,200 employees have been transferred to the newDepartment of Homeland Security under P.L. 107-296 . USDA is retaining controlof the user fees collected and is to repay DHS for the costs that the new departmentincurs for providing border inspection services from that account. USDA expects tocollect approximately $275 million in user fees in FY2003. Beginning in FY2004,appropriations for equipment, dogs, and training will be made under the newDepartment's budget authority. (See CRS Report RL31466, Homeland SecurityDepartment: U.S. Department of Agriculture Issues ). P.L. 108-7 contains a $62.1 million increase for APHIS Animal HealthMonitoring and Surveillance activities ($133.2 million total), in order to increase theagency's surveillance against and readiness for a biological attack against U.S.agriculture. In addition, the report includes a $37.8 million increase for managingemerging plant pests($75.3 million total), an $18.2 million increase for managingJohne's disease ($21 million total), and an $20.2 million increase for WildlifeServices (predator control) programs($69 million total). P.L. 108-7 also provides $15 million for management of chronic wastingdisease (CWD) in domestic and wild deer and elk in different regions of the UnitedStates, and contains language requiring APHIS to expand laboratory testing capacityfor the disease by establishing protocols with and providing funding for commerciallabs that have rapid testing capabilities. Conferees did not adopt a House-reportedproposal to require USDA and the U.S. Department of Interior (Fish and WildlifeService and Park Service) to submit a detailed joint budget request for an FY2004 CWD program. Likewise, proposals to appropriate additional funds for CWDresearch were not included in the final measure. Agricultural Marketing Service. AMS is responsible for promoting U.S. agricultural products in domestic andinternational markets, and for facilitating the marketing and distribution ofagricultural products. P.L. 108-7 provides $92.0 million for AMS as proposed bythe House, a level which is just above the $91.7 million proposed by the Senate andrequested by the Administration. The FY2002 level was about $86.8 million. Conference agreement report language calls for $15.8 million to be used for thepesticide data program, of which not less than $1 million is to be added to existingfunds for the drinking water initiative. AMS is responsible for the so-called Section 32 program, a permanentappropriation (but separate from the annual USDA appropriations bill) that since1935 has earmarked the equivalent of 30% of annual customs receipts to support thefarm sector through a variety of activities. As is customary, most of the money forFY2003 (approximately $4.7 billion of the $5.8 billion total) has been transferredto the Food and Nutrition Service to help pay for child nutrition programs, andanother $75 million was transferred to the Commerce Department to pay for fisheriesactivities. Much the remainder is available to AMS to cover a variety of obligations,including: planned and "emergency" farm commodity purchases, which in turn areused to supplement the resources of domestic feeding programs; AMS administrativeexpenses for marketing order oversight; and other activities. There was widespread concern that there might not be adequate funds forthese various activities -- particularly the "emergency" commodity purchases thatarise during the course of the fiscal year -- after the Department said in the fall of2002 that it would use Section 32 funds to pay up to $937 million for a speciallivestock disaster assistance program. Department officials subsequently reportedthat they had made a number of adjustments in other USDA spending accounts forFY2003 that, they said, would enable them to cover both the disaster program andthe other, more "traditional" Section 32 activities. Furthermore, a provision (Section204) of the agricultural disaster assistance title (Title II) of the FY2003 omnibusappropriations act requires the Secretary of Agriculture to transfer $250 million fromthe CCC to Section 32 "to carry out emergency surplus removal of agriculturalcommodities." Separately, a general provision (section 720) in the regular agricultureappropriations section of P.L. 108-7 prohibits the "reprogramming" of any fundsprovided in the act from one program to another, unless the House and SenateAppropriations Committees are notified 15 days in advance of such reprogramming. (For more background on Section 32, see CRS Report RS20235, Farm and FoodSupport Under USDA's Section 32 Program .) Grain Inspection, Packers, and StockyardsAdministration. GIPSA establishes the official U.S. standards,inspection and grading for grain and other commodities, and ensures fair-tradingpractices. GIPSA also has been seeking to improve its understanding and oversightof livestock markets, where increasing concentration and other changes in businessrelationships have raised concerns among some producers about the impacts oncompetition and on the prices they receive. P.L. 108-7 provides $39.95 million forGIPSA in FY2003 instead of $44.7 million as proposed by the House and $44.5million as proposed by the Senate. The Administration had requested $12.2 millionfor GIPSA in FY2003, down $20.9 million from the $33 million provided inFY2002. To cover the shortfall, the Administration had included a proposed increaseof $29 million in new user fees, which if enacted would have been used to fundPackers and Stockyards Act inspections, and grain standard testing activities. P.L.108-7 does not assume adoption of such user fees. The final law does includelanguage, as proposed by the House, directing the Secretary to conduct a 2-year studyon packer ownership of livestock ($4.5 million). For more information, see CRS Issue Brief IB10063, Animal Agriculture Issues in the 107th Congress . USDA's rural development mission is to enhance rural communities bytargeting financial and technical resources in areas of greatest need. Three agencies,established by the Agricultural Reorganization Act of 1994 ( P.L.103-354 ), areresponsible for this mission area: the Rural Housing Service (RHS), the RuralBusiness-Cooperative Service (RBS), and the Rural Utilities Service (RUS). AnOffice of Community Development provides community development supportthrough Rural Development's field offices. The mission area also administers therural portion of the Empowerment Zones and Enterprise Communities Initiative andthe National Rural Development Partnership. The FY2003 omnibus appropriations act ( P.L. 108-7 ) provides $2.795 billionin budget authority for rural economic and community development programs, whichis between the $2.739 billion recommended in the Senate-passed measure( H.J.Res. 2 ) and $2.823 billion in the House-reported measure. TheAdministration's budget request was $2.587 billion. The FY2003 enacted level is$225.3 million more than was enacted for FY2002 (including a rescission). Itsupports a loan authorization level of $12 billion in direct and guaranteed ruraldevelopment loans, considerably higher than the budget request of $7.251 billion.Accounting for most of the difference between P.L. 108-7 and the request is theadditional loan authority in P.L. 108-7 for unsubsidized guaranteed housing loans andelectric utility loans. The House proposed a loan authorization level of $9.677 billion,and the Senate proposed a level of $9.857 billion. Rural Community Advancement Program(RCAP). The RCAP, authorized by the 1996 farm bill( P.L.104-127 ), consists of consolidated funding for 12 rural development loan andgrant programs in three accounts: Community Facilities, Rural Utilities, and Businessand Cooperative Development. RCAP was designed to provide greater flexibility intargeting financial assistance to local needs and permits a portion of the variousaccounts' funds to be shifted from one funding stream to another. P.L. 108-7 provides$907.7 million in budget authority for the three RCAP accounts, $42.6 million lessthan proposed by the House, $40.5 million more than proposed by the Senate, and$116.2 million more than the Administration request. P.L. 108-7 provides funding of $96.8 million for the Community Facilitiesaccount, over twice the level recommended by the House and just slightly less thanthe amount proposed by the Senate. For the Rural Utilities account, it provides$723.2 million, $40.4 less than the Senate and about $92 million less than the Housemeasure. P.L. 108-7 provides $87.7 million for the Rural Business Developmentaccount, $5.7 million less than the House proposal and approximately $1 million lessthan the Senate measure. The majority of the RCAP authorization supports waterand waste disposal grants in the Rural Utilities account. Within that account, P.L.108-7 also earmarks $18.3 million for technical assistance grants for rural water andwaste systems and adopts House and Senate recommendations for $12.1 million forthe circuit rider program. The House measure contained a provision for $17.5million in technical assistance for water and waste water, but the Senate measure hadno similar provision. As with both the House-reported bill and Senate-passed measure, P.L. 108-7 also earmarks $30 million of RCAP funding for water and waste disposal programsin Alaskan native villages, $24 million for Federally Recognized Native AmericanTribes, $2 million for the Delta Regional Authority, and $25 million for colonias along the U.S.-Mexican border. Funding for the colonias is $5 million more thanproposed by the Senate and the same as that proposed by the House. P.L. 108-7 alsoincludes Senate language providing $30 million for grants to rural communities withhigh-energy costs and $25 million for facilities in rural communities sufferingextreme unemployment and severe economic depression. The House measure didnot contain these latter two provisions. P.L. 108-7 also designates $7 million for the Rural Community DevelopmentInitiative, $1 million of which is provided to a demonstration program forReplicating and Creating Rural Cooperative Home Based Health Care. The Houseand Senate measures proposed $6 and $10 million respectively for the Initiative. P.L.108-7 adopts language from the House measure designating $37.6 million for theEmpowerment Zones/Enterprise Communities (EZ/ECs) and areas designated asRural Economic Area Partnerships (REAP) Zones. The Administration's budget didnot request direct EZ/EC funding, and the Senate measure did not designate fundingto the program. Rural Housing Service. P.L.108-7 provides a total appropriations of $305.5 million for the Rural HousingInsurance Fund Program account instead of $303.6 million proposed by the Houseand $282.5 million proposed by the Senate. The appropriation supports a total ruralhousing loan authorization level of $5.8 billion, which is greater than the $3.9 billionproposed by the Senate and requested by the Administration, and the $4.5 billionproposed by the House. P.L. 108-7 permits $5.5 billion for Section 502 direct andguaranteed loans, $35 million for Section 504 housing repair loans, $5 million forSection 524 site loans, $12 million for credit sales of acquired land, and $5 millionfor Section 523 self-help housing and land development loans. Other than theincrease for Section 502 loan level, P.L.108-7 concurs with the Senate's proposedfunding levels. It also provides $100 million in Section 538 multi-family loanguarantees and $4.5 in loan subsidies, as proposed by the House measure and budgetrequest. The Senate measure did not recommend any loan authority for Section 538multi-family housing guarantees. The budget request for Section 538 housingguarantees was $100 million, approximately the same as the House proposal. P.L.108-7 provides $202 million in direct loan subsidies for Section 502single family housing, about $17 more than the budget request and $8 million morethan the Senate measure proposed. The House measure proposed $210 million forSection 502 loans. P.L. 108-7 provides $115 million in loan authorization forSection 515 housing, nearly double the budget request and $4.2 million less than theHouse proposal. The Senate proposed $120 million for Section 515 rental housing. P.L.108-7 further provides $54 million in direct loan subsidies for Section 515 rentalhousing, the same as proposed by the House, but nearly double the budget request. P.L. 108-7 also adopted Senate language that permits loans for newconstruction of Section 515 housing. The Administration had requested that therebe no new construction of Section 515 rental housing. P.L. 108-7 also adopts Senatelanguage stating that a priority should be placed on long-term rehabilitation needs inthe multi-family housing portfolio and encourages the Department to study Section515 costs in comparison to other federal programs serving the same eligible ruralpopulation. For Section 504 housing repairs, P.L. 108-7 provides $10.8 million, thesame as the House and Senate measures and the budget request. For Section 521 rental assistance, P.L. 108-7 provides $726 million, $4million more than the House bill and $4 million less than proposed by the Senatemeasure. P.L. 108-7 provides $36.3 million for the Farm Labor Program grants anddirect loans, instead of $38 million proposed by the House and $34.6 millionprovided by the Senate measure and requested by the Administration. For ruralhousing assistance grants, the Conference Agreement concurs with the House bill andthe Administration request by providing $42.5 million. P.L. 108-7 adopts the Houseand Senate proposals for $35 million for the mutual and self-help housing grants, $1million more than requested. It also earmarks $11.6 million in rural housing loansuntil June 2003 for empowerment zones, enterprise communities, and REAP Zones. Rural Utilities Service. P.L.108-7 provides a total subsidy of $12.5 million for programs under the RuralElectrification and Telecommunications Loan Program, the same as proposed inHouse and Senate measures and the budget request. The Agreement provides for anestimated loan authorization level of $5.6 billion as proposed by the Senate insteadof $4.5 billion proposed by the House. The loan authorization is nearly $2.4 billionmore than requested. Part of the loan authorization also includes $1 billion forguaranteed underwriting of credit payments under Section 313A of the RuralElectrification Act of 1936. ( 7 U.S.C. 940(c )), as proposed by the Senate measure. For the Rural Telephone Bank (RTB), P.L. 108-7 adopts the Senate measure'sproposed loan level of $174.6 million, $23 million less than the House proposal. There was no Administration request. In other RUS programs, P.L. 108-7 provides loan subsidies and grants of$56.9 million for the Distance Learning and Telemedicine program, instead of $44.1million as proposed by the House and $51.9 as proposed by the Senate. P.L. 108-7 adopts the House proposed loan authorization level of $380 million. The Senateproposal was for $129.5 million and the budget request was for $156.5 million. Asproposed by both House and Senate measures, P.L. 108-7 provides no funding for theLocal Television Loan Guarantee program. Direct authorization of $80 million forlocal television broadcast loan guarantees is included in the 2002 farm bill( P.L.107-171 ). Rural Business-CooperativeService. P.L. 108-7 provides $19.3 million in loan subsidies tosupport $40 million in loan authorization for the Rural Development Loan Fund. These amounts are the same as the House and Senate measure and the same asrequested. Earmarks make portions of this account available to Federally RecognizedNative American Tribes, EZ/ECs, and Mississippi Delta counties. Rural CooperativeDevelopment Grants are funded at $9 million, the same as proposed by House andSenate measures and as requested by the Administration. P.L. 108-7 also adopts bothHouse and Senate proposals for $15 million to EZ/EC areas. The Administrationrequested no direct funding for the EZ/EC program. Other Spending Provisions. Asin both the House and Senate measures, P.L. 108-7 provides no funding for theNational Rural Development Partnership, which was authorized in the 2002 farm bill. It also concurs with the Senate -passed measure in prohibiting the expenditure offunds to carry out the following two mandatory programs authorized by the 2002farm bill ( P.L.107-171 ): (1) the Rural Strategic Investment Program (authorized at$100 million), and (2) the Rural Firefighters and Emergency Personnel TrainingProgram (authorized at $10 million). The House-reported bill did not contain anyprovisions to limit or prohibit funding for any mandatory rural development program. The FY2003 omnibus appropriations act ( P.L. 108-7 ) provides a totalappropriation of $41.89 billion for all USDA food and nutrition programs. These programs provide federal funding and commodities to states for food assistance tochildren in schools and other children's facilities, and for low-income individuals andfamilies. The FY2003 appropriation is $21 million above the original Administrationrequest, but $79 million below the House-reported level in H.R. 5263 ,and $34 million below the Senate-passed level in H.J.Res. 2 . Food Stamps. P.L. 108-7 provides $26.313 billion for food stamps and related programs. This includes foodstamp program expenses, a reserve fund, nutrition assistance for Puerto Rico andSamoa and funding to buy commodities for the emergency food assistance program(TEFAP). The enacted FY2003 level is the same as the House-reported level, andis $24 million more than the Senate-passed level, $64 million more than theAdministration request, and $3.25 billion more than FY2002. The House and Senatemeasures and the Administration request were in agreement on the amounts for foodstamp expenses and the food distribution program on Indian Reservations (FDPIR)($22.773 billion) and the food stamp reserve ($2.0 billion). For other relatedprograms, P.L. 108-7 provides $1.401 billion for Puerto Rico and American Samoaas proposed by the House, instead of $1.377 billion as requested by theAdministration and proposed by the Senate. According to the House committeereport, this is because of additional mandatory spending required for these programsunder the 2002 farm bill ( P.L. 107-171 ). P.L. 108-7 also provides $140 million forthe emergency food assistance program, as proposed by both the House and Senate,rather than the FY2003 request and FY2002 enacted level of $100 million. The Administration budget anticipated food stamp participation growth ofabout 800,000 in FY2003, or about 4% above FY2002 for a total of 20.6 millionpersons in FY2003. Conference report language allows up to $10 million of theTEFAP funds to be used for administrative costs. Child Nutrition. For all childnutrition programs, P.L. 108-7 provides $10.580 billion, the same as theSenate-passed level and $4 million above the House-reported level and theAdministration request. The difference is an additional $4 million in discretionaryspending for -- school breakfast program start-up grants ($3 million), the FoodWorks of Vermont Common Roots program ($200,000), and an archive resourcecenter at the National Food Service Management Institute ($500,000). The fundinglevels projected by the Administration for meal service programs are expected tomaintain full program participation. Independent verification of school food serviceclaims, proposed by both the House and Senate measures, is funded in the finallyenacted measure at $5.08 million. WIC. P.L. 108-7 provides for atotal FY2003 appropriation of $4.696 billion for the special nutrition program forwomen, infants and children (WIC), which is $289 million more than the FY2002level of $4.462 billion (including supplementals), $55 million less than was recommended by the Senate bill, and $180 million less than recommended by theHouse bill. The final amount includes a reserve fund of $125 million, asrecommended by the Administration. (WIC is the only discretionary account that isexempted from the provision in P.L. 108-7 that requires a .65% across-the-board-cut in other discretionary program spending to keep the omnibus measure within budgettargets.) The Administration request was projected to be able to serve a monthlyaverage of 7.8 million low-income pregnant and postpartum mothers and youngchildren. The Administration revised its original WIC proposal, recommending that$25 million be taken its previous proposed $150 million reserve fund in order to helpoffset proposed increases in spending for conservation technical assistance andEEOC salaries and expenses. Administration officials report that this reserve will notbe needed and therefore no loss occurs to the program for this change. WIC reservefunds are provided in case costs to maintain caseload are higher than projected. Commodity Assistance Program. P.L. 108-7 provides FY2003 funding of $164.5 million for the CommodityAssistance Program (the term used by appropriators to refer to the CommoditySupplemental Food Program (CSFP) and for administrative funds for the TEFAP). This appropriation is $19.5 million more than requested and $15 million aboveFY2002, but $5.5 million less than the House bill and $2.5 below the Senatemeasure. The House Appropriations Committee recommended that all of its proposedincrease go for the CSFP; EFAP administrative costs would have remained at theFY2002 level of $50 million. The Senate measure proposed $167 million, less thanthe House level, and required that $5 million of the amount provided be used forsenior farmers' market activities. Food Donation Programs. NoFY2003 funding is provided in USDA appropriations for the elderly nutritionprogram (or nutrition services incentive program), a food donation program thatprovides mostly cash-in-lieu of commodities to support meal programs for seniorcitizens. P.L. 108-7 concurs with an Administration proposal to merge this programwith the larger meal programs operated for senior citizens under the Older AmericansAct by the Department of Health and Human Services. FY2002 funding for theelderly nutrition program was $149.7 million. Pacific Island and Disaster Assistance(the Needy Family Program) will continue to be funded at $1.081 million under P.L.108-7 , in concurrence with the Administration request and both the House and Senateproposals. Other Provisions. P.L. 108-7 adopted a House provision that prohibits the use of any child nutrition, WIC, or foodstamp funds from being used by the Food and Nutrition Service (FNS) to conductstudies or evaluations, with some exceptions. In its general provisions, P.L. 108-7 funds the Bill Emerson and Mickey Leland Hunger Fellowships at $3 million,compared with $4 million in the House bill and $2.5 million in the Senate measure. Senate provisions earmarking $1 million of the $3.3 million school breakfast start-upgrant program for Wisconsin and setting aside $200,000 for a Common Rootsprogram also were adopted in the final measure. The Food and Drug Administration (FDA), an agency in the Department ofHealth and Human Services (DHHS), is responsible for the regulation and safety offoods, drugs, biologics (mainly vaccines), and medical devices. The agency isfunded by a combination of congressional appropriations and user fee revenues,assessed primarily for the pre-market review of pharmaceuticals and medical deviceproducts. The amount of drug user fees to be collected each year is set in FDA'sannual appropriations act. The FY2003 omnibus appropriations act ( P.L. 108-7 ) provides $1.661 billion to fund FDA for FY2003. This amount includes a totalappropriation of $1.391 billion (including $1.383 billion for salaries and expensesand $8 million for the maintenance of buildings and facilities. The balance of $270.5million is for various user fee collections. By comparison, the House-reported bill( H.R. 5263 ), including salaries and expenses, drug user fees, andfacilities came to $1.608 billion. The Senate omnibus measure ( H.J.Res. 2 ) , which also added revenues from a new medical device user fees, provided$1.665 billion. The Prescription Drug User Fee Act (PDUFA), reauthorized in 2002 as partof the Public Health Security and Bioterrorism Preparedness and Response Act of2002 ( P.L. 107-188 ), allows FDA to collect user fees for the review of drug andbiologic applications. P.L. 108-7 set these fees at $222.9 million for FY2003. Also,the new Medical Device User Fee and Modernization Act (MDUFA) of 2002 ( P.L.107-250 ), signed by the President in October 2002, authorized FDA to charge userfees for medical device applications as well. P.L. 108-7 set the FY2003 user feeassessments for medical devices at $25.1 million. The agency also collects user feesfrom mammography clinics and export certificates, and P.L. 108-7 set their FY2003total at $22.5 million. For FDA counter-terrorism activities, the conference report mirrors thePresident's FY2003 budget request, and provides $159 million to continue activitiesinitiated by the agency during the previous year relating to the safety of food,pharmaceutical products, and physical security. Conferees also provided FY2003 funding for a number of specific budgetcategories. For instance, conferees provided $3 million to continue support for theOffice of Women's Health and directed the agency to provide concise information towomen and health professionals about hormone replacement therapy. Moreover, theconferees urged the FDA to work with physicians, women's health groups, andfederal agencies to conduct a public awareness campaign about the use of hormonetherapy, including the treatment of menopausal symptoms. The conferenceagreement provided $5 million to support the agency's adverse event monitoringsystem (AERS), along with $8.3 million to upgrade its financial management system. Also, the conferees prohibited FDA from relocating its Offices of Public Affairs andLegislative Affairs to the Department of Health and Human Services. P.L. 108-7 funded a number of initiatives related to food safety. It provideda $1 million increase for the FDA's Center for Food Safety & Applied Nutrition'sAdverse Event Reporting System (CAERS), to ensure prompt identification of andresponse to adverse health events related to foods, including dietary supplements. It also provided $250,000 for the development of advanced testing methods for foodsat New Mexico State University. Acknowledging FDA's role in international tradeissues, the conferees stipulated that the agency spend at least $2.1 million ofappropriated funds to support activities of the Codex Alimentarious Commission, theinternational food standard setting organization. The House and Senate have, for years, recognized that the timely approval ofgeneric drugs is an important factor in addressing the rising cost of prescriptiondrugs. To this end, the adopted conference agreement provided $44.5 million, anincrease of $5.3 million over the FY2002 baseline level of $39.2 million, and$750,000 more than the Administration's budget request. Further, the conferees recommended that FDA spend no less than $400,000 to continue its generic drugeducation activities, particularly for increased consumer education. Conferees alsoprovided $5 million for the agency's Office of Drug Safety to continuepost-marketing surveillance for pharmaceuticals. Moreover, the conferees said thatprint advertisements for pharmaceuticals should provide information relating to theside effects, contraindications, and effectiveness in a format that is useful toconsumers consistent with existing law, and encouraged the agency to work withconsumers and industry as it moves towards finalizing its April 2001 draft guidanceon print advertising for pharmaceuticals. Additionally, the conference agreementstipulated that FDA is to spend no less than $13.4 million for grants and contractsunder the Orphan Drug Act. The conferees were concerned about delays in review of new medical devicesand the impact this was having on the health of Americans. Last year, in the FY2002appropriations conference report, Congress directed FDA to upgrade its medicaldevice review performance, compared to the 180-day statutory requirements forapplication decisions. Today, applications for medical devices are often forcombination products that involve consultation with FDA's Center for BiologicsEvaluation and Research (CBER). The conference agreement makes $25.1 millionin new medical device user fees available for the agency, as proposed by the Senate. This provision was not in the House bill, since it preceded passage of the authorizinglegislation. As such, the device program including user fees is $208.7 million, a$29.2 million increase over the FY2002 regular appropriations. The confereesexpected that this investment will significantly reduce review times for medicaldevices. The conferees noted that DHHS is currently working to ensure that healthcare providers and first responders are vaccinated in the event of a public healthemergency. Recognizing that a small percentage of health care workers are allergicto natural rubber, the conferees urged the Secretary to ensure that alternatives arereadily accessible to individuals who are allergic to the gloves normally provided. Also, the conferees urged the FDA to finalize its 1999 proposed regulations toclassify all surgeons' and patient examining gloves as Class II medical devices. The conference report noted that FDA had not finalized its proposed rule torequire manufacturer tracking of blood-derived products and prompt patientnotification of adverse events. As such, they directed the FDA to submit a report onthe status of the rule by March 1, 2003. Table 3. USDA and Related AgenciesAppropriations for FY2003 (Budget Authority, in Millions of $) Source: Based on spreadsheets provided by the House Appropriations Committee An item with a single asterisk (*) represents the total amount of direct and guaranteed loans that canbe made given the requested or appropriated loan subsidy level. Only the subsidy level is includedin the totals. *** = Action Pending (1) FY2002 enacted levels include amounts appropriated in the regular FY2002 agricultureappropriations act for USDA and related agencies ( P.L. 107-76 ), the $535 million in emergencysupplemental funding in P.L. 107-117 , and the $158 million in net non-contingent appropriations(after $44 million in rescissions) made in P.L. 107-206 . (2) Agency totals do not include the cost of the Administration's legislative proposal to require allfederal agencies to pay the full share of accruing employee pensions and annuitant health benefitsbeginning in FY2003. However, the CBO-estimated cost of this proposal ($368 million in FY2003for USDA, FDA, and CFTC) is included at the end of the table in the scorekeeping adjustments ofthe FY2003 request. (3) H.J.Res. 2 , as passed by the Senate, includes an estimated across-the-board 2.9%rescission in all discretionary accounts in the resolution. To date, it is not certain how the rescissionwould affect individual accounts. Therefore, this table does not reflect the rescission on USDA andrelated agency programs and accounts. Recorded in this column are the two adopted flooramendments that affect USDA spending : $3.1billion in disaster assistance and $500 million in P.L.480 international food aid. (4) P.L. 108-7 includes a 0.65% across-the-board cut of all discretionary accounts funded by theomnibus FY2003 appropriations act, with the exception of the WIC program, which is specificallyexempted. This table does not reflect the effect of the 0.65% rescission on individual accounts, nordoes the total reflect the rescission. If the rescission were applied equally to all accounts, totalreductions in spending to USDA and related agencies would be approximately $85 million. (4) The Administration's request assumes enactment of new inspection and licensing user feestotaling $29 million. (5) Under current law, the Commodity Credit Corporation and the Federal Crop Insurance Fund each receive annually an indefinite appropriation ("such sums, as may be necessary"). The amountsshown for both FY2002 and FY2003 are USDA estimates of the necessary appropriations. (6)The Administration request does not include a January 2003 budget amendment to reduce theWIC reserve request by $25 million in FY2003, from the original requested amount. (7) Includes an adopted $3.3 million rescission in the FY2002 enacted level. (8) Among the enacted FY2002 "general provisions" are $75 million in apple market loss assistance,and an extension of the authority for the dairy price support program for 5 months (scored by CBOat $15 million). The enacted other provisions for FY2003 include $250 million in emergency foreignfood assistance through P.L. 480 Title II (compared with $500 million in the Senate-passed version.) (9) Scorekeeping adjustments reflect the savings or cost of provisions that affect mandatoryprograms, plus the permanent annual appropriation made to USDA's Section 32 program. The costof the Administration proposal to require all federal agencies to pay the full share of currentemployee pensions and annuitant health costs is also included in the scorekeeping adjustments ofthe FY2003 Administration request. Appropriators included in FY2003 House and enactedscorekeeping adjustments the savings attributed to limiting expenditures on the Export EnhancementProgram. Similar savings in FY2002 were included in "general provisions" by appropriators. (10) P.L. 108-7 includes $3.1 billion in farm disaster assistance for 2000 and 2001 crop livestocklosses. The cost of this assistance in the final law was offset by a limitation placed on mandatoryspending for the Conservation Security Program over a ten-year period (FY2004-2013). Thissupplemental spending does not appear in the grand total listed above. CRS Issue Brief IB98006. Agricultural Export and Food Aid Programs . CRS Report 98-325 . Agricultural Research, Education, Extension and EconomicsPrograms: A Primer . CRS Issue Brief IB10077. Agricultural Trade Issues in the 107th Congress . CRS Issue Brief IB10063, Animal Agriculture Issues in the 107th Congress CRS Report 98-25. Child Nutrition Programs: Background and Funding . CRS Report RL31095 . Emergency Spending for Agriculture: A Brief History ofCongressional Action, FY1989-2001 . CRS Report RS20235, Farm and Food Support Under USDA's Section 32 Program CRS Report RS21212 . Farm Disaster Assistance. CRS Report RL30739(pdf) . Federal Crop Insurance and the Agriculture Risk ProtectionAct of 2000 (P.L. 106-224) . CRS Report 98-59(pdf) . Food Stamps: Background and Funding . CRS Report RL31466, Homeland Security Department: U.S. Department ofAgriculture Issues. CRS Report RL31486(pdf) , Resource Conservation Title of the 2002 Farm Bill: AComparison of New Law with Bills Passed by the House and Senate, andPrior Law CRS Issue Brief IB96030. Soil and Water Conservation Issues . | On February 20, 2003, the President signed into law the FY2003 omnibus appropriations act( P.L. 108-7 , H.J.Res. 2 ), containing funding for agencies and programs within theeleven regular FY2003 appropriations bills that were unresolved in the 107th Congress. For the U.S.Department of Agriculture (USDA) and related agencies, P.L. 108-7 contains a total regular annualappropriation of $74.25 billion, of which $56.7 billion is for mandatory programs and $17.55 billionis for discretionary programs. The $17.55 billion in discretionary funds is $805 million below theSenate-passed version of H.J.Res. 2 and $56 million below the House-reported versionof H.R. 5263 , but $124 million above the Administration's FY2003 request and $1.27billion above the enacted FY2002 level including FY2002 supplementals. Not included in the totalsis the effect of a 0.65% across-the-board rescission to almost all discretionary programs funded by P.L. 108-7 , which could reduce USDA and related agencies appropriations by approximately $85million in FY2003. Also separate from the regular appropriations is a provision in P.L. 108-7 for$3.1 billion in FY2003 agricultural disaster assistance, primarily for farmers and ranchers affectedby a natural disaster in 2001 or 2002. The cost of the disaster assistance is offset by a comparablereduction in a mandatory conservation program over a 10-year period. Among its other major provisions affecting USDA agencies and programs, P.L. 108-7 : 1)provides $1.45 billion in foreign food aid under P.L. 480 Title II, including $250 million insupplemental funding that is available through FY2004, and requires USDA to supply a minimumof 400,000 tons of commodities under a separate mandatory food aid program; 2) prohibits the useof discretionary funds to administer any mandatory conservation programs; 3) limits spending oncertain mandatory trade, conservation and research programs and applies the savings from thesereductions to spending on discretionary programs; 4) rejects an Administration proposal to requireprivate crop insurance companies to absorb more of the cost of the federal crop insurance program;5) provides supplemental funding to help the Farm Service Agency administer disaster and farm billprograms; 6) funds special research grants proposed to be terminated by the Administration; 7)increases funding over FY2002 for food safety and animal and plant health inspection activities,reflecting increased government responsibility to protect the food supply from terrorist attacks; and8) increases USDA food and nutrition program spending by $4 billion over FY2002, in line with theAdministration request, including $3.2 billion more for the food stamp program. Included in the bill totals is $1.4 billion in appropriations for the largest related agency, theDepartment of Health and Human Services' Food and Drug Administration. This appropriationincludes $159 million as requested by the Administration for FDA's counter-terrorism activities.FDA also is authorized to collect $270.5 million in various user fees to supplement its appropriation,including a new medical device user fee. Key Policy Staff Division abbreviations: RSI = Resources, Science and Industry; DSP= Domestic Social Policy. |
Federal law punishes convicted sex offenders for failure to register as the Sex Offender Registration and Notification Act (SORNA) demands. The offense consists of three elements: (1) a continuing obligation to report to the authorities in any jurisdiction in which the individual resides, works, or attends school; (2) the knowing failure to comply with registration requirements; and (3) a jurisdictional element, i.e ., (a) an obligation to register as a consequence of a prior qualifying federal conviction or (b)(i) travel in interstate or foreign commerce, (ii) travel into or out of Indian country; or (iii) residence in Indian country. Violators face imprisonment for not more than 10 years. If an offender also commits a federal crime of violence, the registration transgression carries an additional penalty of imprisonment for not more than 30 years, but not less than 5 years. The Adam Walsh Child Protection and Safety Act created SORNA. SORNA called for a revision of an earlier nationwide sex offender registration system. Its predecessor, the Jacob Wetterling Act, encouraged the states to establish and maintain a registration system. Each of them had done so. Their efforts, however, though often consistent, were hardly uniform. The Walsh Act preserved the basic structure of the Wetterling Act, expanded upon it, and made more specific matters that were previously left to individual state choice. The Walsh Act contemplated a nationwide, state-based, publicly available, contemporaneously accurate, online system. Jurisdictions that failed to meet the Walsh Act's threshold requirements faced the loss of a portion of their federal criminal justice assistance grants. The Walsh Act vested the Attorney General with authority to determine the extent to which SORNA would apply to those with qualifying convictions committed prior to enactment. He promulgated implementing regulations imposing the registration requirements on those with pre-enactment convictions. Conscious of the legal and technical adjustments required of the states, the Walsh Act afforded jurisdictions an extension to make the initial modifications necessary to bring their systems into compliance. Thereafter, states not yet in compliance have been allowed to use the penalty portion of their federal justice assistance funds for that purpose. The Justice Department indicates that 17 states, 3 territories, and numerous tribes are now in substantial compliance with the 2006 legislation. Section 2250 convictions require the government to prove that (1) the defendant had an obligation under SORNA to register and to maintain the currency of his registration information; (2) that the defendant knowingly failed to comply; and (3) that one of the section's jurisdictional prerequisites has been satisfied. Obligation to Register and Maintain Registration : SORNA directs anyone previously convicted of a federal, state, local, tribal, or foreign qualifying offense to register and to keep his registration information current in each jurisdiction in which he resides, or is an employee or student. Initially, he must also register in the jurisdiction in which he was convicted if it is not his residence. Registrants who relocate or who change their names, jobs, or schools have three days to appear and update their registration in at least one of the jurisdictions in which they reside, work, or attend school. SORNA defines broadly the terms "student," "employee," and "resides." For example, "[t]he term 'resides' means, with respect to an individual, the location of the individual's home or other place where the individual habitually lives." SORNA's use of the phrase "resides ... in a [U.S.] jurisdiction," led the Supreme Court to conclude recently in Nichols v. United States that the maintenance requirement of Section 16913(c) does not apply to offenders who relocated abroad, i.e ., outside of any U.S. "jurisdiction." Anticipating the limit identified in Nichols , Congress passed the International Megan's Law to Prevent Child Exploitation and Other Sexual Crimes Through Advanced Notification of Traveling Sex Offenders [Act], which among other things, amends SORNA to compel offenders to supplement their registration statements with information relating to their plans to travel abroad. Qualifying Convictions : Only those who have been convicted of a qualifying sex offense need register. There are five classes of qualifying offenses: (1) designated federal sex offenses; (2) specified military offenses; (3) crimes identified as one of the "special offenses against a minor"; (4) crimes in which some sexual act or sexual conduct is an element; and (5) attempts or conspiracies to commit any offense in one of these other classes of qualifying offenses. (A more specific list is attached). Certain foreign convictions, juvenile adjudications, and offenses involving consensual sexual conduct do not qualify as convictions that require the offender to register under SORNA. Knowing failure to register : Section 2250's second element is a knowing failure to register or to maintain current registration information as required by SORNA. The government must show that the defendant knew of his obligation and failed to honor it; the prosecution need not show that he knew he was bound to do so by federal law generally or by SORNA specifically. Jurisdictional elements : Section 2250 permits conviction on the basis of any three jurisdictional elements: a prior conviction of one of the federal qualifying offenses; residence in, or travel to or from, Indian country; or travel in interstate or foreign commerce. Federal crimes : Interstate travel is not required for a conviction under §2250. An individual need only have a knowing failure to register and a prior conviction for a qualifying sex offense under federal law or the law of the District of Columbia, the Code of Military Justice, tribal law, or the law of a United States territory or possession. Federal jurisdiction flows from the jurisdictional basis for the underlying qualifying offense. Indian country : Travel to or from Indian country, or living there, will also satisfy Section 2250's jurisdictional requirement. "Indian country" consists primarily of Indian reservations, lands over which the United States enjoys state-like exclusive or concurrent legislative jurisdiction. Interstate travel : Interstate travel is the most commonly invoked of Section 2250's jurisdictional elements. It applies simply to anyone who travels in interstate or foreign commerce with a prior federal or state qualifying offense who fails to register or maintain his registration. In the case of foreign travel it also applies to anyone who fails to supplement his registration with information concerning his intent to travel abroad. The qualifying offense may predate SORNA's enactment; the travel may not. Venue and Bail : Although the question may not be beyond dispute, a Section 2250 prosecution involving interstate travel may be brought either in the state of origin or the state of destination. Federal bail laws permit the prosecution to request a pre-trial detention hearing prior to the pre-trial release of anyone charged with a violation of Section 2250. The individual may only be released prior to trial under condition, among others, that he be electronically monitored; be subject to restrictions on his personal associations, residence, or travel; report regularly to authorities; and be subject to a curfew. Imprisonment : Upon conviction, the individual may be sentenced to imprisonment for a term of not more than 10 years and/or fined not more than $250,000. Section 2250 also sets an additional penalty of not more than 30 years, but not less than 5 years, in prison for the commission of a federal crime of violence when the offender has also violated Section 2250. Supervised release : As a general rule, when a court sentences a defendant to prison, it may also sentence him to a term of supervised release. Supervised release is a parole-like regime under which a defendant is subject to the oversight of a probation officer following his release from prison. In the case of a conviction under Section 2250, the court must order the defendant to serve a life-time term of supervised release or in the alternative a term of 5 years or more. The statute and the Sentencing Guidelines establish an array of mandatory and discretionary conditions for those on supervised release. The mandatory conditions require the defendant to: (1) avoid committing any additional federal, state or local offenses; (2) refrain from the unlawful possession of controlled substances; (3) participate in a domestic violence rehabilitation program, he has been convicted of domestic violence; (4) submit to periodic drug tests, unless the court suspends the condition because the defendant poses a low risk of future substance abuse; (5) pay installments to satisfy any outstanding fines or special assessments; (6) satisfy any outstanding restitution requirements; (7) comply with any SORNA registration demands; and (8) submit to the collection of a DNA sample. A sentencing court may also impose any condition from the statutory inventory of discretionary conditions for probation. In addition, t he Sentencing Guidelines specify thirteen "standard" conditions; eight "special" conditions; and "additional" special conditions. Finally, the district court may impose any "specific" condition that is no greater impairment of liberty than necessary and that is reasonably related to the nature of the offense, the offender's criminal history, and various general statutory sentencing factors. The court may modify the conditions of supervised release at any time. It may also revoke the defendant's supervised release and sentence him to prison for violations of the conditions of supervised release. Much of the litigation relating to Section 2250 relates to constitutional challenges involving either Section 2250 or SORNA. The attacks have taken one of two forms. One argues that SORNA or Section 2250 operates in a manner which the Constitution specifically forbids, for example in its clauses on Ex Post Facto laws, Due Process, and Cruel and Unusual Punishment. The other argues that the Constitution does not grant Congress the legislative authority to enact either Section 2250 or SORNA. These challenges probe the boundaries of the Commerce Clause, the Necessary and Proper Clause, and the Spending Clause, among others. Constitutional prohibitions : The Supreme Court addressed two of the most common constitutional issues associated with sex offender registration before the enactment of SORNA. One addressed the Ex Post Facto Clause implications of sex offender registration, Smith v. Doe ; the other the Due Process Clause implications, Connecticut Department of Public Safety v. Doe . Neither the states nor the federal government may enact laws that operate Ex Post Facto. The prohibition covers both statutes that outlaw conduct that was innocent when it occurred and statutes that authorize imposition of a greater penalty for a crime than applied when the crime occurred. The prohibitions, however, apply only to criminal statutes or to civil statutes whose intent or effect is so punitive as to belie any but a penal characterization. In Smith , the Supreme Court dealt with the Ex Post Facto issue in the context of the Alaska sex offender registration statute. It found the statute civil in nature and effect, not punitive, and consequently its retroactive application did not violate the Ex Post Facto Clause. "Relying on Smith , circuit courts have consistently held that SORNA does not violate the Ex Post Facto Clause," with one apparently limited exception. The Supreme Court's assessment of state sex offender registration statutes has been less dispositive of due process issues because of the variety of circumstances in which may arise. Neither the federal nor state governments may deny a person of "life, liberty, or property, without due process of law." Due process requirements take many forms. They preclude punishment without notice: "[a] conviction fails to comport with due process if the statute under which it is obtained fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement." They bar restraint of liberty or the enjoyment of property without an opportunity to be heard: "[a]n essential principle of due process is that a deprivation of life, liberty, or property be preceded by notice and opportunity for hearing appropriate to the nature of the case." They proscribe any punishments or restrictions that are so fundamentally unfair as to constitute a violation of fundamental fairness, that is, substantive due process. In Connecticut Dept. of Public Safety v. Doe , the Court found no due process infirmity in the Connecticut sex offender registration regime in spite of its failure to afford offenders an opportunity to prove they were not dangerous. Doe suffered no injury from the absence of a pre-registration hearing to determine his dangerousness, in the eyes of the Court, because the system required registration of all sex offenders, both those who were dangerous and those who were not. Connecticut Dept. of Public Safety forecloses the assertion that offenders are entitled to a pre-registration "dangerousness" hearing; the relevant question under SORNA is prior conviction not dangerousness. In Lambert v. California , the Court dealt with the issue of sufficiency of notice. There, the Court held invalid a city ordinance that required all felony offenders to register within five days of their arrival in the city. The Court explained that "[w]here a person did not know of the duty to register and where there was no proof of the probability of such knowledge, he may not be convicted consistently with due process." Since "by the time that Congress enacted SORNA, every state had a sex offender registration law in place," attempts to build on Lambert have been rejected, because the courts concluded that offenders knew or should have known of their duty to register. Vagueness challenges have fared no better. To qualify as a violation of substantive due process, a governmental regime must intrude upon a right "deeply rooted in our history and traditions," or "fundamental to our concept of constitutionally ordered liberty." Perhaps because the threshold is so high, Section 2250 and SORNA have only infrequently been questioned on substantive due process grounds. "The right to travel ... embraces at least three different components. It protects the right of a citizen of one State to enter and to leave another State, the right to be treated as a welcome visitor rather than an unfriendly alien when temporarily present in the second State, and, for those travelers who elect to become permanent residents, the right to be treated like other citizens of that State." Section 2250, it has been contended, violates the right to travel because it punishes those who travel from one state to another yet fail to register, but not those who fail to register without leaving the state. The courts have responded, however, that the right must yield to compelling state interest in the prevention of future sex offenses. The Eighth Amendment bars the federal government from inflicting "cruel and unusual punishment." A punishment is cruel and unusual within the meaning of the Eighth Amendment when it is grossly disproportionate to the offense. The courts have refused to say that sentences within Section 2250's 10-year maximum are grossly disproportionate to the crime of failing to maintain current and accurate sex offender registration information. They have also declined to hold that SORNA's registration regime itself violates the Eighth Amendment, either because they do not consider the requirements punitive or because they do not consider them grossly disproportionate. Legislative authority : The most frequent constitutional challenge to SORNA and Section 2250 is that Congress lacked the constitutional authority to enact them. Some of these challenges speak to the breadth of Congress's constitutional powers, such as those vested under the Tax and Spend Clause, the Commerce Clause, or the Necessary and Proper Clause. Others address contextual limitations on the exercise of those of those powers imposed by such things as the non-delegation doctrine or the principles of separation of powers reflected in the Tenth Amendment. The federal government enjoys only such authority as may be traced to the Constitution; the Tenth Amendment reserves to the states and the people powers not vested in federal government. Challengers of Congress's legislative authority to enact SORNA or the Justice Department's authority to prosecute failure to comply with its demands on Tenth Amendment grounds have had to overcome substantial obstacles. First, several of Congress's constitutional powers are far reaching. Among them are the powers to regulate interstate and foreign commerce, to tax and spend for the general welfare, and to enact laws necessary and proper to effectuate the authority the Constitution provides. Second, although a particular statute may implicate the proper exercise of more than one constitutional power, only one is necessary for constitutional purposes. Third, "while SORNA imposes a duty on the sex offender to register, it nowhere imposes a requirement on the State to accept such registration." Finally, until recently some courts have held that the individual defendants had no standing to contest the statutory validity on the basis of constitutional provisions designed to protect the institutional interests of governmental entities rather than to protect private interests. Several earlier courts rejected SORNA challenges under the Tenth Amendment on the grounds that the defendants had no standing. Standing refers to the question of whether a party in litigation is asserting or "standing" on his or her own rights or only upon those of another. At one time, there was no consensus among the lower federal appellate courts over whether individuals had standing to present Tenth Amendment claims. More specifically, at least two circuits had held that defendants convicted under Section 2250 had no standing to challenge their convictions on Tenth Amendment grounds. Those courts, however, did not have the benefit of the Supreme Court's Bond and Reynolds decisions. In Bond , the Court pointed out that a defendant who challenges the Tenth Amendment validity of the statute under which she was convicted "seeks to vindicate her own constitutional rights.... The individual, in a proper case, can assert injury from governmental action taken in excess of the authority that federalism defines. Her rights in this regard do not belong to the State." In Reynolds , the Court implicitly recognized the defendant's standing when at his behest it held that SORNA did not apply to pre-enactment convictions until after the Attorney General had exercised his delegated authority. Yet, the fact a defendant's Tenth Amendment challenge may be heard does not mean it will succeed. The Spending Clause states that "the Congress shall have Power To lay and collect Taxes ... to pay the Debts and provide for the common Defence and general Welfare of the United States.... " "Objectives not thought to be within Article I's enumerated legislative fields, may nevertheless be attained through the use of the spending power and the conditional grant of federal funds." In National Federation of Business v. Sebelius , seven Members of a highly divided Court concluded that the power of the Spending Clause may not be exercised to coerce state participation in a federal program. Congress may use the spending power to induce state participation; it may not present the choice under such circumstances that a state has no realistic alternative but to acquiesce. SORNA establishes minimum standards for the state sex offender registers and authorizes the Attorney General to enforce compliance by reducing by up to 10% the funds a non-complying state would receive in criminal justice assistance funds. Some defendants have suggested that this impermissibly commandeers state officials to administer a federal program and therefore exceeds Congress's authority under the Spending Clause. As a general matter, while Congress may encourage state participation in a federal program, it is not constitutionally free to require state legislators or executive officials to act to enforce or administer a federal regulatory program. To date, the federal appellate courts have held that SORNA's reduction in federal law enforcement assistance grants for a state's failure to comply falls on the encouragement rather than directive side of the constitutional line. The fact that most states do not feel compelled to bring their systems into full SORNA compliance may lend credence to that assessment. The Commerce Clause declares that "the Congress shall have Power ... To regulate Commerce … among the several States." The Supreme Court explained in Lopez and again in Morrison that Congress's Commerce Clause power is broad but not boundless. Modern Commerce Clause jurisprudence has identified three broad categories of activity that Congress may regulate under its commerce power. First, Congress may regulate the use of the channels of interstate commerce. Second, Congress is empowered to regulate and protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even though the threat may come only from intrastate activities. Finally, Congress' commerce authority includes the power to regulate those activities having a substantial relation to interstate commerce ... i.e., those activities that substantially affect interstate commerce. The lower federal appellate courts have rejected Commerce Clause attacks on Section 2250 in the interstate travel cases, because there they believe Section 2250 "fits comfortably with the first two Lopez prongs[, i.e. the regulation of (1) the "channels" of interstate commerce and (2) the "instrumentalities" of interstate commerce]." They have also rejected Commerce Clause attacks on SORNA ("§16913 [SORNA] is an unconstitutional exercise of Congress's Commerce Clause power and because lack of compliance with §16913 is a necessary element of §2250, §2250 is also unconstitutional") based on the Necessary and Proper Clause. The Supreme Court in Comstock described the breadth of Congress's authority under the Necessary and Proper Clause in the context of another Walsh Act provision. The Walsh Act authorizes the Attorney General to hold federal inmates beyond their release date in order to initiate federal civil commitment proceedings for the sexually dangerous. Comstock and others questioned application of the statute on the grounds that it exceeded Congress's legislative authority under the Commerce and Necessary and Proper Clauses. The Court pointed out that the Necessary and Proper Clause has long been understood to empower Congress to enact legislation "rationally related to the implementation of a constitutionally enumerated power." Moreover, be the chain clear and unbroken, the challenged statute need not necessarily be directly linked to a constitutionally enumerated power. The Comstock "statute is a 'necessary and proper' means of exercising the federal authority that permits Congress to create federal criminal laws [(to carry into effect its Commerce Clause power for instance)], to punish their violation, to imprison violators, to provide appropriately for those imprisoned, and to maintain the security of those who are not imprisoned but who may be affected by the federal imprisonment of others." The first section of the first article of the Constitution declares that "[a]ll legislative Powers herein granted shall be vested in Congress of the United States.... " This means that "Congress manifestly is not permitted to abdicate or to transfer to others the essential legislative functions with which it is [constitutionally] vested." This non-delegation doctrine, however, does not prevent Congress from delegating the task of filling in the details of its legislative handiwork, as long as it provides "intelligent principles" to direct the effectuation of its legislative will. The circuit courts have yet to be persuaded that Congress's SORNA delegation to the Attorney General violates the non-delegation doctrine. Federal Qualifying Offenses 18 U.S.C. §1591 (sex trafficking of children or by force or fraud) 18 U.S.C. §2241 (aggravated sexual abuse) 18 U.S.C. §2242 (sexual abuse) 18 U.S.C. §2243 (sexual abuse of ward or child) 18 U.S.C. §2244 (abusive sexual contact) 18 U.S.C. §2245 (sexual abuse resulting in death) 18 U.S.C. §2251 (sexual exploitation of children) 18 U.S.C. §2251A (selling or buying children) 18 U.S.C. §2252 (transporting, distributing or selling child sexually exploitive material) 18 U.S.C. §2252A (transporting or distributing child pornography) 18 U.S.C. §2252B (misleading Internet domain names) 18 U.S.C. §2252C (misleading Internet website source codes) 18 U.S.C. §2260 (making child sexually exploitative material overseas for export to the U.S.) 18 U.S.C. §2421 (transportation of illicit sexual purposes) 18 U.S.C. §2422 (coercing or enticing travel for illicit sexual purposes) 18 U.S.C. §2423 (travel involving illicit sexual activity with a child) 18 U.S.C. §2424 (filing false statement concerning an alien for illicit sexual purposes) 18 U.S.C. §2425 (interstate transmission of information about a child relating to illicit sexual activity). Military Qualifying Offenses Offenses Defined on or after June 28, 2012 UCMJ art. 120: Rape, Sexual Assault, Aggravated Sexual Contact, and Abusive Sexual Contact UCMJ art. 120b: Rape, Sexual Assault, and Sexual Abuse, of a Child UCMJ art. 120c: Pornography and Forcible Pandering. Specified Offenses Against a Child Under 18 An offense against a child (unless committed by a parent or guardian) involving kidnapping. An offense against a child (unless committed by a parent or guardian) involving false imprisonment. Solicitation to engage in sexual conduct with a child. Use of a child in a sexual performance. Solicitation to practice child prostitution. Video voyeurism as described in section 1801 of title 18 committed against a child. Possession, production, or distribution of child pornography. Criminal sexual conduct involving a minor, or the use of the Internet to facilitate or attempt such conduct. Any conduct that by its nature is a sex offense against a minor. Crimes with a Sex Element Any federal, state, local, military, or foreign "criminal offense that has an element involving a sexual act or sexual contact with another" qualifies. Attempt or Conspiracy Any attempt or conspiracy to commit one of the other qualifying offenses also qualifies. | Section 2250 of Title 18 of the United States Code outlaws an individual's failure to comply with federal Sex Offender Registration and Notification Act (SORNA) requirements. SORNA demands that an individual—previously convicted of a qualifying federal, state, or foreign sex offense—register with state, territorial, or tribal authorities. Individuals must register in every jurisdiction in which they reside, work, or attend school. They must also update the information whenever they move, or change their employment or educational status. Section 2250 applies only under one of several jurisdictional circumstances: the individual was previously convicted of a qualifying federal sex offense; the individual travels in interstate or foreign commerce; or the individual enters, leaves, or resides in Indian country. The Supreme Court in Nichols v. United States held that SORNA, as originally written, had limited application to sex offenders in the U.S. who relocated abroad. The International Megan's Law to Prevent Child Exploitation and Other Sexual Crimes Through Advanced Notification of Traveling Sex Offenders [Act], P.L. 114-119 (H.R. 515), however, anticipated and addressed the limit identified in Nichols. Individuals charged with a violation of Section 2250 may be subject to preventive detention or to a series of pre-trial release conditions. If convicted, they face imprisonment for not more than 10 years and/or a fine of not more than $250,000 as well as the prospect of a post-imprisonment term of supervised release of not less than 5 years. An offender guilty of a Section 2250 offense, who also commits a federal crime of violence, is subject to an additional penalty of imprisonment for up to 30 years and not less than 5 years for the violent crime. The Attorney General has exercised his statutory authority to make SORNA applicable to qualifying convictions occurring prior to its enactment. The Supreme Court rejected the suggestion of the United States Court of Appeals for the Fifth Circuit that Congress lacks the constitutional authority to make Section 2250 applicable, on the basis of a prior federal offense and intrastate noncompliance, to individuals who had served their sentence and been released from federal supervision prior to SORNA's enactment, United States v. Kebodeaux, 134 S. Ct. 2496 (2013). The Fifth Circuit's Kebodeaux opinion aside, the lower federal appellate courts have almost uniformly rejected challenges to Section 2250's constitutional validity. Those challenges have included arguments under the Constitution's Ex Post Facto, Due Process, Cruel and Unusual Punishment, Commerce, Necessary and Proper, and Spending Clauses. This report is in an abridged version of CRS Report R42692, SORNA: A Legal Analysis of 18 U.S.C. §2250 (Failure to Register as a Sex Offender), without the footnotes or the attribution or citations to authority found in the parent report. |
In his State of the Union address on January 28, 2008, President Bush called upon Congress to approve this year pending free trade agreements (FTAs) negotiated with Colombia, Panama, and South Korea. He emphasized the importance to U.S. economic growth of opening up new markets overseas and noted how these FTAs "will level the playing field" in giving the United States better access to 100 million customers in these three countries. On January 23, Senator Baucus (chairman of the Senate Finance Committee) called for the quick conclusion of a new import protocol with South Korea (consistent with internationally recognized guidelines) providing full access for U.S. beef, regardless of the cut of beef or the age of cattle. In a letter to U.S. Trade Representative Schwab, he again reiterated that the FTA negotiated with Korea will not move forward in his committee until such a protocol is in place and U.S. beef sales have resumed. The Senator stated the protocol must clearly outline the criteria U.S. beef producers must meet to sell to the Korean market, and must include both a process for handling problems that arise and a mechanism to quickly resolve disputes on administering or interpreting the protocol's terms with minimal trade disruption. From January 14 to 18, U.S. trade officials held the eighth formal negotiating round on a bilateral FTA with their Malaysian counterparts. Press accounts report that the Bush Administration seeks to conclude a trade agreement by late spring with the intent to present it to Congress for approval this summer. On December 14, 2007, President Bush signed into law ( P.L. 110-138 ) a measure to implement the FTA with Peru. Earlier on November 8, the House passed the United States-Peru Trade Promotion Agreement Implementation Act ( H.R. 3688 ); the Senate approved it on December 4. U.S. farmers and ranchers, agribusiness firms, and food manufacturers view efforts to expand commodity and food exports as vital to improving farm income and business profitability. For this reason, many U.S. policymakers since the mid-1980s have viewed negotiating trade agreements as a way to create opportunities to increase agricultural sales overseas, primarily by seeking to lower and/or eliminate other countries' trade barriers (e.g., tariffs and quotas). To accomplish this, the United States has had to reciprocate by lowering similar forms of border protection on farm and food products imported from prospective trading partners. Because of the import sensitivity of some U.S. commodity sectors (e.g., beef, dairy, and sugar, among others) to the prospect of increased competition from foreign suppliers, the executive branch has had to take the concerns of producers of these commodities into account during negotiations, in order to secure congressional approval of concluded trade agreements. The 1994 Uruguay Round Agreement on Agriculture negotiated under the structure of the multilateral institution that preceded the World Trade Organization (WTO) created substantial export opportunities for U.S. agriculture and agribusiness by partially lowering then-existing trade barriers worldwide. However, the U.S. FTAs that took effect with Canada in 1989 and with Mexico in 1994 (when both were combined into the North American Free Trade Agreement (NAFTA)) were more ambitious than the Uruguay Round in reducing barriers to bilateral agricultural trade. With these two trade agreements setting into motion a process that removed many, or all, forms of border protection by the end of 10 or 15 year transition periods, respectively, Canada and Mexico became two of the fastest-growing markets for U.S. agricultural exports. During the period from the mid-1980s to 2001, the United States also entered into two other FTAs—with Israel and Jordan ( Table 1 , top). Since 2002, the Bush Administration has pursued a strategy that emphasizes negotiating trade agreements on three fronts—the multilateral, the regional, and the bilateral. This policy of "competitive trade liberalization" advocates using comprehensive bilateral FTAs as leverage to advance U.S. trade objectives in the multilateral WTO and regional (such as the failed hemispheric Free Trade Area of the Americas) trade negotiations, including those objectives laid out for agriculture (see next section). Applying this strategy under trade promotion authority, the Bush Administration since mid-2002 initiated FTA negotiations with 23 countries, and concluded agreements with 14 of them. Of these, Congress has approved eight FTAs with 12 countries. Agreements with 10 countries have gone into effect ( Table 1 , bottom). FTAs with three other countries (Costa Rica, Oman, and Peru) have been approved by Congress but not yet implemented for various reasons. Three FTAs await congressional consideration (Colombia, Panama, and South Korea). Negotiations with Malaysia are continuing despite the expiration of trade promotion authority (TPA), while talks with Thailand are suspended ( Table 2 ). See Key Steps before an FTA Can Take Effect (below) for an explanation of the terms used to signify steps from when the decision is made to negotiate through when an FTA is fully implemented. This report looks at developments in U.S. agricultural trade with each current and prospective FTA partner, and the issues that came up during negotiations or that are still outstanding. Since mid-2002, the Bush Administration's FTA negotiations have been guided by provisions spelled out in TPA authority in support of the overall agricultural negotiating objective: "to obtain competitive opportunities for U.S. agricultural commodities in foreign markets and to achieve fairer and more open conditions of trade in bulk, specialty crop, and value-added commodities." Other stated U.S. objectives pertinent to negotiating bilateral FTAs are: to 'seek to' eliminate 'on the broadest possible basis' tariffs and other charges on agricultural trade; to 'seek to' eliminate non-tariff barriers to U.S. exports, including licensing barriers on agricultural products, restrictive administration of tariff-rate quotas, unjustified trade restrictions that affect new U.S. technologies (i.e., biotechnology), and other trade restrictive measures that U.S. exporters identify; to provide adequate transition periods and relief mechanisms for the U.S. agricultural sector to adjust to increased imports of sensitive products; to seek to eliminate partner government practices that adversely affect U.S. exports of perishable or cyclical agricultural products; to eliminate any unjustified sanitary and phytosanitary (SPS) restrictions imposed by the prospective partner and seek its affirmation of its WTO commitments on SPS measures; and to develop a mechanism with each partner to support the U.S. objective to eliminate all agricultural export subsidies in the WTO negotiations. In the FTA negotiations initiated by the Bush Administration, U.S. officials frequently have affirmed their position that no product or sector should be excluded, particularly when partner negotiators (in jockeying for leverage) seek to exclude their sensitive agricultural commodities from coverage in the final agreement. Also, U.S. officials repeatedly have made clear that the issue of U.S. farm support or subsidies, which some countries have sought to place on the FTA negotiating table, will only be addressed in the WTO multilateral negotiations. FTAs negotiated by the United States are generally comprehensive in scope. In addition to addressing market access for agricultural and food products, they cover trade in all other goods (including textiles and apparel), improved market access commitments for services and government procurement, protections for investment and intellectual property rights; and include provisions on dispute settlement, labor, the environment, customs administration, among other matters. FTAs establish a framework for liberalizing trade in agricultural commodities and food products between partners within an agreed-upon time period. Achieving preferential access as much as possible to each other's market is the primary objective in negotiations, with the intent also to secure a competitive edge over third countries that sell into an FTA partner's market. Accomplishing this requires that negotiators work to reduce and eventually eliminate tariffs and quotas on most agricultural goods. Because the United States and each prospective FTA partner have some agricultural products that benefit from high levels of border protection, negotiators spend much of their time wrestling with how to transition these import-sensitive products towards free trade. The United States also has sought to address other non-tariff barriers (particularly those dealing with food safety and animal/plant health—commonly referred to as SPS measures) on a separate, but parallel, track. Though U.S. negotiators assert that resolution of outstanding bilateral SPS disputes is not on the formal FTA negotiating agenda, press reports point toward negotiators on both sides seeking to resolve such disputes and using them as leverage to achieve other FTA negotiating objectives. Further, resolving these disputes is viewed as essential to ensure that FTA partners do not resort to using these barriers to undercut the openings created for U.S. exporters in market access talks. One U.S. objective in negotiations is that bilateral free trade agreements be comprehensive (i.e., cover all products). For the more sensitive agricultural commodities, negotiators generally agree on long transition periods before tariffs and quotas are completely eliminated. Recently negotiated FTAs, though, provide for indefinite protection for a few commodities. U.S. commodities that are protected this way include sugar in four FTAs and beef in the Australia FTA. Such protection takes the form of slowly-expanding preferential tariff-rate quotas (TRQs) and the retention of prohibitive tariffs on over-quota imports in perpetuity, the use of safeguards to protect against import surges, and special mechanisms to address unique situations (see "Types of Provisions in U.S. FTAs that Apply to Agricultural Trade," below, for an explanation of these and related terms used in this report). Details on how these and other sensitive commodities are handled differ from one FTA to another, and are laid out in lengthy and complex tariff schedules and annexes to each agreement's agriculture chapter. For example, the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), the Peru FTA, and the FTAs with Colombia and Panama (still awaiting congressional consideration) allow the United States to cap in perpetuity the amount of sugar that enters. In return, DR-CAFTA allows Costa Rica to indefinitely limit imports of U.S. fresh onions and fresh potatoes, and the four other Central American countries to similarly treat imports of U.S. white corn. For the United States and CAFTA countries, the in-quota amount on only these specified commodities expands from 1% to 2% each year, while the prohibitive tariff on over-quota entries never declines. Similarly, while U.S. exporters received increased access to Morocco's wheat market, Morocco will indefinitely apply a quota and a prohibitive over-quota tariff on U.S. wheat. This new way to address the sensitivity of some agricultural products is unique in the FTAs recently negotiated by the United States, and apparently does not appear in other countries' FTAs. Table 3 and Table 4 list the sensitive agricultural commodities (as reflected in long transition periods or special treatment) in each current and prospective FTA, respectively. Additional information on some commodities is summarized in the FTA-by-country overviews. The extent to which U.S.-negotiated FTAs have led to complete free trade in agricultural products has evolved since the first two bilateral trade agreements were negotiated. The FTAs with Israel (1986) and Canada (1998) still limit bilateral trade in several import-sensitive products with the use of TRQs. However, NAFTA with Mexico (1994) resulted in bilateral free trade in all agricultural products, effective January 1, 2008. Many of the more recent FTAs negotiated by both the Clinton and Bush Administrations provide for long transitions to free trade for all but a handful of agricultural commodities and food products. The three exceptions because of political sensitivities for the United States or its partners are the outright exclusions for tobacco in the Jordan FTA (2001), sugar in the Australia FTA (2005), and rice in the FTA with South Korea (2007). Decisions by other countries (including current and prospective FTA partners) on animal, plant, and human health and food safety issues have significantly reduced or limited U.S. agricultural sales to these markets. Though U.S. negotiators state that they do not view FTA negotiations as the forum in which to try to raise and resolve these disputes, parallel discussions on these SPS issues have affected the negotiating dynamics and the pace of concluding several recent FTAs. Also, the slow pace of movement by FTA partners in implementing side letter commitments reached on outstanding SPS issues has at times influenced the decision by the Office of the U.S. Trade Representative (USTR) on when to seek congressional approval of an FTA. Similarly, the same dynamic has influenced USTR's assessment of how to proceed to conclude an FTA or to complete the required legal steps before an FTA can enter into force. Members of Congress also have put the President and trade negotiators on notice that these issues must be dealt with before FTA talks conclude or congressional consideration proceeds. Examples of such developments are provided below in the country-by-country section. The controversies that have surfaced reflect the growing use by countries of SPS rules, intended to ensure food safety and protect animal and plant health, as disguised trade barriers. Trade experts have observed that as quota expansion has opened up foreign markets to agricultural imports, governments face pressure to protect domestic producers from increased competition using such non-tariff measures as SPS rules. Accordingly, U.S. policymakers have concluded that resolving outstanding SPS issues is important to the U.S. agricultural sector in order for exporters to be able to take advantage of the market access openings that new FTAs can create. Exporters also have signaled that the application of SPS rules must be science-based, transparent and predictable, so that they know what applies to them when selling products to FTA partners. Their view reflects each country's rights and obligations under the WTO's 1994 SPS Agreement, which lays out rules to ensure that each country's food safety and animal and plant health laws and regulations are transparent, scientifically defensible, and fair. Even though they are not technically on the agenda, two SPS issues have concerned U.S. negotiators in recent FTA talks with several countries. One U.S. objective has been to secure an FTA partner's recognition of the U.S. meat (beef, pork, and poultry) inspection system as equivalent to its own. Panama and some Central American countries had argued that their regulatory agencies be allowed to continue their policies of accepting meat imports only from those U.S. meat processing plants that their own food inspectors had approved. U.S. exporters argued that this practice stymied sales, requiring them to comply with multiple sets of rules that were redundant to the existing U.S. meat inspection system. Second, following the discovery of a cow with bovine spongiform encephalopathy (BSE) or mad cow disease in Washington state in December 2003, many countries imposed bans on the import of U.S. beef. The United States asked the Office of International Epizootics (OIE) to review its response and the validity of measures already in place to mitigate the risks of this animal disease to humans and cattle herds. Along with Canada and Mexico, the United States earlier had asked this panel to reconsider its international guidelines for determining the risk status of countries with BSE, to better reflect the adequacy of a country's safeguards. This has involved U.S. regulatory agencies presenting extensive evidence to show that U.S. beef products are safe and that U.S. human and animal safeguards are effective. In negotiating the more recent FTAs, the United States pressed prospective partners (e.g., Colombia, Malaysia, Peru, Panama, and South Korea) to recognize U.S. measures taken to address the BSE issue as conforming with internationally recognized scientific guidelines governing meat trade, and to allow purchases of U.S. beef to resume. Similarly, some Members of Congress have stated that their support for the Korea FTA will depend on the measures South Korea adopts to allow U.S. beef imports to enter under the bilateral agreement reached in January 2006. To resolve these bilateral SPS issues, U.S. and FTA country negotiators have reached separate agreements or exchanged side letters that acknowledge prospective partners' acceptance of the equivalency of the U.S. meat inspection system and recognition of the steps the United States has taken to ensure the removal of beef parts that carry the risk of transmitting BSE. These frequently have stipulated the steps a partner will undertake to facilitate the entry of imports of U.S. meat products and/or commit a partner to allow U.S. beef certified as meeting specified standards to be imported by a specified date. Though these SPS side letters and agreements are not an integral part of FTA texts, the use of FTA negotiations as the opportunity to leverage resolution to longstanding SPS issues resulted in attaining market openings that would otherwise have taken much longer to achieve. For example, the United States succeeded in securing from Colombia, Peru, and Panama changes in their regulations to allow for the import of U.S. beef. The SPS chapter in each recent FTA reaffirms each partner's rights and obligations under the WTO's 1994 SPS Agreement to also be the basis for resolving SPS issues that come up in future bilateral trade. This text establishes a SPS standing committee to facilitate consultations on, and resolve, bilateral SPS problems as they arise. The Australia FTA went further, creating a Technical Group on Animal and Plant Health Measures to work to achieve consensus on the scientific issues behind a specific SPS dispute. Unlike NAFTA with Canada and Mexico, all FTAs negotiated since 1993 prescribe that the agreement's dispute settlement process cannot be used to challenge the other partner's SPS standards. Over the last 25 years, two-way U.S. agricultural trade (the sum of exports and imports) has more than doubled—from $60 billion in 1981 to $136 billion in 2006. Annual trade growth averaged 5.1% during this period. However, changes in the value of the U.S. dollar and in the competitiveness of the U.S. agricultural sector, and the fallout of the Mexican and Asian financial crises in 1995 and the late 1990s, respectively, contributed at times to occasional dips in this upward trend. The increase in overall U.S. agricultural trade has been driven by two sets of factors. First, worldwide population growth, rising incomes in key export markets, and growing U.S. consumer demand for fresh fruits and vegetables account for much of this increase. Second, trade policy developments have bolstered this trend. Implementation of U.S. FTAs with Canada and Mexico, and of the multilateral 1994 Uruguay Round Agreement on Agriculture that reduced trade-distorting agricultural policies, created additional market openings for U.S. exports and imports. Also, the expansion of duty-free access under U.S. unilateral trade preference programs has boosted agricultural imports from developing countries. The share of two-way agricultural trade covered by U.S. free trade agreements increased from $329 million (just under 1%) in 1986 (under the FTA with Israel) to $54 billion (41%) in 2006 (when FTAs with 13 countries were in effect) ( Figure 1 and Figure 2 , and Table 5 ). Growing trade with Canada and Mexico, as NAFTA significantly liberalized U.S. agricultural trade with each country, has accounted for much of the increase in two-way trade since 1989. Over the last 25 years, total U.S. agricultural exports increased by almost two thirds—from $43 billion in 1981 to $71 billion in 2006. Export growth during this period averaged 2.5% each year, in spite of the downturns that occurred in the mid-1980s and again in the late 1990s. In 2006, agricultural exports covered by U.S. FTAs equaled $26 billion (37%) of the total, compared to $255 million (one-half of 1%) in 1986 ( Figure 2 and Figure 3 , and Table 5 ). Total U.S. agricultural imports have grown by nearly four times during this period—from $17 billion in 1981 to $65 billion in 2006. Imports have risen steadily and at a faster rate than exports. Import growth has averaged 11.5% annually. In 2006, agricultural imports covered by U.S. FTAs were $29 billion (44%) of the total, compared to $74 million (one-third of 1%) in 1986 ( Figure 2 and Figure 4 , and Table 5 ). During 2006, the United States began to implement three free trade agreements with six countries (El Salvador, Guatemala, Honduras, and Nicaragua under DR-CAFTA, and Bahrain and Morocco under separate agreements). Two-way U.S. agricultural trade with these countries in 2006 totaled almost $3.3 billion (2.4% of the total). U.S. agricultural exports were valued at $1.6 billion; U.S. agricultural imports equaled almost $1.7 billion (see "Addendum" in Table 5 ). FTAs that the United States has negotiated with another seven countries could come into effect in 2008 or 2009. This will depend on if, and when, Congress and/or a partner country's legislature approves each, and then on how quickly implementation-related issues are addressed. The FTAs concluded with Panama, Peru, and South Korea may receive congressional consideration during the second session of the 110 th Congress, with House leadership and the Bush Administration having reached a deal on additional labor and environmental provisions. Costa Rica's legislature is following a timetable to complete consideration of DR-CAFTA-related measures by February 29, 2008, which the U.S. Congress approved in mid-2005. Once completed, DR-CAFTA provisions with Costa Rica could take effect soon thereafter. The Dominican Republic in early 2007 completed a revision of its laws and regulations to comply with DR-CAFTA's terms. In turn, USTR on March 1, 2007, announced that its provisions had gone into effect. Earlier, President Bush on September 26, 2006, signed legislation approving the FTA with Oman. More recently, the President on December 14, 2007, signed a measure approving the Peru FTA. Both agreements may take effect later in 2008 once bilateral understandings are reached on implementation matters. In 2006, two-way agricultural trade with these seven countries totaled $8.9 billion (6.6% of the total) ( Table 6 ). Two-way agricultural trade with South Korea and Colombia alone accounted for 60% of U.S. agricultural trade with these seven countries. U.S. commodity and food exports to these seven nations equaled $5.1 billion; agricultural imports were valued at $3.8 billion. The United States also had been negotiating FTAs with two other countries—Thailand and Malaysia—but did not conclude these talks before the April 1, 2007, deadline for them to be considered under current TPA rules. Two-way U.S. agricultural trade with these two countries in 2006 totaled almost $3.3 billion (2.4% of the total). Agricultural exports were valued at $1.1 billion; commodity and food imports totaled $2.2 billion ( Table 6 ). Two-way agricultural trade with the 13 countries with which the United States has approved FTAs since 2004 and with Colombia, Panama, and South Korea, whose FTAs await congressional consideration, could be an estimated 4.1% to 4.3% higher than would occur without these trade agreements. U.S. agricultural exports would be higher, largely because of the market openings created as most FTA partners' high agricultural tariffs and most other border protections are largely eliminated over time. U.S. agricultural imports would also rise, primarily from Australia, Chile, and Colombia, as U.S. tariffs on farm products of export interest to these countries and quotas on U.S. sensitive agricultural commodities (except sugar) are phased out completely. Trade liberalization provisions in seven FTAs (covering 12 countries) could result in increases in U.S. agricultural exports from $4.0 billion (U.S. International Trade Commission (USITC) estimate) to $5.2 billion (American Farm Bureau Federation (AFBF) estimate) ( Table 7 ). The USITC estimate is 7.2% above the 2005 level for U.S. agricultural exports. The AFBF estimate is 3.9% above the U.S. Department of Agriculture's (USDA's) agricultural export baseline for 2015. The wide range in estimates reflects the different methodologies used to project increases in U.S. agricultural exports as a result of the FTAs with Australia, Morocco, the six countries covered by DR-CAFTA, Peru, Colombia, Panama, and South Korea (see Appendix for an explanation). Also, both organizations project that such exports would be higher under FTAs with four other countries, but a direct comparison cannot be made. The USITC projects that exports to Chile and Singapore together would be $136 million higher. The AFBF estimates that U.S. farm product sales to Bahrain and Oman could be $300 million higher (see "Addendum" in Table 7 ). The USITC projects U.S. agricultural imports under six FTAs could increase by $1.5 billion ( Table 7 ). However, the impact of trade diversion as trade flows shift from elsewhere in the world to these FTA partners lowers overall U.S. agricultural imports as a result of these agreements to about $700 million. As a result, USITC's import projection (adjusted for trade diversion) could be 1.4% higher than would be the case otherwise. Most of this increase would reflect additional imports from Australia, which has gained access to the U.S. market under expanding U.S. preferential TRQs for sensitive agricultural commodities (beef and dairy products). If the USITC analyses for the Chile and Singapore FTAs are added to the picture, U.S. agricultural imports could be another $600 million higher (but when adjusted for trade diversion, only $300 million more). Australia and Chile would account for most of the increase in agricultural imports under the FTAs analyzed by the USITC. Agricultural imports from most of the other FTA partners (classified to be developing countries) have benefitted for some time from low or zero duty access under U.S. unilateral trade preference programs (Generalized System of Preferences (GSP); Andean Trade Preference; and the Caribbean Basin Initiative). As a result, the small increases shown for them in Table 7 largely reflect the benefits they would receive with the additional export access gained into the U.S. market under expanding preferential TRQs for commodities that the United States has protected with quotas for some time. Of the 10 U.S. FTAs now in effect, only three have operated for more than 10 years (those with Israel, Canada and Mexico). Except for the Jordan FTA, six trade agreements have taken effect since 2004 ( Table 1 ). One-third of total two-way U.S. agricultural trade is accounted for by Canada and Mexico, largely because of the market openings created by NAFTA many years ago and both countries' proximity to the U.S. market. The rate of growth in bilateral agricultural trade with Canada and Mexico, but not with Israel, has been higher compared to the rate of increase in U.S. agricultural trade with the rest of the world during the time period that each agreement has been in effect. Because six FTAs are relatively new (i.e., with implementation periods of four years or less), it is difficult to determine whether the growth in two-way trade is attributable solely to liberalizing trade provisions. A portion of the increase is also due to growing populations, per capita income growth, and changing diets. Also, U.S. consumers' growing demand for fruits and vegetables would likely have been met in part by imports from these partners, even without these FTAs. The more significant market access provisions gained for U.S. exporters will take time to take effect, with the long transition periods negotiated for sensitive commodities. A more detailed analysis would be required to correlate changes in commodity trade flows to specific tariff and quota provisions in these FTAs. Agriculture as covered by each of the current FTAs is examined below in the order each country ranks in its bilateral agricultural trade with the United States (as shown in Table 5 ). The next section surveys agriculture with prospective FTA partner countries. Canada is the leading agricultural trading partner of the United States, and accounted for almost 19% of two-way U.S. agricultural trade in 2006. Since the Canada-U.S. Trade Agreement (CUSTA) took effect in 1989, bilateral trade in agricultural and food products has increased more than six times (from an average $4 billion in 1986-1988, to $25.4 billion in 2006). For comparison, during this same period, U.S. two-way agricultural trade with the rest of the world slightly more than doubled. U.S. agricultural exports to Canada increased almost seven times (from an average $1.8 billion in 1986-88 to $11.9 billion in 2006). Imports from Canada rose six times (from an average $2.2 billion in 1986-88 to $13.4 billion in 2006). In 2006, the main U.S. exports to Canada in terms of value were: vegetables—fresh, processed, frozen and dried ($1,732 million), fresh fruit ($1,122 million), breakfast cereals and baked goods ($709 million), food preparations ($495 million), beef and veal ($424 million), fruit juices ($406 million), pet food ($393 million), pork ($365 million), cocoa ($317 million), coffee ($274 million), and confectionery products ($186 million). In 2006, main U.S. imports from Canada were live cattle ($1,032 million), bakery products and snacks ($966 million), beef and veal ($923 million), pork ($889 million), fresh vegetables—primarily greenhouse tomatoes, peppers, and cucumbers ($724 million), chocolate ($690 million), frozen vegetables ($664 million), live hogs ($579 million), rapeseed oil ($424 million), confectionery products ($380 million), wheat ($304 million), food preparations ($278 million), beer ($275 million), and cheese mixes and doughs ($232 million). Under the CUSTA's agricultural provisions (incorporated into NAFTA in 1994), almost all agricultural products have traded freely between both countries since 1998. Exceptions are those commodities that each country still subjects to tariff-rate quotas ( TRQs). Canada uses TRQs to limit imports from the United States of its import-sensitive commodities (dairy products, margarine, poultry, turkey, and eggs). The United States uses TRQs to restrict imports of Canadian dairy products, peanuts, peanut butter, cotton, sugar and certain sugar-containing products (SCPs). Both countries also retained the option under CUSTA to apply temporary safeguards on bilateral trade in selected fruits, vegetables, and flowers through year-end 2007. Since mid-2003, the discovery of BSE on both sides of the border has significantly affected bilateral trade in live cattle and beef products. Effective January 1, 2008, all agricultural products now trade freely between the United States and Mexico. Marking the end of a 15-year transition period under NAFTA, remaining tariffs and quotas on several import-sensitive commodities were eliminated. U.S. agricultural products that are now free to enter the Mexican market are corn, dry beans, milk powder, sugar, dried onions, chicken leg quarters, and high-fructose corn syrup (HFCS); and specified processed vegetables, frozen concentrated orange juice (FCOJ), and melons. Products imported into the United States from Mexico that can now enter freely are FCOJ, peanuts, sugar, and specified categories of cucumbers, asparagus, broccoli, melons, and processed vegetables. Earlier, on January 1, 2003, tariffs and quotas were eliminated on most traded agricultural products. Mexican producers of corn and dry beans marked this date with marches and blockades at border crossings, protesting expected job losses from increased competition from U.S.-subsidized agricultural products. Mexican President Calderon countered that increased trade integration with the United States and Canada was the only way to strengthen the country's economy, arguing that farmers could benefit from NAFTA's openings. He noted that Mexico is the second leading supplier of farm products to the United States and third largest to Canada. Opposition members of the Mexican Congress have signaled they will mount an effort to renegotiate NAFTA's agricultural provisions, while acknowledging that could prove difficult. U.S. and Mexican agriculture officials met on January 10, 2008, to discuss measures being taken to ensure that NAFTA is being smoothly implemented, noting that the "dynamic growth" in bilateral agricultural trade since 1994 has benefitted agricultural producers, processors, and consumers. Both sides agreed to establish a working group to address trade concerns in the livestock sector. Mexico is the second largest agricultural trading partner of the United States, and accounted for almost 15% of two-way agricultural trade in 2006. Since NAFTA went into effect in 1994, two-way bilateral trade in agricultural and food products has more than tripled (from an average $6 billion in 1991-1993, to $20.3 billion in 2006). For comparison, during this same period, U.S. two-way agricultural trade with the rest of the world nearly doubled. U.S. agricultural exports to Mexico rose by more than three times (from an average $3.5 billion in 1991-93, to $10.9 billion in 2006). In 2006, sales of corn ($1,472 million), soybeans ($906 million), beef and veal ($778 million), food preparations ($483 million), wheat ($418 million), cotton ($412 million), beef variety meats ($388 million), grain sorghum ($323 million), pork ($309 million), soybean meal ($255 million), and decidious fresh fruit ($245 million) accounted for more than one-half of U.S. agricultural exports to Mexico. Agricultural imports from Mexico have almost quadrupled (from an average $2.5 billion just before NAFTA took effect, to $9.4 billion in 2006). Purchases of fresh vegetables, primarily tomatoes, chili and peppers, cucumbers, squash and onions ($2,573 million); beer ($1,600 million); fresh fruit, primarily avocados, melons, grapes, limes, mangoes, and strawberries ($1,149 million); live cattle ($524 million); confectionery products ($385 million); sugar ($320 million); and baked goods and snacks ($312 million) accounted for almost three-quarters of U.S. agricultural imports from Mexico. Most of the bilateral trade disputes that have arisen since 1993—when tariffs and quotas were eliminated for those agricultural commodities that fell in the 10-year staging category—have affected several U.S. agricultural commodities exported to Mexico (rice, beef, pork, apples, soy oil, and HFCS). At the same time, Mexican farmers and some Mexican commodity groups began pressuring the Mexican government to renegotiate certain NAFTA provisions. Calls for renegotiating NAFTA, particularly those provisions that apply to Mexico's most sensitive agricultural commodities (dry beans and corn), were an election issue in Mexico's 2006 presidential race. Though top Mexican officials under the previous presidential administration stated that reopening NAFTA was not possible and would not occur, President Calderon continues to face heavy public pressure to revisit this position. Separately, sugar that enters from Mexico is the main sensitive product for the United States. The fact that sugar imports from Mexico can now freely enter the U.S. market is affecting the dynamics of the debate on the future U.S. sugar program as Congress continues to consider the 2007 farm bill. Concerned with the impact of free trade in sweeteners (sugar and HFCS), the U.S. and Mexican sugar producing sectors recently reached an agreement, to be proposed to their respective governments, to control the flow of sugar between both countries. Both sectors would adopt measures to limit sugar exports to the other country's market under specified conditions. U.S. sugar processors and growers reportedly are seeking to have these recommendations incorporated into the farm bill measure during conference committee deliberations. In response, U.S. HFCS manufacturers, some Members of Congress, and a food industry association have expressed concerns that such "managed trade" could lead to new Mexican tariffs and barriers on U.S. HFCS exports to Mexico, and "would undercut" NAFTA as commodity groups in both countries call for changes in other agreement agricultural provisions. In the Dominican Republic - Central American Free Trade Agreement (DR-CAFTA) approved by Congress in mid-2005 after heated debate, the United States and six countries (Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua) agreed to phase out tariffs and quotas on all but four agricultural commodities and food products immediately or under one of six phase-out periods ranging up to 20 years. Trade in four very sensitive commodities—fresh potatoes and fresh onions imported by Costa Rica, white corn imported by the other four Central American countries, and sugar entering the U.S. market—are treated uniquely in the agreement. At the end of specified periods, the quota amount set for these four commodities will continue to increase by about 1% to 2% each year in perpetuity. In other words, a quota, though rising, will always limit imports of these four commodities. The tariff on above-quota entries, though, will not decline, but stay at current high levels to protect producers. Because of its sensitivity, DR-CAFTA also commits all parties to consult and review the implementation and operation of the provisions on trade in chicken about mid-way in the long transition period to free trade. The six countries covered by DR-CAFTA accounted for $5.3 billion, or almost 4% of two-way U.S. agricultural trade, in 2006. U.S. agricultural exports in 2006 to the six countries totaled just over $2.2 billion, which represented just over 3% of U.S. worldwide sales that year. The six countries combined represented the eighth largest export market for U.S. agricultural products. Leading U.S. exports were: corn ($443 million), wheat ($313 million), soybean meal ($246 million), rice ($175 million), tobacco ($98 million), and cotton ($86 million). The Dominican Republic was the largest of the six markets—with $629 million in sales (28% of U.S. agricultural exports to the region), followed by Guatemala ($548 million with a 25% share). The DR-CAFTA grants immediate duty-free status to more than one-half of the U.S. farm products now exported to the six countries, according to the USTR. Such treatment applies to high-quality U.S. beef cuts, cotton, wheat, soybeans, certain fruits and vegetables, processed food products, and wine destined for the five Central American countries. Central American tariffs and quotas on most other agricultural products (pork, beef, poultry, rice, other fruits and vegetables, yellow corn, and other processed products) are being phased out over a 15-year period. Longer transition periods apply to imports from the United States of rough/milled rice and chicken leg quarters (18 years) and dairy products (20 years). U.S. exports of corn, cotton, soybeans, and wheat to the Dominican Republic benefit also from immediate duty-free treatment. Dominican Republic tariffs and quotas on most other U.S. agricultural products (beef, pork, and selected dairy and poultry products) are being eliminated over 15 years. However, 20-year transitions will cushion the impact of the entry of U.S. chicken leg quarters, rice, and certain dairy products (cheese and milk products). Prior to DR-CAFTA, almost all agricultural imports from the six countries already entered the U.S. market duty free. The agreement made such treatment permanent. The most significant change is that DR-CAFTA grants additional market access in the form of country-specific preferential quotas to imports from the region of U.S. import-sensitive agricultural products (sugar, sugar-containing products, beef, peanuts, dairy products, tobacco, and cotton). These quotas will be in addition to (i.e., not carved out of) the existing agricultural TRQs established by the United States under current WTO commitments, which the six countries in varying degrees historically have used to export to the U.S. market. Drawing much attention during congressional debate were the agreement's sugar provisions which allow additional sugar from the region to enter the U.S. market. Members, particularly during a Senate Finance Committee hearing, questioned how the agreement's "sugar compensation mechanism" would work. This provision allows the United States to compensate the six countries for sugar they would not be able to ship under DR-CAFTA's preferential sugar quotas if the entry of such additional sugar is expected to undermine USDA's ability to administer the U.S. sugar price support program. This unique mechanism in U.S. FTAs (which applies only to sugar imported under DR-CAFTA and the FTAs with Colombia, Panama, and Peru) is structured to be activated and exercised at the sole discretion of the U.S. government. Though not spelled out in detail, officials have mentioned that if used, compensation could include donating surplus commodities in USDA inventories or making cash payments as compensation to sugar exporters in the six countries. To assuage these Members' concerns, the Bush Administration pledged, prior to Senate passage, to take steps only through FY2008 to ensure that all sugar imports, including those under DR-CAFTA, do not exceed a "trigger" that could undermine USDA's ability to manage the domestic sugar program. Sugar producers and processors responded that USDA's pledge did not address their long-term concerns about the viability of the U.S. sugar program. Fearing that DR-CAFTA's sugar provisions would set a precedent for the inclusion of sugar in FTAs being negotiated with several other sugar exporting countries, the industry continued last-minute, but unsuccessful, efforts in the House to defeat the agreement. Agricultural imports in 2006 from these six countries equaled $3.0 billion, or almost 5% of all U.S. farm and food imports. Combined, these countries ranked as the fourth leading source of U.S. agricultural imports in that year. U.S. purchases of bananas ($638 million), unroasted coffee ($630 million), pineapple ($408 million), raw cane sugar ($281 million), and melons/watermelons ($180 million) led the list. Of the six, Costa Rica was the largest supplier of food products—with $1.16 billion in sales (38% of U.S. agricultural imports from the region), followed by Guatemala ($924 million, with a 30% share). During 2006, the United States moved on a rolling basis to implement the DR-CAFTA with four countries (El Salvador, Honduras, Nicaragua, and Guatemala) once USTR determined that each had made "sufficient progress" in completing its commitments under the agreement. Provisions with the Dominican Republic took effect on March 1, 2007. Costa Rica may be added as an FTA partner in early 2008, if its legislature meets a late February deadline to approve several bills that bring the country's laws into conformity with its obligations in this trade agreement. Efforts by Australia's negotiators to secure additional access for beef, dairy products, and sugar in the U.S. market proved to be among the most contentious issues just before the Australia-U.S. FTA was concluded in February 2004. U.S. negotiators succeeded in excluding sugar from the agreement, an objective that the U.S. sugar industry had sought, and in immediately eliminating Australia's tariffs on all imports of U.S. agricultural products. While Australia sought immediate and substantial openings for its beef and dairy products, the FTA provides for limited but growing access under quotas to the U.S. market over long transition periods. Quotas and high tariff protection on some dairy product imports will continue in place indefinitely. Negotiators also agreed to create a new mechanism to facilitate scientific cooperation between both countries to resolve bilateral sanitary and phytosanitary (animal and plant health) issues. Available analyses indicate that Australia's agricultural sector will gain more under this FTA than will U.S. agriculture, largely because of additional access to the much larger U.S. market for its most competitive food products. Because of the U.S. stance that longstanding SPS issues that limited U.S. pork exports to Australia be addressed before Congress considered the FTA, Australia's regulatory agency completed its assessment of the risks associated with such imports in May 2004. This decision has opened the door for sales of processed pork products, since the agreement began to be implemented. Taking effect on January 1, 2005, this FTA provided immediate duty-free access for all U.S. agricultural exports to the Australian market. Key products expected to benefit quickly from such treatment include processed foods; soybeans and oilseed products; fresh and processed fruits; vegetables and nuts; and alcoholic beverages. Likely due in part to the FTA, the value of U.S. agricultural exports to Australia in 2006 ($519 million) was 34% higher than the $387 million average in the three-year period (2002-2004) before the FTA took effect. Exports of pork ($47 million), pet food ($47 million), food preparations ($39 million), walnuts ($19 million), fresh grapes ($16 million), breeding horses ($15 million), confectionery products ($14 million), essential oils ($14 million), tobacco ($13 million), soybean meal ($13 million), protein isolates ($12 million), almonds ($11 million), and fresh oranges ($11 million) accounted for just over one-half of U.S. agricultural sales to this market in 2006. The FTA also eliminated U.S. tariffs on 20% of Australian agricultural imports immediately, and phases out most other agricultural tariffs and quotas in stages over 4, 10, 18 and 19 years, depending on product sensitivity. Australia received additional access for commodities now subject to U.S. TRQs (beef, dairy products, peanuts, cotton and tobacco) in the form of slowly expanding preferential quotas, but not for sugar. These new quotas are in addition to WTO quotas that Australia already takes advantage of to sell to the U.S. market. U.S. safeguard protection against import surges from Australia will be triggered automatically under specified conditions for beef and specified horticultural products. During the 18-year period that ends in 2022, Australia's preferential beef quota will rise from 0 to 70,000 metric tons (MT). This end amount is 19% more than Australia's current share (378,214 MT) of the U.S. WTO's beef TRQ commitment. In-quota tariffs were eliminated immediately; the phase out of above-quota tariffs is backloaded, to begin in year 9 (2013). Beginning in 2023, there will be no restriction on imports of beef from Australia. To protect against surges in beef imports, a quantity-based safeguard will be available from years 9 through 18. Beginning in 2023, a price-based safeguard (available in perpetuity) could be triggered if beef prices fall below a specified trigger level. This beef safeguard is the only exception in recent FTAs that does not expire at the end of its transition period. The United States also agreed to gradually open its market to additional imports of dairy products (e.g., fluid milk and cream, butter, various cheeses, skim and other milk powders, ice cream) from Australia under 12 new preferential TRQs. In-quota tariffs on these imports no longer apply, and the amount of each quota will increase each year. However, above-quota tariffs on dairy products will remain at their current high levels indefinitely. Beginning in year 18 (2022), quotas will grow in perpetuity at compound rates ranging from 3 to 6% annually, depending on the product category. These new quotas are in addition to the access that Australia already has under several WTO quotas to sell these dairy products to the U.S. market. The agreement allows either partner after year 20 (2024) to request consultations for the purpose of considering changes to its dairy market access commitments. At the time this FTA was reached, USTR stated it did not expect the additional imports to affect the operation of USDA's dairy price support program. This program indirectly supports the farm price of milk through USDA purchases of butter, cheddar cheese, and skim milk powder at levels above world market prices. Australia has ranked as the fifth leading source of U.S. agricultural imports in recent years. Partly due to the FTA, U.S. agricultural imports from Australia were 15% higher in 2006 (having increased from an average $2.2 billion in 2002-2004, to $2.5 billion). Purchases of beef and veal ($934 million), wine ($761 million), lamb meat ($283 million), sugar ($70 million), cheese and curd ($43 million), milk protein concentrates ($39 million), fresh oranges ($29 million), and wheat gluten ($26 million) accounted for 88% of all such entries. On January 1, 2004, the U.S.-Chile FTA began to phase out tariffs on a substantial portion of agricultural products traded between both countries within four years (2007). However, Chile and the United States adopted up to a 12-year transition period before all import-sensitive products are free to enter from the other country. Interim protection for such products will include the use of TRQs and agricultural safeguards. The special safeguards are price-based, and will be implemented automatically using listed trigger prices. Prior to this FTA, Chile's tariff on most agricultural products was 6%. By comparison, the U.S. average tariff equivalent on agricultural imports from Chile was less than 1.5%. Chile agreed to grant duty-free status to more than 75% of U.S. agricultural products immediately or within four years. Such treatment applies to pork and products, beef and products, soybeans and soybean meal, durum wheat, feed grains, potatoes, and processed food products (i.e., french fries, pasta, distilled spirits and breakfast cereals). Chile's tariffs and quotas on all other products are being phased out in three stages over 8, 10, or 12 years. Chile will eliminate its price bands on a non-linear basis in three stages on imports of non-durum wheat, wheat flour, and vegetable oils from the United States by year 12 (2015). U.S. products subject to Chile's safeguards include certain meat products; broken, brown, and partially-milled rice; rice flour; and certain wheat products. The USITC anticipates that the FTA could provide opportunities for U.S. soybean sales in off-season months and for wheat sales after the eighth year. In 2006, likely due in part to this FTA being in effect for three years, the value of U.S. agricultural exports to Chile ($301 million) was 2-1/2 times higher than the annual average of $118 million in the three-year period (2001-2003) before the FTA took effect. Leading products shipped were corn ($48 million), wheat ($38 million), soybean meal ($36 million), corn gluten meal ($32 million), planting seeds ($16 million), almonds ($12 million), food preparations ($11 million), and animal feeds ($8 million). Chile's rank as a market for U.S. agriculture has risen from 52 nd (2003) to 28 th (2006). The United States agreed to grant duty-free status to a large share of Chile's agricultural products immediately or within four years. Preferential TRQs will apply to imports from Chile of beef, poultry, cheese, milk powder, butter, condensed milk, other dairy products, sugar, tobacco, avocados, and processed artichokes. Non-linear tariff reductions will apply to imports of fluid milk and those dairy products subject to a TRQ, avocados, and wine, among other products. Chilean products covered by the U.S. safeguards include specified vegetables and fruits, various canned fruits, frozen concentrated orange juice, tomato products, and avocados. The USITC expects the U.S. dairy and "other crops" sectors will face some increased competition, and that imports of avocados and prepared/preserved fruit from Chile will increase. Largely due to the FTA, agricultural imports from Chile rose by more than one-half in recent years (from an average $1.1 billion in 2001-02, to $1.8 billion in 2006). Leading agricultural purchases were fresh grapes ($718 million), wine ($167 million), planting seeds ($131 million), apples ($76 million), blueberries ($68 million), apple juice ($54 million), avocados ($52 million), frozen raspberries ($30 million), preserved artichokes ($20 million), dried grapes ($17 million), fresh oranges ($14 million), and frozen strawberries ($13 million). In 2006, Chile was the 9 th leading supplier of U.S. agricultural imports, up from 12 th in 2003. In an example of a U.S. success in addressing a technical non-trade barrier, Chile agreed to recognize U.S. beef grading programs. This will allow for the sale of U.S. beef and pork products with the USDA prime and choice labels in Chile. One SPS issue reportedly held up the agreement's signing—Chile's acceptance of the U.S. meat inspection system as equivalent to its own—a provision that the FTA did not include. Several senators signaled to USTR that failure to reach an agreement on this issue before the FTA was signed could result in the loss of some support for the agreement. In turn, Chile quickly moved to formally accept the U.S. inspection system as providing equivalent health and food safety protection. The signing followed on June 6, 2003. Separately, in a side letter, both countries agreed to have their regulatory agencies conduct technical and scientific work to achieve mutual beneficial access for poultry products. Duty-free treatment of non-agricultural trade under the U.S.-Israel FTA took full effect on January 1, 1995. However, both countries had a decade earlier agreed that each could maintain import restrictions (i.e., quotas and fees) for agricultural policy purposes, but could no longer apply tariffs. Because of this latitude, special agricultural provisions still govern a portion of bilateral agricultural trade. Though tariffs on agricultural products were significantly reduced from 1985 to 1994, Israel during this period took advantage of the above exception to protect its sensitive agricultural products by maintaining levies and fees on many of them, and placing quotas and import bans on others. Differences over how to interpret the scope of import restrictions and tariff concessions led both countries in 1996 to sign an "Agreement on Trade in Agricultural Products" (ATAP). This laid out a comprehensive schedule for a gradual and steady liberalization in market access for trade in these products through December 31, 2001. Under the ATAP, Israel offered lower preferential tariffs (at least 10% below its MFN rates) on some U.S. agricultural products, established duty-free TRQs for almost 100 U.S. products, and allowed unlimited duty-free entry for many other U.S. products. Under this 1996 Agreement, the United States established preferential duty-free and expanding TRQs for imports from Israel of butter and sour cream, dried milk, cheese and substitutes, peanuts, and ice cream. The ATAP was extended twice through year-end 2003, while both sides negotiated a new agreement to continue this liberalization process. This culminated in the "2004 Agricultural Agreement"—effective through year-end 2008, which provides improved access for select U.S. agricultural products (e.g., wine, almonds, and certain cheeses) to the Israeli market. The 2004 Agreement increases over time the duty-free amounts of the above five product categories allowed to enter under the U.S. TRQs created for Israel. About 90% of the value of U.S. agricultural exports enters Israel on a duty-free and quota-free basis under its WTO, FTA, and 2004 Agreement commitments. Remaining exports (primarily consumer-oriented food products) face a complex TRQ system and high tariffs, according to USTR. U.S. products facing such restrictions include dairy products, fresh fruits and vegetables, almonds, wine, and certain processed foods. If trade barriers on these products were eliminated, industry sources estimate sales of these products could increase by $60 to $105 million. In 2006, U.S. agricultural exports to Israel totaled $414 million—down almost one quarter from the decade-earlier export level ($537 million in 1997). The decline in U.S. sales in recent years has been matched by the growth in agricultural exports from Switzerland and the European Union (which also have FTAs with Israel but are geographically closer) and Argentina. In 2006, Israel ranked 21 st as a market for U.S. agriculture. Leading U.S. commodities sold were corn ($120 million), soybeans ($68 million), wheat ($29 million), almonds ($26 million), soybean meal ($15 million), and pet food ($13 million). U.S. agricultural imports from Israel in 2006 were $198 million—twice the 1997 level. More than one-half of the imports from Israel are accounted for by baked goods and snacks ($24 million), spices ($19 million), vegetable seeds ($14 million), vegetable saps for medical purposes ($14 million), peppers ($9 million), ornamental foliage ($6 million), tomato paste and preserved tomato products ($6 million), cocoa preparations ($6 million), and flower bulbs ($5 million). With the current ATAP set to expire at year end 2008, both sides plan to meet in February 2008 to begin to discuss the terms of a new agreement. To prepare for these negotiations, the USITC and the USTR recently held hearings to receive the views of interested commodity groups. With Singapore one of the leading U.S. trading partners in Southeast Asia and the regional headquarters for many U.S. corporations, the Clinton Administration initiated FTA negotiations with this city state in late 2000 as part of its policy to enhance U.S. access to the "Big Emerging Markets." With two-way agricultural trade a small share of total bilateral trade, and with Singapore a net importer of agricultural products but with a large food processing sector, this FTA's agricultural provisions were easy to negotiate. This was in large part due to the fact that Singapore's applied tariffs on most imports of agricultural commodities and food products were already zero before this agreement took effect on January 1, 2004. In 2006, U.S. agricultural exports to Singapore totaled $303 million, compared to $79 million in agricultural imports. Reflecting a diverse composition of products exported, food preparations ($25 million), preserved reptile skins ($22 million), non-fat dry milk ($13 million), broiler meat ($12 million), oranges ($10 million), frozen potato french fries ($10 million), and grapes ($9 million) accounted for one-third of sales. Top agricultural imports from Singapore were cocoa butter/oil ($24 million), baked goods ($11 million), niger seed—an oilseed ($3 million), tea preparations ($3 million), stearic acids and salts ($3 million), and wool grease ($3 million). Under the FTA, Singapore eliminated its remaining tariffs immediately—on beer and samsu (a regional liquor). Singapore harmonized its high excise tax on imported and domestic distilled spirits in 2005; this tax still applies to imports of wine and tobacco products. Though a contentious issue in the negotiations, Singapore finally agreed to allow imports of chewing gum (previously forbidden to be consumed) "with therapeutic value for sale and supply" to be sold in pharmacies, subject to laws and regulations that govern health products. The United States will eliminate duties on all agricultural imports from Singapore immediately or in stages over 4, 8, or 10 years, depending on product sensitivity. Preferential TRQs are in place until 2013 on imports from Singapore of sensitive agricultural products (beef, fluid milk products, cheese, milk powder, butter, other dairy products, peanuts, sugar, cotton, and tobacco), but only if produced in Singapore. Because it is a major shipping hub in southeast Asia, the rules of origin developed for U.S. sensitive agricultural products are intended to prohibit duty-free treatment of any food products transhipped from neighboring agricultural producing countries in that region via Singapore to the U.S. market. FTAs usually provide for a process to accelerate the pace of removing trade barriers if both countries agree. An example of this was Singapore's request in March 2006 on behalf of its nut snack manufacturers for an increase in its 2007 preferential peanut quota—from 1.3 MT to 200 MT. Singapore argued that these firms could then offer a wider range of peanut snacks, processed from U.S.-origin peanuts, that could be shipped in commercially meaningful quantities that would benefit not just U.S. peanut growers but also U.S. consumers. Several U.S. peanut grower groups and processors contacted USTR to express their opposition to this proposal, arguing that since Singapore is not a peanut producing or exporting country, peanuts would be sourced from other origins to take advantage of this quota increase. Concerned that this would set "a terrible precedent," U.S. peanut growers, shellers, and manufacturers argued that FTAs "should not set up new cottage industries that grow at the expense of our domestic peanut industry." In May 2007, USTR announced the FTA's peanut quota will not be expanded, noting that Singapore's exporters could utilize the existing U.S. peanut TRQ under its WTO commitment to expand sales to the U.S. market. Agriculture was difficult for Morocco to negotiate in its FTA with the United States, because this sector accounts for 15-20% of the country's gross domestic product and 40-45% of its labor force. Small-scale farmers dominate this sector, with many producing wheat. For this reason, reaching agreement on the terms of access in the Moroccan market for U.S. wheat was the most sensitive agricultural issue that negotiators faced. In 2006, Morocco ranked 29 th as a market for U.S. agricultural exports, which totaled $295 million. Sales of five commodities—corn ($126 million), soybeans ($70 million), durum wheat ($33 million), soybean meal ($16 million), and crude soybean oil ($18 million)—accounted for 89% of the total. Six products accounted for more than three quarters of the $80 million in agricultural imports from Morocco—processed olives ($29 million), olive oil ($15 million), fresh mandarin oranges ($8 million), a thickener derived from locust beans and guar seeds ($6 million), agar-agar—used as a thickening agent in food and as a base for bacterial culture media ($4 million), and tomato powder ($3 million). Under the FTA, which took effect on January 1, 2006, Morocco agreed to reduce tariffs and expand preferential quotas on all agricultural imports from the United States immediately or under one of 9 phase-out periods ranging up to 25 years. The longest transition will apply to imports of U.S. chicken leg quarters and wings. Morocco will offer access under expanding TRQs to its market for U.S. high quality beef for its restaurant/hotel sector, standard quality beef, whole birds—chickens and turkeys, chicken leg quarters and wings, other frozen chicken products, durum wheat, common bread wheat, wheat products, sugar and sugar-containing products, almonds, and apples. Morocco also secured the right to implement a licensing system for imports of U.S. high-quality beef destined for the hotel/restaurant sector. A "preference clause" provides U.S. exporters with "better market access" for U.S. wheat, beef, poultry, corn, soybeans, and corn/soybean products in case Morocco negotiates more favorable terms in the future with other countries. This is intended to enable U.S. exporters compete with the European Union and other countries that might broaden or initiate improved trade ties with Morocco. Because of the sensitivity of the wheat sector, complex provisions detail the terms of U.S. access to the Moroccan market. These differentiate between durum wheat and common bread wheat. While the in-quota tariff on durum imports will be reduced to zero from the current 75% over 10 years, the preferential in-quota tariff on common wheat imports will decline using a formula that applies whenever Morocco's current 135% applied MFN rate is lowered. This preferential tariff will not be available to U.S. exporters during June and July (and possibly August for common wheat) of any year, unless Morocco imports either type of wheat from another country, in which case U.S. wheat will then receive the preferential rate. Over-quota tariffs for both wheat types will remain at current high levels indefinitely, unless Morocco negotiates a reduction with another supplier. If this occurs, U.S. exporters will automatically benefit from this wheat tariff reduction. The preferential quota for common wheat will be based on the level of Moroccan wheat output—a smaller quota if production is 3 million MT or more; a larger quota if output is less than 2.1 million MT. While the durum wheat quota will expand slowly indefinitely, the common wheat quota will increase during the first 10 years and then be capped indefinitely beginning in 2015. In other words, while U.S. wheat will benefit from much improved access to the Moroccan market, a quota and a prohibitive over-quota tariff will always apply. Also, Morocco secured the right to operate a wheat auction system for in-quota imports of U.S. wheat. The United States similarly agreed to eliminate tariffs and offer preferential quota access to all agricultural imports from Morocco under seven phase-out periods: immediately, or 5, 8, 10, 12, 15, or 18 years. The longest transition (18 years) is reserved for six designated processed fruit products. The United States established preferential TRQs for beef, dairy products (including fluid milk products, cheese, milk powder, butter), sugar and sugar-containing products (SCPs), peanuts, tobacco, cotton, tomato products (including tomato paste and puree), tomato sauces, dried onions, and dried garlic. Imports of sugar and SCPs are subject to a "trade surplus" calculation, meaning that Morocco can sell the lower of: its preferential quota or the amount by which all of its exports of specified sugar products exceed imports of similar products. The USITC estimates that full implementation would result in an increase in U.S. exports to Morocco of primarily grains and processed food and tobacco products. The small increase in imports would primarily take the form of processed food products. The U.S.-Jordan FTA went into effect in December 2001. Though bilateral trade was modest at that time, this agreement was one of several U.S. strategic initiatives to assist the Jordanian economy and develop closer ties with an Arab country in the Middle East. This FTA eliminates tariffs on almost all bilateral trade by the 10 th year (2010). One exception is that trade in unmanufactured tobacco and cigarettes is exempt from tariff elimination. Pertinent to the more significant agricultural products traded, Jordan phased out its 5% tariff on imports of U.S. rice, corn, and unrefined vegetable oils at year-end 2004. Jordan's 30% tariff on imports of U.S. refined corn and soybean oil will be eliminated by 2010. Wheat will continue to enter free as before. Also, Jordan did not create TRQs for any U.S. agricultural product. A USITC analysis concluded that this FTA likely will lead to negligible increases in total U.S. exports of rice, corn, and vegetable oil. It noted that to be competitive in the Jordanian market, U.S. exporters had relied on USDA credit programs to sell these commodities. In return, Jordan secured 10-year preferential TRQs to export several agricultural commodities that meet the FTA's rules of origin: dairy products, sugar and sugar-containing products, peanuts/peanut butter, and cotton. In 2006, U.S. agricultural exports to Jordan ($142 million) were 39% above the average ($103 million) recorded in the three-year period (1999-2001) before the FTA took effect. Leading exports were corn ($64 million), non-durum wheat ($18 million), rice ($16 million), almonds ($10 million), corn oil ($7 million), and soybean meal ($5 million), which accounted for 84% of the total. Wheat historically had been the leading U.S. export, supported by long-term concessional credits extended under PL 480 Title I—a U.S. food aid program. Agricultural imports from Jordan are very small, but have quadrupled from an average $731,000 in 1999-2001 to $3 million in 2006. Principal imports were processed chickpeas ($805,000), sauces and condiments ($535,000), baked goods ($231,100), and spices ($233,000). Bahrain, a small island state with limited land suitable for agriculture, is a significant net agricultural importer. U.S. farm and food exports ($15 million in 2006) were quite diverse, led by sales of protein concentrates ($1.4 million), chicken meat ($1.3 million), beef ($1.3 million), and frozen potato french fries ($1.1 million). Prior to the FTA, Bahrain imposed a 5% tariff on semi-processed and consumer-ready food products. In the early 2000s, tariffs were eliminated on many other foods, including fresh fruit and vegetables. Congress approved the FTA in December 2005, and the agreement took effect on August 1, 2006. Bahrain agreed to provide immediate duty-free access for U.S. agricultural exports on 98% of its agricultural tariff lines, and to phase out tariffs on all other products within 10 years. In recognition that the United States since 2001 has recorded zero agricultural imports from Bahrain, all of Bahrain's current exports of farm products to the U.S. received immediate duty-free access. The 110 th Congress in coming months may consider the FTAs concluded with Colombia, Panama, and South Korea under current trade promotion authority, or fast track rules, that limit debate, prohibit amendments to implementing legislation, and require a simple up or down vote. The FTA with South Korea would be the most commercially significant for U.S. agriculture since NAFTA took effect with Mexico in 1994. Though already approved by the United States, the FTAs with Oman and Peru will not take effect until USTR concludes that each country has conformed its laws and regulations to reflect each agreement's commitments. An early May 2007 agreement between House leadership and the Bush Administration on a new trade framework added labor, environmental, and other provisions to the three pending FTAs and the Peru FTA. Though this framework is not expected to require changes to these four FTAs' agricultural provisions, domestic agricultural groups will be involved in the legislative process to point out that they expect either to benefit or not to benefit from these agreements. The timing of when Congress might consider the pending FTAs is uncertain. The outlook for the Colombia FTA is clouded by some Members' concerns over labor union violence in that country. While some Members of Congress want to renegotiate the auto provisions in the Korea FTA, the South Korean Government is reluctant to incorporate the new trade framework's labor provisions or reopen the issue of auto access. The earliest the Panama FTA might be sent to Congress for consideration is early fall, after the term of a controversial legislator alleged to have murdered a U.S. soldier ends. Nevertheless, since early January 2008, President Bush has repeatedly called for the approval of these three FTAs, starting with the agreement with Colombia. However, congressional leadership have signaled that taking up these trade agreements is not a priority while other Members have raised the concerns mentioned above. Agriculture as covered in each pending FTAs is examined below in the order each country ranks in its bilateral agricultural trade with the United States (as shown in Table 6 ). On April 1, 2007, U.S. negotiators concluded an FTA with their South Korean counterparts some 20 minutes before the expiration of the deadline set in the TPA statute. This required the President to notify Congress of the Administration's intent to sign this agreement by this date to be considered under TPA procedures. Compromises on the final package that provide for much improved access for all U.S. agricultural products (except for rice) to the Korean market were reached in the final hours. The agreement was signed on June 30, 2007. However, numerous Members of Congress have signaled that their support is contingent on Korea following through on its other commitments to fully reopen its market to U.S. beef (see below). Increasing market access for U.S. agriculture to the large Korean market was the main objective for USTR's agricultural negotiators. This reflected the interests of the US agricultural sector, which eyes much potential for further export gains, particularly in sales of higher-value food products to an expanding middle class. In 2006, South Korea was the world's 14 th largest agricultural importing country. At the same time, its agricultural sector is highly protected, reflecting the political influence of its farmers and the urban population's deep ties to its rural roots. South Korea's average applied agricultural tariff (2005) was 42%. Average applied tariffs are highest for vegetable products (over 100%); average tariffs for other broad agricultural product categories range from 8% to 23%. Tariffs on pistachios and walnuts are 30%, on pork between 22.5% and 25%, on poultry products from 18% to 27%, and on fruit juices from 30% to 54%. Also, Korea extensively uses TRQs to limit imports of rice, oranges, various dairy products, potatoes, onions, grains, and other agricultural products. For example, the over-quota tariff on soybeans is 487% (increased to 649% in 2006, if the import volume rose above a specified trigger level). The prohibitive over-quota tariff on barley ranges from 300% to 513%, on oranges is 50%, on corn for feed is 328%, and on milk powder is 176%. Though rice imports under a restrictive quota are subject to a 5% tariff, over-quota entries are prohibited (a unique concession that South Korea received during the Uruguay Round agricultural negotiations). In 2006, U.S. sales accounted for 25% of South Korea's $12.5 billion agricultural import market. However, the U.S. share of South Korea's import market has declined over the last decade, as China, Australia, and Brazil have expanded sales. In 2006, South Korea was the 6 th largest market for U.S. agriculture, with export sales totaling almost $2.9 billion. Leading commodities sold were corn ($718 million), whole cattle hides ($259 million), pork ($204 million), non-durum wheat ($188 million), soybeans ($113 million), cotton ($103 million), and hay ($95 million). U.S. agricultural imports from South Korea were much smaller in comparison ($217 million), primarily accounted for by purchases of food preparations ($44 million), pasta wheat products—likely ramen noodles ($31 million), fresh pears ($21 million), non-alcoholic beverages ($21 million), baked goods and pastries ($18 million), and rice wine ($5 million). Under the FTA's agricultural provisions, South Korea immediately would grant duty-free status to almost two-thirds of current U.S. agricultural exports ($1.9 billion). USTR notes that most of the remaining agricultural tariffs and quotas will be phased out within 10 years after taking effect. In particular, Korea agreed to phase out tariffs, quotas, and safeguards on all but seven agricultural products under 12 phase-out periods ranging up to 23 years. Seasonal provisions would apply to U.S. sales of oranges, table grapes, and potatoes for chipping. Tariffs on many fruits, vegetables and food products would be eliminated in two or five years. Tariffs on the more sensitive commodities (e.g., beef, in-season potatoes for chipping, pears, apples, in-shell walnuts, and in-season grapes) would be phased out in15 to 20 years. Tariff-rate quotas (TRQs) also with long phase-out periods (10 to 18 years) would apply to such other sensitive products as cheeses, butter, dairy-based infant foods, barley, whey for food use, animal feed supplements and hay, corn starch, and ginseng. USDA notes that these TRQs lock in access that South Korea could have easily changed under its multilateral trade commitments. Slowly-expanding quotas would apply in perpetuity on imports from the United States of skim and whole milk powders, evaporated milk, in-season oranges, potatoes for table use, honey, and identity-preserved soybeans for food use. Unique to this FTA, South Korea secured the right to specify the state entities and trade associations that would administer each TRQ under either an auction or licensing system. Safeguards (e.g., applying special add-on tariffs in case of import surges) would be triggered if imports from the United States of some of these and other agricultural products exceed specified levels. Korea succeeded in excluding rice from the agreement—its main objective in negotiating agricultural issues. This outcome reflected the prevailing view that rice is vital to maintaining, and inseparable from, Korea's national identity, and the political reality that rice farming preserves the basis for economic activity in the countryside. However, the United States will continue to be able to take advantage of rice quota access under South Korea's multilateral WTO commitments. Though South Korea would eliminate its tariffs on beef in 15 years, the terms of access for U.S. beef into Korea's market (related to Korean concerns over the perceived risk of introducing mad cow disease) remain unsettled. How Korea proceeds to implement and expand upon its 2006 commitment to allow for access for U.S. beef will affect the timing of when Congress considers this FTA. Because Korean agricultural exports to the United States are small and largely complementary, there was apparently no controversy in negotiating a full opening to the U.S. market for future sales. The United States agreed to phase out tariffs and quotas on all agricultural imports from South Korea under seven phase-out periods ranging up to 15 years. One 10-year TRQ would apply only to imports of fluid milk and cream, among other specified dairy products. South Korea was the third largest market for U.S. beef products ($815 million out of almost $3.9 billion in 2003) before U.S. beef imports were banned. Korea imposed this ban on December 27, 2003, after a Canadian-born cow in Washington state tested positive for BSE, or mad cow disease. To address concerns on the potential risk to human health associated with this disease, the United States took regulatory measures to try to reassure all of its trading partners that U.S. beef was safe. U.S. officials also engaged in intensive policy level and technical discussions with Japan, South Korea and other major beef importers seeking to resume sales. Not until about two years later (January 13, 2006) did bilateral talks on the terms of resuming beef trade result in an agreement on the conditions under which South Korea would lift its ban on U.S. beef by late March 2006. The United States had signaled this step was necessary before FTA negotiations, launched on February 2, 2006, could begin. In the February 13, 2006 protocol, South Korea agreed to allow imports of U.S. boneless beef slaughtered from cattle less than 30 months old, from U.S. slaughter and packing plants approved by its inspectors. This agreement allowed Korea to ban cattle parts classified as "specified risk materials" and of bone parts (including those attached to meat), and to impose an outright ban if another U.S. mad cow case occurred. Following fact-finding trips by Korean experts and the occurrence of another U.S. case of mad cow disease, South Korea only partially lifted its ban on September 8, 2006. It announced entry for imports of U.S. boneless beef products from cattle under 30 months of age. However, imports of U.S. bone-in beef and beef from cattle over 30 months old remained banned. U.S. exporters tested Korea's opening with three shipments of U.S. boneless beef in November and December 2006. However, South Korea rejected these shipments because of the presence of a few small bone fragments. As a result, an impasse over the agenda to be followed to address not only this technical matter but the scope of beef access issues began to affect the FTA negotiating process. Though USTR officials publicly continued to state that this issue was distinct from the FTA talks, Members of Congress and Administration officials signaled to Korea that there was a linkage and that a resolution was critical to concluding an FTA by the TPA-set deadline. High-level discussions continued through March 2007, with President Bush raising the beef issue with his counterpart one day before the first of three deadlines set to conclude FTA negotiations. However, the talks concluded on April 1 without any resolution. The only commitment was made the next day, when in a nationwide address, South Korea's President Roh Moo-hyun stated he had personally promised President Bush that his government would "uphold the [yet-to-be-released] recommendations" of the OIE and "open the Korean [beef] market at a reasonable level." On May 22, 2007, the OIE formally found that the United States is a "controlled risk" country for the spread of mad cow disease. This means that internationally-recommended, science based measures are in place to effectively manage any possible risk of BSE in the U.S. cattle population. USDA Department of Agriculture (USDA) immediately requested South Korea to amend its import requirements for U.S. beef within a specified time frame to reflect this risk determination and to reopen its market to all U.S. cattle and beef products. In response, South Korea's animal health regulatory agency began an 8-step process to assess the BSE risks of the U.S. beef sector in light of the OIE finding, with the intent to negotiate a revised bilateral agreement that would lay out import rules applicable to U.S. beef. Initial expectations were that this process would be completed by late September 2007. However, the discovery of prescribed risk materials in some boxes of U.S. beef (see below) and the South Korean government's apparent desire to defer negotiations until after the December 19 th presidential election suggest a revised agreement on beef import rules might not be finalized at the earliest until spring 2008. Against the backdrop of these developments, U.S. boneless beef exports to South Korea nevertheless resumed. From late April through early October 2007, Korea's regulatory agency inspected and cleared for retail sale most U.S. boneless beef shipments, applying its interpretation of the January 2006 agreement. Even with partial-year exports, South Korea ranked as the 4 th largest market for U.S. beef through September 2007. With a third discovery of bone and/or spinal matter in a box of packaged beef, South Korean authorities announced on October 5, 2007 they would not conduct any more inspections of U.S. beef shipments until both sides conclude formal negotiations to revise the 2006 protocol. In an effort to move toward that goal, bilateral technical-level talks held October 11-12, 2007, failed to bring both sides closer to an agreement. South Korean officials sought rules that are reportedly more strict than OIE guidelines, intended to reportedly correct four shortcomings in the U.S. measures taken to limit BSE risks. The U.S. stance is that current rules already meet OIE standards. In formal negotiations (which have not yet been scheduled), the United States is expected to continue to press for full access in one step for U.S. beef. This would mean expanding the scope of the 2006 agreement to also include exports of bone-in beef and coverage of all U.S. beef from cattle regardless of age, as long as BSE-risk materials are removed during processing. South Korea's trade minister on November 9, 2007, signaled that his government instead prefers a "two-phased" approach to a full opening, claiming this could help persuade the public to more easily accept U.S. beef. The first step would be to allow imports of both boneless and bone-in (rib) beef cuts from U.S. cattle less than 30 months old, as long as risk materials are removed following OIE's guidelines. The minister argued this would give the United States about 80% of its market share before the late 2003 restrictions took effect. The eventual second step would permit imports of beef from older cattle, as long as risk materials are removed according to OIE's specifications. South Korea's President-elect Lee Myung-bak, who supports closer ties with the United States, has signaled an interest in moving quickly to resolve the beef issue. His transition team has instructed the Ministry of Agriculture to advocate strengthening import rules, such as placing Korean inspectors at U.S. meat processing plants to conduct "on-the-spot" inspections. Separately, South Korea's Ministry of Foreign Affairs and Trade reported to the transition team that the beef issue should be resolved soon; otherwise, the agreement's ratification could be jeopardized. Legislative elections scheduled for April 9, 2008, could effect when the National Assembly considers the KORUS FTA—before the new president takes office in late February or after the elections in late spring. The dynamics of political party politics heading towards those elections may affect when the Assembly takes up the agreement, as well as the pace followed by South Korea's government to negotiate and conclude a new beef agreement with the United States. Several members of Congress have stated that their support of the FTA is conditioned upon South Korea fully opening up its market and that this must occur before Congress takes up the agreement. Also, top Administration officials have emphasized that sending this FTA to Congress depends upon a resolution of this issue. Accordingly, all are closely monitoring Korea's multi-step process in completing its assessment, any change in position by the incoming presidential administration, and the outcome of bilateral talks on a broader beef access agreement. Though U.S. agriculture would gain from significant additional market access to Colombia under the concluded FTA, concerns expressed by some Members of Congress over the violence directed at labor union officials in that country has affected congressional consideration of this trade agreement. Nevertheless, the Bush Administration has taken a more aggressive stance in generating congressional support in 2008 for this agreement. The President highlighted this in his State of the Union address, and Cabinet secretaries plan to lead additional congressional delegations to Colombia to see developments for themselves. Ranked as the 14 th largest export market for U.S. agriculture in 2006, Colombia is the second largest market for U.S. farm products in Latin America after Mexico. U.S. sales accounted for more than one third of Colombia's agricultural and food imports, recording sales of $868 million in 2006. Leading exports were corn ($366 million), wheat ($89 million), cotton ($67 million), soybeans ($65 million), and soybean meal ($62 million). Agricultural imports from Colombia totaled almost $1.5 billion, led by unroasted coffee ($595 million), fresh roses ($206 million), bananas ($143 million), fresh bouquet flowers ($111 million), fresh carnations ($67 million), fresh chrysanthemums ($63 million), and raw cane sugar ($45 million). The United States and Colombia formally signed the FTA on November 22, 2006. Though difficult agricultural issues took almost another six months to resolve after negotiations were concluded in late February 2006, the signing ceremony was not scheduled until Colombia took steps to fulfill a separate commitment to allow by no later than October 31, 2006, the entry of U.S. beef imports (see below). The FTA with Colombia eliminates tariffs and quotas on all agricultural products traded bilaterally (except for sugar) and establishes long transition periods for the more sensitive commodities. The United States secured immediate duty-free access to Colombia for more than one-half of its current exports by value. This will apply to high quality beef, bacon, cotton, wheat, soybeans, soybean meal; apples, pears, peaches, and cherries; and frozen french fries and cookies, among others. Also, Colombia agreed to immediately eliminate price bands for some 150 products—a mechanism that adds fees onto existing tariffs that fluctuate depending upon world prices. This effectively results in a higher level of border protection than would usually be the case. Its tariffs on most of its other farm and food products will be eliminated immediately or phased out in periods ranging from 3 to 15 years. For its most sensitive commodities (including those subject to price bands), Colombia will expand quotas and eliminate over-quota tariffs—12 years for corn and other feed grains, 15 years for dairy products, 18 years for chicken leg quarters, and 19 years for rice. Both countries also commit to consult and review the implementation and operation of provisions on trade in chicken about midway through the long transition period. Though U.S.-Colombian negotiators announced the completion of FTA talks in late February 2006, remaining differences over two agricultural market access issues were not resolved until July 8, 2006. However, a separate SPS issue dealing with the terms of access under which U.S. beef and beef products would be allowed to enter Colombia was not resolved until August 21, 2006, when the Colombian government in an exchange of letters committed to permit such imports of cattle over 30 months old, by no later than October 31, 2006. On August 24, President Bush notified Congress of his intent to enter into an FTA with Colombia. Once Colombia issued regulations to fulfill its beef import pledge on October 27, the White House agreed on November 22, 2006 as a date for the FTA's formal signing. Though an FTA does not technically address the substance of SPS issues, this timeline illustrates how the U.S. negotiators exercised leverage to achieve a desired outcome for the domestic beef sector. This likely reflected the Administration's recognition that such efforts were essential to gain support from an agricultural group that may be vital to secure the agreement's approval by Congress. Almost all of Colombia's agricultural exports to the United States would continue to benefit from current duty free access under the Andean Trade Preferences Act. The additional sugar allowed entry into the U.S. market would be treated uniquely. The United States agreed to triple Colombia's access to the U.S. sugar market—from its historic 2.3% share of the U.S. raw cane sugar TRQ (25,273 MT)—by an additional 50,000 MT of sugar and specified sugar products in the first year. This new preferential quota would increase by 750 MT annually, while the high U.S. tariff on over-quota sugar entries would remain in place in perpetuity. The Colombia FTA also includes a sugar compensation provision similar to that found in DR-CAFTA. Also, U.S. preferential TRQs were established for imports from Colombia of beef, specified dairy products, and tobacco. The USITC projects that the gains for U.S. agriculture will accrue primarily to the rice, corn, wheat, and soybean sectors. It also projects that sales of beef, pork, and processed foods will increase. It says that the increased access for Colombian sugar and sugar-containing products to the U.S. market likely will have only a minor effect on U.S. imports and production. Cut flower imports from Colombia could increase if permanent duty free access stimulates investment in the country's flower sector and diverts trade away from other flower-exporting countries in South America. On December 14, 2007, President Bush signed into law ( P.L. 110-138 ) a measure to implement the FTA with Peru. Earlier on November 8, the House passed the United States-Peru Trade Promotion Agreement Implementation Act ( H.R. 3688 ); the Senate approved it on December 4. This trade agreement could take effect by mid-2008, according to one source, once USTR certifies that Peru has met all of its obligations. The FTA concluded with Peru in December 2005 eliminates tariffs and quotas on all agricultural products traded bilaterally (except for sugar) and establishes long transition periods for its more sensitive commodities. Currently, Peru's tariffs on agricultural imports range up to 25%. Under the FTA, the United States secures immediate duty-free access for almost 90% of its current farm exports to Peru (e.g., high quality beef, cotton, wheat, soybeans, soybean meal, and crude soybean oil; such fruits and vegetables as apples, pears, peaches, and cherries; almonds; and such processed foods as frozen french fries, cookies, and snack foods). Peru also agreed to immediately eliminate price bands on about 40 products, such as corn, rice and dairy products, to be replaced in part by TRQs with long transition periods. The variable tariffs on these commodities vary with world prices and can rise as high as Peru's WTO bound rate of 68%. Peru's tariffs on other agricultural products will be phased out under seven transition periods ranging from 2 to 17 years. For the more sensitive commodities, Peru will expand quotas and reduce over-quota tariffs as follows: 10 years on beef variety meats, yellow corn, and refined soybean oil; 12 years on standard quality beef; 15 years on butter, yogurt, processed dairy products, and yogurt; and 17 years on chicken leg quarters, rice, cheese, and milk powder. Both countries also commit to consult and review the implementation and operation of provisions on trade in chicken about midway through the long transition period. Since almost all of Peru's agricultural exports to the United States currently enter duty-free under the Andean Trade Preference Program, the FTA would give Peruvian exporters more access to the U.S. market for four commodities that the United States protects using TRQs. Preferential TRQs will allow expanding access under quotas for imports from Peru of processed dairy products for 15 years, and of cheese and condensed/evaporated milk for 17 years. Sugar will be treated uniquely. The agreement allows Peru to export sugar and sugar-containing products under a preferential quota (9,000 MT in the first year, growing by 180 MT annually in perpetuity) but only if Peru shows a sugar trade surplus. This is expected to occur infrequently, because Peru varies between being a net sugar exporter and importer from year to year. A separate annual 2,000 MT quota was also created for organic sugar. The high U.S. over-quota tariff on sugar imports will remain in place indefinitely. The additional access represents a 20% increase to the minimum 43,175 MT of sugar that Peru now ships to the U.S. market under its historic 3.9% share of the U.S. raw cane sugar TRQ. A sugar compensation provision similar to that found in DR-CAFTA is also included. In 2006, Peru ranked 37 th as a market for U.S. agriculture exports. The U.S. held a 16% share of Peru's agricultural import market, with export sales totaling $209 million. Leading commodities shipped were corn ($44 million), cotton ($43 million), wheat ($19 million), soybean meal ($12 million), and soybean oil ($10 million). U.S. agricultural imports from Peru were $602 million, led by fresh asparagus ($130 million), unroasted coffee ($120 million), raw cane sugar ($39 million), processed artichokes ($34 million), processed asparagus ($33 million), paprika ($31 million), and mangos ($24 million). In reviewing the Peru FTA's draft implementing bill that the Administration had forwarded to Congress for review, the Senate Finance Committee on July 27, 2006, adopted a non-binding amendment to its statement of administrative action. This action reflected Members' frustration with the lack of movement by Peru in opening up its market to all U.S. beef without any age restrictions. The amendment required the executive branch to ensure that Peru has taken necessary steps to meet its obligations on SPS measures and technical barriers to trade by the time the FTA takes effect. Peru had earlier committed (but not fully followed through) in two side letter exchanges to allow imports of U.S. beef, beef products, and chicken by March 1, 2006, and not having done so, to open up its market to certain beef products and offal by April 12 and to all U.S. beef imports no later than May 31. The Finance Committee amendment added pressure on Peru to allow imports of beef from U.S. cattle older than 30 months that do not contain specified BSE risk material. Peru in a third exchange of letters agreed to allow such imports to enter by October 25, 2006, a decision likely prompted in part by its government's objective to have the U.S. Congress consider this FTA during the 2006 post-election lame duck session. In late June 2007, Peru's legislature approved the text of the new trade framework on labor and environment as worked out between the Bush Administration and House leadership. This led to the White House decision to send the agreement to Congress for consideration in late 2008. With Peru already having addressed the beef access issue, this matter did not come up during House Ways and Means and Senate Finance mock markups. The USITC projects that most of the gains for U.S. agriculture from this FTA will accrue to the wheat sector. Sales of corn, rice, cotton, beef, dairy products and processed foods also are expected to rise. Its noted that the permanent tariff-free treatment accorded asparagus may lead to additional investment in Peru by U.S. growers-suppliers and processors, result in U.S. imports of fresh asparagus occurring year round, and make Peru a more competitive supplier in the U.S. market relative to other asparagus producing countries. On December 19, 2006, after almost a year's hiatus, U.S. and Panamanian negotiators reached agreement on a comprehensive FTA that includes market access provisions of export interest to U.S. agriculture. Though separate from this trade agreement, both governments on the next day also signed an agreement detailing how SPS measures and technical standards will be applied to bilateral agricultural trade. With these near-simultaneous developments, both sides resolved outstanding differences over Panama's earlier unwillingness to accept the U.S. meat inspection system and achieved a balance in bilateral market access for sensitive agricultural products (sugar for the United States; rice and corn for Panama). Congressional consideration of this agreement is expected later in 2007, now that the labor and environmental provisions of the U.S. new trade framework have been formally incorporated into the FTA text, which both countries signed on June 28, 2007. The United States runs a strong positive agricultural trade balance with Panama, which ranked 36 th as an overseas market for U.S. agriculture in 2006. U.S. agricultural exports totaled $206 million, led by corn ($34 million), soybean meal ($28 million), wheat ($20 million), various food preparations ($11 million), and rice ($10 million). U.S. agricultural imports from Panama were $56 million. Top imports were raw cane sugar ($18 million), unroasted coffee ($11 million), fresh melons ($7 million), fresh pineapple ($2 million), and pumpkins and yams ($3 million). Under this FTA, almost two-thirds of present U.S. farm exports to Panama would receive immediate duty-free treatment, according to USDA. This will apply to sales of high quality beef, mechanically de-boned chicken, frozen whole turkeys and turkey breast, pork variety meats, whey, soybeans and soybean meal, crude vegetable oils, cotton, wheat, barley, most fresh fruits (including apples, pears, and cherries), almonds, walnuts, many processed food products (including soups and chocolate confectionary), distilled spirits, wine, and pet food. Panama also agreed to establish preferential TRQs for U.S. pork, chicken leg quarters, specified dairy products, corn, rice, refined corn oil, dried beans, frozen french fries, fresh potatoes, and tomato paste. The longest transition period (20 years) will apply to rice, Panama's most sensitive agricultural commodity. However, it agreed to increase tariff-free access for U.S. rice if needed to cover a shortfall in domestic output. Tariffs on imports of most other U.S. agricultural products would be phased out within 15 years. Almost all of Panama's agricultural exports to the United States already enter duty free under the Caribbean Basin Initiative and Generalized System of Preference trade preference programs. Of U.S. commodities subject to quota protection, much attention focused on the additional access granted to sugar from Panama. The United States agreed to create three preferential TRQs for sugar and sugar-containing products. The largest duty-free TRQ (6,000 MT for raw sugar) will expand by 60 MT (1%) annually for 10 years and then be capped at 6,600 MT indefinitely; all sugar product over-quota tariffs will remain indefinitely at current high levels. These quotas in the aggregate represent most of the sugar surplus that Panama traditionally has available to export each year. This FTA also includes a sugar compensation provision similar to that found in DR-CAFTA. Other U.S. preferential TRQs were established for cheeses, condensed and evaporated milk, and ice cream, to be phased out completely in 15 to 17 years. In the separate SPS agreement, Panama agreed to accept the U.S. meat and poultry inspection system "as equivalent to its own." This means that all facilities that USDA certifies as meeting food safety standards to produce for the U.S. market are eligible to export meat products, and do not need further inspection by Panama. The SPS agreement also commits Panama to provide access for all U.S. beef and poultry, and related products, on the basis of accepted international standards. It also streamlines import documentation requirements for U.S. processed foods and affirms Panama's recognition of the U.S. beef grading system. USDA notes that this agreement eliminates "long-standing regulatory barriers faced by a variety of U.S. products" in Panama's market. Observers do not expect the White House to send the Panama FTA to Congress for consideration until the term of the legislator elected to be chairman of Panama's legislature expires in August. He is accused of murdering a U.S. soldier in the 1970s. As a result, this allegation has affected the climate and timing for this agreement's consideration by Congress. With very limited arable land, Oman is a net agricultural importer. The U.S. market share of the country's agricultural imports is small—almost 2% in 2004, with most of its food needs met by the United Arab Emirates, Japan, and the United Kingdom. In 2006, U.S. food exports to Oman totaled $13 million, led by sales of corn ($3.1 million), flavored sugar used as beverage bases ($2.6 million), thickeners derived from locust beans ($914,000), non-far dry milk ($892,000), and mixed seasonings ($611,000). Most of the $1 million in food imports from Oman was accounted for by baked goods and snacks. Oman's average applied tariff on agricultural products in 2005 was just over 6%. Processed food products face a 5% tariff, but basic commodities (i.e., grains, fresh fruit and vegetables, beef and poultry, powdered milk) are exempt. Pork and products, alcoholic beverages, and dried lemons are assessed a 100% tariff. The U.S.-Oman FTA concluded in October 2006 commits Oman to immediately allow duty-free entry for U.S. products entering under 87% of its agricultural tariff lines. Oman will phase out duties on most other agricultural products over five years, and by year 10 for those subject to the highest tariff. The United States will provide immediate duty-free access for 100% of Oman's current exports of agricultural products, which totaled only $2 million in 2005. Preferential TRQs phased out over 10 years will allow duty free access to the U.S. market for beef and specified dairy products, among other sensitive commodities, but only if produced in Oman. The President signed legislation to implement this FTA on September 26, 2006. However, this agreement will not take effect until the United States is satisfied that the Omani government has adopted laws and decrees, with implementation dates, on various intellectual property rights and government procurement issues. FTA negotiations with two other countries—Thailand and Malaysia—did not conclude before the end of March 2007 deadline that would have allowed for congressional consideration under TPA authority. Talks with Malaysia are continuing, with many issues (including some on agriculture) reportedly still outstanding. At present, negotiations with Thailand likely will not resume, because of significant Thai public opposition. If negotiations on either of these FTAs do conclude, Congress may consider such an agreement under new TPA provisions (if and when approved). But the Bush Administration also could decide to press ahead for congressional consideration without such authority. This would depend on whether political advisors gauge that the level of opposition to either FTA likely will not be overwhelming enough to result in congressional rejection. Agriculture as handled in talks to date is examined below in the order each country ranks in its bilateral agricultural trade with the United States (as shown in Table 6 ). U.S. agriculture views Thailand as a promising market if FTA negotiations result in a significant reduction in its high tariffs on agricultural imports and provide increased access for its many quota-protected products. U.S. agricultural exports by one estimate could increase by an additional $800 million if Thai trade barriers are reduced or eliminated and the country's economy recovers to pre-1997 financial crisis levels. Thailand similarly intends to pursue increased access for its fruit, vegetables, and sugar in the U.S. market, but its negotiators at the same time face strong opposition from Thai farmers and resistance within the bureaucracy to opening up the country's market. After six negotiating rounds had taken place, Thailand suspended the talks in February 2006 because of the country's political crisis. The government set up after the September 2006 military coup initially appeared to be committed to pursuing an FTA and having its legislature consider any possible deal, but there are no plans at present to resume negotiations. In 2006, Thailand was the 16 th largest market for U.S. agriculture, with export sales totaling $703 million. Top commodities sold were soybeans ($122 million) cotton ($147 million), wheat ($81 million), animal feeds ($36 million), whole cattle hides ($31 million), and food preparations ($29 million). U.S. agricultural imports from Thailand were just over $1.3 billion, led by purchases of natural rubber ($409 million), processed fruit - with more than one-half pineapple ($198 million), rice ($187 million), food preparations ($$86 million), and non-alcoholic beverages ($42 million). Thailand's average applied MFN tariff rate on agricultural imports is 24%, but tariffs on consumer-ready food products range from 30% to 50%, with some as high as 90% (e.g., coffee). High tariffs are imposed on imports of meat, fresh fruits such as citrus and table grapes, vegetables, fresh cheese, and pulses, even though according to USTR these are products that have very little domestic production. TRQs also serve to protect corn, among other commodities, in a policy that USTR characterizes as designed to protect domestic producers. In the FTA talks, U.S. negotiators reportedly sought to have Thailand manage its agricultural TRQs more transparently, and to address such issues as the burdensome requirements involved in securing import permits and the high fees required to be paid to obtain import licenses. Ironing out food safety and health issues reportedly received much discussion in the talks, with USTR seeking to address complaints that Thai SPS standards on some agricultural products "often appear to be applied arbitrarily and without prior notification." Thailand was the 4 th largest sugar exporter in the world in 2005/06, and holds a historic 1.3% share of the minimum U.S. raw cane sugar TRQ. If negotiations resume, Thailand will continue to seek increased access for its sugar and rice in the U.S. market. Besides seeking improved access to its food market, one U.S. objective in negotiating an FTA with Malaysia is to eliminate its regulatory and licensing non-tariff barriers to agricultural imports. These apply to imports of all meat, processed meat, poultry, egg, egg products, rice and products, and unmanufactured tobacco, among others. U.S. negotiators also will likely seek to streamline and make more transparent the process for U.S. exporters to receive halal certification for livestock and poultry products, and processed foods. Though Malaysia is the world's leading producer and exporter of palm oil, it is a net food importer. In 2005, the U.S. share of its consumer food market was 7%. Malaysia's simple average applied tariff on agricultural imports was 3.2% that year. Many agricultural commodities (meat, grains, oilseeds, and animal feed) have zero or low applied tariffs, but some horticultural products (dried fruit, mixed nuts, and kiwi) and processed foods (frozen/preserved vegetables, soups, fruit juices) face applied tariffs of up to 30%. TRQs are in place for poultry, pork, preserved meat products, milk, coffee, cabbage, wheat flour, and sugar, but have no practical effect because over-quota tariffs are currently zero and quotas do not apply. In 2006, Malaysia ranked 22 nd as an overseas market for U.S. agriculture. U.S. agricultural exports totaled $410 million, while agricultural imports (primarily non-competitive commodities) equaled $829 million. Leading U.S. exports were soybeans ($50 million), fresh grapes ($40 million), non-fat dry milk ($40 million), food preparations ($31 million), tobacco ($19 million), fresh apples ($19 million), and corn gluten meal ($18 million). Top U.S. imports from Malaysia were refined palm oil ($248 million), natural rubber ($151 million), refined palm kernel oil ($132 million), cocoa butter ($91 million), and industrial fatty acids ($62 million). In January 2007, Malaysia publicly stated its intention to exclude rice, tobacco and alcohol products in an FTA with the United States. A government corporation is the country's only authorized rice importer, and exercises broad power to regulate imports under Malaysia's licensing system. It also is charged with promoting the sale of domestic rice output. One report suggests that Malaysia wants to exclude rice for national security reasons, and tobacco and alcohol for public health reasons. Sugar appears not to be an issue, because Malaysia imports much of its sugar to meet domestic demand. In the last rounds of negotiations, both sides continued to discuss their initial market access offers on agricultural products, which they first exchanged in December 2006. Some progress reportedly was made on the text of the agriculture chapter, with agreement reached on the staging periods in which to place commodities and food products for purposes of then negotiating tariff reductions. Another issue—Malaysia's plan to introduce compulsory labeling for products containing genetically modified organisms by year-end 2007—concerns U.S. negotiators because of its potential to restrict U.S. agricultural exports. Although the end-of-March deadline passed for the United States to conclude an FTA which Congress could then have considered under TPA rules that allow no amendments and only an up or down vote, both sides agreed to continue negotiations. At the sixth formal session held in mid-April 2007, Malaysia reportedly still sought to exclude rice but signaled it might agree to including tobacco in the FTA. However, one earlier report suggested that Malaysia's trade minister does not view rice as a contentious issue, pointing out that U.S. rice is different from the variety produced in Malaysia and also more expensive. He also indicated that tobacco could be included if imported only as an unprocessed commodity. At the most recent session held in mid-January 2008, negotiators discussed Malaysian regulations on alcohol and U.S. requests for market access. Another round may be scheduled in late spring, after Malaysia holds parliamentary elections. Most of the recently negotiated FTAs will open to varying extents markets for U.S. agriculture in countries with high levels of border protection for their agricultural sectors. In particular, U.S. agricultural trade with those FTA partners that have benefitted from a long period of preferential access to the United States will quickly take on a more reciprocal character. As their trade barriers to imports of U.S. agricultural products are reduced, U.S. agriculture and agribusiness exporters, where they have a competitive edge over other countries in these markets, will be able to take advantage of sales opportunities. At the same time, some U.S. commodity sectors will face competition from increased imports under these FTAs. The degree of such competition will be mitigated by negotiated long transition periods and by likely continued growth in U.S. demand for such products due to population growth. Looking ahead, as transition periods to free trade for the more sensitive agricultural products near their end, disputes are likely to arise. This has been the case under NAFTA for several agricultural products, as free trade loomed, or actually took effect, and led affected producers in Canada, Mexico, and the United States to seek relief from the impacts of increased imports. Reflecting this outlook, most U.S. agricultural commodity groups, agribusiness and food manufacturing firms have supported these recently negotiated FTAs, looking to benefit from preferential and guaranteed increased access to these markets. The largest general farm organization—the American Farm Bureau Federation—has supported all of these FTAs but did not expect the agreement with Australia to result in an overall net gain for U.S. agriculture. The Farm Bureau views these trade agreements as the best way to reduce foreign barriers and expand export opportunities or face the prospect of reduced domestic farm production. The two leading national cattlemen trade organizations have held similar, but at times, differing positions on the beef provisions in certain FTAs, in large part due to the different geographic base of their membership. Opposition to FTAs has come from those U.S. commodity groups concerned with the impact of increased competition from foreign producers. The extent of opposition has varied by agreement, depending upon the sensitivity of increased imports from each FTA partner, the length of transition periods, and whether special provisions are included to provide some measure of long-term protection. Such groups represent producers and processors of sugar, cotton (initially with respect to DR-CAFTA), and certain processed vegetables. Another general farm organization—the National Farmers Union (NFU)—opposed DR-CAFTA. The NFU views other trade agreements as forcing U.S. producers to compete unequally with farmers from FTA partner countries, who have a cost of production advantage because they are not required to meet the same labor and environmental standards. Taking into account this mix of support and opposition to FTAs found in the agricultural and related food sectors, U.S. trade negotiators have sought to craft bilateral trade agreements keeping in mind the political realities involved in securing final congressional approval. It reflects a USTR FTA negotiating strategy to limit U.S. trade concessions on U.S. sensitive agricultural commodities in order to minimize opposition in Congress on any concluded agreement. The projections developed to illustrate expected changes to U.S. agricultural exports and imports as these FTAs are implemented vary significantly, because of the different analytical approaches used to derive them. What is common in the simulations developed by the U.S. International Trade Commission (USITC) and the American Farm Bureau Federation (AFBF) is that they seek to present what would happen to U.S. agricultural trade under each FTA compared to a "baseline" that represents what each expects such trade would be without an agreement. Their approaches, however, differ in the scope of analysis undertaken and in how each handles the timing of full implementation of an FTA's agricultural trade liberalization provisions. These differences, in turn, largely explain the difference in estimates in the change in U.S. agricultural exports and imports attributable just to these agreements ( Table 7 ). The USITC employs a multi-country and multi-commodity/services sector econometric model to quantify what the broad and sectoral impacts of FTA market access provisions would mean for the entire U.S. economy. The AFBF also uses an econometric model, but employs a narrower methodology to examine what only happens to each FTA partner's main agricultural commodity sectors as border protection is eliminated. It then quantifies the resulting demand that would be met with increased agricultural imports from the United States. Another significant difference is that the USITC assumes all FTA provisions are fully implemented and its full effects felt immediately (i.e., in the first year that an agreement takes effect). In other words, the U.S. economy is no different in this first year from what it is in the baseline—with the same population, resources, and other economic characteristics. By contrast, the AFBF projects the change in an FTA partner's agricultural trade with the United States at a point during, or at the end of, long transition periods. This is derived by looking at the impact of adjustments expected to occur in each country's agricultural sector (as trade liberalization takes effect over time), population growth, and assumed higher economic growth and per capita incomes associated in part because of its FTA with the United States. Because USITC analyses do not take into account that the more significant agricultural provisions in an FTA are staged in over long periods (up to 20 to 25 years), nor that income levels and population likely will grow over time, its projections probably understate the magnitude of the change in U.S. agricultural exports and imports attributable to these agreements. The Farm Bureau's estimates may overstate the magnitude of the projected higher level of U.S. agricultural exports, because of overly optimistic assumptions on the potential future U.S. market share for key agricultural commodities in some FTA partner countries. For more information, please see the following CRS products: CRS Report RL33463, Trade Negotiations During the 110 th Congress , by [author name scrubbed] CRS Report RL33743, Trade Promotion Authority (TPA): Issues, Options, and Prospects for Renewal , by [author name scrubbed] and [author name scrubbed] CRS Report RL31356, Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy , by [author name scrubbed] | Trade in agricultural products frequently is one of the more difficult issues negotiators face in concluding free trade agreements (FTAs). While U.S. negotiators seek to eliminate barriers to U.S. agricultural exports, they also face pressures to protect U.S. producers of import sensitive commodities (i.e., beef, dairy products, sugar, among others). FTA partner country negotiators face similar pressures. One U.S. objective is for FTAs be comprehensive (i.e., cover all products). For the more import-sensitive agricultural commodities, negotiators have agreed on long transition periods, or compromised to allow for indefinite protection of a few commodities. In addition, because of political sensitivities for the United States or its partners, negotiators excluded sugar in the Australia FTA, tobacco in the Jordan FTA, and rice in the Korea FTA. Though food safety and animal/plant health matters technically are not part of FTAs, resolving outstanding disputes and reaching common understanding on the application of science-based rules to bilateral trade have directly affected the dynamics of concluding recent FTAs and/or the process of subsequent congressional consideration. One example has been the high U.S. priority to secure assurances that prospective FTA partners allow imports of U.S. beef in accordance with internationally recognized scientifically based rules. Most of the U.S. agricultural export gains under FTAs have occurred with Canada and Mexico, the top two U.S. agricultural trading partners. Though U.S. sales to overseas markets were expected to increase anyway because of population growth and income gains, analyses suggest that the FTAs recently put into effect or concluded since 2004 could boost U.S. agricultural exports by an additional 3.9% to 7.2%. Because of the reciprocity introduced into the agricultural trading relationship in those FTAs concluded with several developing countries that protect their farm sectors with high tariffs and restrictive quotas, U.S. exporters will benefit from increased sales. Net U.S. agricultural imports under these FTAs could be 1.5% higher than forecast. The share of two-way U.S. agricultural trade (exports and imports) covered by FTAs has increased from 1% in 1985 (when the first FTA took effect) to 41% in 2006 (reflecting FTAs with 13 countries). Ranked in order, they are Canada, Mexico, Australia, Chile, Guatemala, Honduras, Israel, El Salvador, Singapore, Morocco, Nicaragua, Jordan, and Bahrain. If trade is included with nine other countries with which FTAs have been: approved but are not yet in effect (Costa Rica, Oman, and Peru); concluded and awaiting consideration in the 110th Congress (Colombia, Panama, and South Korea); took effect in 2007 (Dominican Republic); and may be concluded (Thailand and Malaysia)—another 9% of U.S. agricultural trade would be covered. This report will be updated to reflect developments. |
This report discusses mortgage markets in selected nations and identifies aspects of housing finance that may suggest interesting policy options as Congress debates housing finance reform in the United States. The report describes similarities and differences in a number of countries by comparing homeownership rates and changes in housing prices. It examines features of each country's primary mortgage market, which homebuyers directly experience when applying for and obtaining a mortgage; and it discusses the secondary mortgage market connections that link national mortgage markets and international financial markets. The report concludes by tentatively identifying what may explain why mortgage markets in three of the four countries examined appear to have more differences than similarities, yet have led to similar rates of homeownership. This report concentrates on the United States, Canada, Denmark, and Australia, occasionally mentioning other nations to provide context. Canada was selected because of its proximity to the United States, similarity of its economy to that of the United Stages, and the distinctive attributes of its housing market. Homeownership rates in Canada and the United States are similar, but Canada has stricter mortgage qualifications (i.e., underwriting standards). Both nations have experienced home price increases over the past 10 years, but Canada has had neither the price level collapse nor the increase in foreclosure rates that the United States has had. Canada funds its mortgages mainly with bank deposits, whereas the United States depends on domestic and international financial markets. The homeowner in the United States typically has a 30-year fixed-rate mortgage (FRM), whereas the Canadian homeowner has a five-year adjustable-rate mortgage (ARM) that is renewed and is designed to be paid in full after 25-30 years. According to the Organization for Economic Cooperation and Development (OECD), Canadian home prices reached a maximum in 2007 that was 60% higher than in 1991, whereas another index developed by Teranet and the National Bank of Canada shows prices continuing to increase. U.S. home prices reached a maximum in 2006 that was 61% greater than in 1991. Denmark is included because it has very strict underwriting standards and has developed a type of covered mortgage bond with specific collateral to guarantee payment if the bond issuer fails. This is similar to covered bonds throughout much of the European Union (EU), including Germany. Homeowners in Denmark can prepay their mortgages by paying either the unpaid balance (as in the United States), or the market value of the mortgage. This market value will be less than the unpaid balance when interest rates have increased. Denmark and the United States are the only two nations where 30-year fixed-rate mortgages are common. Danish house prices reached a maximum in 2007 that was 150% greater than the 1991 house price level. Most Australian mortgages have adjustable interest rates. Australian homeowners can make extra payments on their mortgages; these prepayments can be withdrawn, sometimes by a special credit card. Between 1991 and 2009, home prices in Australia increased by 107%. Broadly speaking, homeownership rates are determined by the relative costs of housing tenure options (renting versus owning) and the nonfinancial aspects of owning or renting a home. These factors can vary according to a household's income, savings, age, marital status including number of children, the tax system, anticipated house price changes, government regulations such as land use and zoning, building codes, immigrant status, and availability of desirable rental housing. Some factors including income, age, and family status can affect a person's decision to move out from their parents' home and to form an independent household. Because most homebuyers use a mortgage to finance their purchase, mortgage terms can affect homeownership rates. Homeownership rates vary over time and within a country. For example, in the United States, the national seasonally adjusted homeownership rate reached a peak of 69.4% in the first quarter of 2005; since then, it has trended down with occasional, slight upticks. As an example of regional variation in homeownership rates within the United States, in the second quarter of 2010, the Midwest had the highest rate (70.8%) of any census region, and the West had the lowest rate (61.4%). As shown in Table 1 , homeownership rates for selected developed countries in Europe, North America, Australia, and Asia range from approximately 35% to approximately 97%. The European Union (EU) reports an average homeownership rate of 66.8% with national rates ranging from a low of 43.2% in Germany to a high of 97.0% in Lithuania and Romania. Germany's relatively low homeownership rate is frequently attributed to a policy emphasis on supplying subsidies to rental housing and the integration with the former German Democratic Republic (East Germany). Outside the EU, Switzerland has long had a relatively low homeownership rate (34.6%) that is usually attributed to a high cost of ownership and strong protections for renters, including limits on rent increases. Lithuania and Romania, both EU members, had high homeownership rates following privatization initiatives after their transitions from communism in 1989 and presently lack alternative rental housing. Australia reports a homeownership rate of 69.8%, whereas Japan's homeownership rate is usually estimated around 60%. Figure 1 displays the homeownership rates, graphically sorted by the rate. A cautionary note: As a result of differences in the ways that countries collect and report data, international comparisons of homeownership rate statistics can be misleading. For example, in the United Kingdom, units with long-term rental contracts are considered to be owner occupied, and in Japan dwellings owned by an occupant's parents are listed as owner occupied. In many countries, real (inflation adjusted) house prices were relatively stable from 1991 until approximately 2000. Between 2000 and 2008, prices increased in real terms, peaked, and declined. In this latter time period, most OECD-member countries experienced at least one year of rapid, real house price increases greater than 10%; the greatest price increase (28%) occurred in Ireland during 1998. The United States' maximum annual price increase was 8.2% (2005), Canada's was 9.8% (2006), Denmark's was 19.3% (2006), and Australia's was 16.0% (2003). Between 1991 and 2008, U.S. house prices increased 50%. House prices in Canada increased 60%, Denmark 150%, and Australia 107%. Nations with the largest house price declines since reaching their maximum were Ireland (-0.53), the United States (-0.16), and Iceland (-0.13). Real house prices do not always increase. Between 1991 and 2008, real house prices declined in Japan, Korea, and Switzerland. Figure 2 graphs the price levels for the United States, Canada, Denmark, Australia, Japan, Ireland, and the United Kingdom. The graph emphasizes the point that many other nations had greater increases in housing prices than the United States did. This section discusses how the mortgage interest rate paid by a homeowner is determined in the United States, Canada, Denmark, and Australia. It begins by describing a widely used framework for explaining how mortgage interest rates are determined in the United States and then applies the same framework to the other nations. In a benchmark competitive economic model, the interest rate on a fixed-rate mortgage (FRM) depends on four sets of factors: (1) the interest rate for a riskless government bond with the same life; (2) adjustments to reflect borrower risk; (3) adjustments to reflect risks associated with the characteristics of the property; and (4) adjustments to reflect the differences between the government bond and the mortgage. The mortgage industry term for the sum of these adjustments to the base rate represented by the riskless government bond to adjust for risks and structural differences is spread . In the United States, the rule of thumb is that a 30-year FRM is paid off in 7 to 10 years. As a result of the 7-to-10-year life, most mortgage calculations are based on the interest rate on a 10-year Treasury bond. For example, a decrease in the interest rate on 10-year Treasuries will lead to lower mortgage interest rates and more prepayments as borrowers refinance their mortgages to take advantage of lower interest rates. Adjustable-rate mortgages (ARMs) use one of a variety of interest rates plus a mark-up or spread instead of Treasury bonds as the basis for determining the interest rate paid by the borrower. In many economic environments, lenders are willing to offer ARMs with lower interest rates than similar FRMs because the interest rate increases if the index rate or reference increases; this protects the lender against being locked into a loan that pays less than other loans. Borrowers can find ARMs attractive because of the potentially lower interest rates, the chance of future decreases in the mortgage rate, and limits (caps) on the increase in the interest rates. An ARM with a lower or "teaser" initial rate can be attractive to a homebuyer who plans to move before the teaser rate ends. Borrower risk is typically assessed in terms of credit history (perhaps summarized by the borrower's FICO [formerly Fair Isaac Company] score), and debt-to-income ratio. The better an individual's credit history and the lower the debt-to-income ratio, the lower the spread that will be charged. Property characteristics that influence risk assessments include the loan-to-value (LTV) ratio, and the type of property (owner occupied, investor, condominium, and manufactured housing). In general mortgages, with high LTVs, and mortgages on investor-owned property, on condominiums, and on manufactured housing properties are considered riskier and pay a higher interest rate. Sometimes lenders add a risk premium based on the location of a home. To a lender, a home mortgage loan is less valuable than a Treasury (or other government) bond of the same risk, maturity, and interest rate because the home mortgage comes with the option to prepay and risk of default. To compensate for the relatively lower value, lenders seek higher interest rates on mortgages than on Treasury bonds. In the United States, the legal ability of lenders to seek full recourse from homeowners who have defaulted depends on state law, but until the recent recession, lenders frequently assumed that defaulters had few additional assets worth pursuing, regardless of state law. Some of the borrower and property characteristics such as FICO score and LTV jointly determine the mortgage interest rate that is charged. In the United States, lenders advertise mortgage rates on the internet and in newspapers; this rate is adjusted (usually increased) based on borrower and property characteristics. Canadian banks post rates for various types of mortgages. Borrowers with good credit can negotiate appreciable discounts on one type of mortgage (five-year fixed rates, which are explained in the " House Price Changes " section). For example, in 2009, the Canadian Association of Accredited Mortgage Professionals (CAAMP) reported that the average advertised rate on one type of mortgage was 5.97%, but that the average mortgage rate actually paid was 4.74%. In Denmark, mortgage interest rates are fixed at the time of the loan. The bonds financing the loan are pass-through bonds issued on the stock exchange, where the terms of the bonds exactly match the terms of the loan. Thus, the borrowers pay the market interest rate at the time of the loan, and the rates are posted by the stock exchange. Recent European interest rates on mortgages with short-term initial fixed period rates have been in the range of 3.04% (Spain) to 4.77% (Netherlands); mortgages with long-term initial fixed period rates and 10-year or more maturities have ranged from 4.30% (Germany) to 5.22% (Netherlands). In the United States, mortgages can be split into three general groups: conforming, government insured, and other. Conforming mortgages are those that meet the government-sponsored enterprises' (GSEs) purchase standards and do not exceed the statutory maximum mortgage amounts known as the conforming loan limits. Government-insured mortgages are those guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture's rural housing program. The other group includes mortgages that do not qualify as conforming and are not government insured; this can happen if a mortgage exceeds the conforming loan limits (in which case the mortgage is known as a jumbo mortgage), if the borrower's credit quality is too low (in which case the mortgages are called subprime), or the mortgage application lacks full documentation about the borrower's income or assets (in which case the mortgage is called Alt-A, or alternative A). At present, interest rates on FHA-insured and Veterans Affairs-guaranteed mortgages are not based on risk; every borrower pays approximately the same interest rate. As discussed above, the interest rates for conforming mortgages and those in the "other" category are based on the risk associated with borrower, property, and lender characteristics. Research at the Federal Reserve suggests that in normal times the GSEs mortgage market activity reduces the interest rate on mortgages by less 0.5% (50 basis points) compared to a world without GSEs. There is no published research on the impact of the GSEs in the current economic environment, but in 2009 Fannie Mae and Freddie Mac issued 72% of all MBS suggesting that without the GSEs, mortgage availability would be lower and interest rates would be higher. Homeowners pay certain transaction costs that vary across (and sometimes within) nations. In the United States, borrowers frequently pay for real estate appraisals, land surveys, inspections, title insurance (which protects the lenders in case the sellers do not have a clear title to the properties being sold), origination fees (sometimes called points ), lender services, and recording the new ownership and liens with state or local governments. Closing costs are lower in most other nations. In 2010, the conforming loan limit (the maximum mortgage that the GSEs can purchase) is $417,000 except for in high-cost areas in the contiguous 48 states where it varies to a maximum of $729,750. The conforming loan limit in Alaska, Hawaii, Guam, and the U.S. Virgin Islands is $625,500 (50% higher than the regular limit of $417,000), and the high cost maximum is $938,250. The conforming loan limit is reviewed annually. FHA-insured mortgages are limited to $271,050, except for in high-cost areas where the limit varies to a maximum of $625,500. FHA loan limits are set specially in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. The typical loan-to-value ratio in the United States on a new purchase or refinance money mortgage is 80%. Generally, borrowers who do not make at least a 20% downpayment must either purchase private mortgage insurance (PMI), or they obtain a government-insured mortgage. In the United States, home mortgages typically are for 30 years and have monthly payments that amortize the entire amount borrowed over the term of the loan. Biweekly mortgage payments, which pay off the loan more quickly, are not as common as they are in some other nations. At times mortgages have been offered requiring only interest (or sometimes a fraction of the interest) to be paid for a period of time Such mortgages stopped being available at the start of the 2007-2009 recession. In the United States, most prime mortgages can be prepaid without penalty. This is most commonly done to refinance a mortgage or when the homeowner moves. Many subprime mortgages with adjustable rates had low introductory rates and prepayment penalties to discourage borrowers from refinancing until after the higher rates became effective. U.S. mortgages can be refinanced to take advantage of lower interest rates or to take equity out of the home. The amount of equity withdrawn increases the size of the mortgage, and it is paid to the homeowner when the refinancing is finalized or closes . Refinancing with an equity withdrawal is known as cash out refinancing . In a refinancing, most closing costs are incurred again. Prior to the current recession, cash out refinancing for more than the amount owed was common. Recently, Freddie Mac has reported that some homeowners have reduced the amount of the new mortgage by using cash to reduce the balance. On reason for a cash in refinancing is that the homeowner wanted to refinance, but needed more equity (money down) to qualify for the mortgage. An assumable mortgage allows a new purchaser to take the place of the seller of a home in an existing mortgage. This option would be exercised by the new home purchaser only when it is to his advantage (e.g., can obtain a lower mortgage interest rate than otherwise), and consequently usually a disadvantage to the lender. Most conforming mortgages are not assumable, although the housing GSEs say they will purchase these mortgages on a negotiated (as opposed to a standard) basis. Government-insured mortgages are assumable if the new borrower meets the current credit standards, and if the original borrower agrees to be responsible if the new borrower defaults. This liability makes assumption rare. Foreclosure (the forced sale of a house because the borrower is delinquent in making mortgage payments) is governed by state law. In addition to foreclosure and sale of the property to satisfy the debt, some states allow a lender to seek any unpaid balance through the courts (recourse). Even where recourse is permitted, most lenders have rarely exercised this option because most homeowners who default have few additional assets. Home mortgage interest is generally tax deductable for U.S. taxpayers who itemize deductions. There is a 100% capital gains exemption on a home that the owners have lived in for two of the last five years. For married couples filing jointly the maximum exemption is $500,000 and for taxpayers filing individually the exemption is $250,000. Between April 9, 2008, and June 30, 2010, there were special tax credits ranging from $7,500 to $8,000 for qualifying homebuyers. Subprime mortgages are those made to borrowers with less than prime credit histories. There is not a formal definition of the term. According to Federal Reserve Chairman Ben S. Bernanke, the annual size of the subprime market ranged from $35 billion (4.5% of the mortgage market) in 1994 to $600 billion (20%) in 2006. In the United States, government policies to increase homeownership by low-income households have been the FHA-, VA-, and USDA-insured loan programs and involved the GSEs' affordable housing goals imposed by statute and regulation. There are also programs to provide downpayment assistance to low-income households and tax-free mortgage revenue bonds that municipalities can issue to reduce the mortgage interest rate paid by low- and moderate-income households. The only nations in the world offering long-term fixed-rate mortgages are the United States and Denmark . In the other countries, mortgages are for shorter time periods and the interest rates adjust, sometimes monthly, sometimes every few years. This creates the risk that homeowners will not be able to afford the new payments. In Canada, this risk is eliminated by offering adjustable mortgages that extend or shorten the life of the mortgage to reflect the new interest rate. Denmark and Canada place less emphasis than the United States and Australia on homeownership as an aspiration. These other nations support low-income housing through a variety of programs and, in general, do not place as much emphasis on homeownership. The amount of government intervention varies. Canada, Denmark, and Australia do not have anything similar to the GSEs in the United States. In Canada, government mortgage insurance (somewhat similar to the FHA's insurance) plays a major role for all borrowers regardless of income or the amount borrowed. Canada, Denmark, and Australia have some tax support for owner-occupied housing. In Canada and Australia, much of the intervention in the housing markets is to support indigenous and immigrant populations. Arguably, underwriting standards in Canada, Denmark, and Australia have been stricter than in the United States. Key differences between U.S. and Canadian mortgages are as follows: Canadian mortgages are more likely to have adjustable rates, prepayment penalties, and are currently easier to obtain with high loan-to-value (LTV) ratios. Most Canadian mortgages with less than 20% down are 100% guaranteed under the National Housing Act (NHA) by a government corporation (the Canadian Home Mortgage Corporation or CHMC). In contrast, most U.S. mortgages with less than 20% down are privately guaranteed for the difference between the downpayment and 20%. Canadian mortgages typically roll over every five years, even if they amortize over 30 years. If these mortgages are guaranteed by CHMC, the renewal is guaranteed and other banks can take them over. Closing costs are minimal or non-existent for rollovers. Canadian policy is to support programs that make rental and owner-occupied housing viable alternatives for all residents. Typically, various levels of government and nonprofits contribute to reduce the cost of low-income homeownership. In the United States, most government intervention has been to open homeownership to low- and moderate-income households. Minimum downpayments in Canada have fluctuated in recent years from as little as 0% to 5% at the present time. The minimum downpayment in the United States on an FHA mortgage is presently 3.5%. Canadian mortgage payment schedules can be synchronized to one's pay schedule. Canada supports housing options for low-income households through a variety of rental and ownership programs. Typically, various levels of government, CMHC, and nonprofits contribute to reduce the cost of low-income homeownership. Comparing mortgage costs in the United States and Canada is difficult, although one IMF study concluded that when interest rates, refinancing costs, and mortgage insurance costs are considered that similar prime borrowers pay similar amounts. CMHC is a government corporation that is partially supported through appropriations and partially self-funded. Appropriations cover assisted housing, implement other housing policy, and research. Mortgage insurance and securitization are commercially funded through fees, but the government provides the ultimate guarantee. CMHC pays the government for this guarantee. The role of Canadian mortgage brokers has been growing in recent years. The provincial governments license brokers, and in some provinces brokers have a fiduciary responsibility to borrowers. Brokers are not paid yield spread premiums, which amount to extra payments for higher rate mortgages. Unlike the United States, there is no fixed dollar limit on a mortgage that can be securitized with government support. Nor are there any eligibility limits on government mortgage insurance. In 2008 and 2009, the Canadian government enacted a number of mortgage requirements including limiting LTVs to 95%, prohibiting interest only loans, limiting the life of a mortgage to 35 years, and establishing other standards for government mortgages. The government also intervened in the secondary mortgage market by committing to purchase up to C$ 125 billion of insured mortgage pools. Approximately half that amount was spent. In Canada, a conventional mortgage is one with an LTV of 80% or less. Low downpayment mortgages are called high-ratio mortgages. By law, federally regulated depositories can hold a high-ratio mortgage only if there is mortgage insurance to protect against default. This mortgage insurance can be provided by a government corporation, CMHC or a private company. CMHC guarantees 100% of the loan amount and private insurers guarantee 90%. The typical new Canadian mortgage has an LTV of 75%. Interest rates on Canadian mortgages can be fixed for the life of the mortgage, or the interest rate can change. Mortgages with changeable interest rates can modify either the amount paid or the life of the mortgage. Canadian mortgages that have adjustable rates are called variable rate mortgages and are tied to market rates. When the rate changes, the mortgage payment remains constant, and the amounts going for principal and interest are adjusted, that is, the amortization schedule and life of the mortgage are adjusted to reflect the new interest rate. Variable rate mortgages can have caps, but those with caps usually have higher interest rates. Based on the length of the mortgage when it was initially taken out, the interest rates on most (62%) Canadian mortgages are fixed for four to five years, but interest rates were fixed for one year or less for 10% of mortgages, and only 12% of mortgages had fixed interest rates for more than five years. Canadian mortgage payments are frequently weekly, biweekly or monthly and synchronous with one's pay schedule. Canadian mortgages usually have a term from six months to 10 years, but payments are designed so that it will take 25 to 30 years to pay off the mortgage. The homeowner owes the balance of the loan at the end of the mortgage's term. Unless the homeowner opts to pay off the mortgage in whole or part, the outstanding balance is automatically rolled over into a new mortgage without additional fees. If the mortgage is insured, the homeowner has the option to negotiate a better arrangement with another lender and to transfer the mortgage. This refinancing could be problematic if the balance on the mortgage is more than the value of the home or if lenders reduce their lending. Canadian mortgages can have prepayment penalties (closed mortgages) or not (open mortgages). A closed mortgage prepayment penalty is incurred even if the homeowner moves, although this is frequently waived if the homeowner obtains a new mortgage from the current lender. For closed mortgages, there is a closed period, such as the first three years, during which a certain amount (typically 15%-20%) of the principal can be prepaid. Open mortgages, which are usually for one year, can be prepaid like a U.S. mortgage. If a homeowner moves, the mortgage can be transferred to the new home Some Canadian mortgages are assumable, which reduces the purchaser's appraisal and lawyer's fees. Some Canadian mortgages can be used to purchase a different home. Both these options reduce the burden of any prepayment penalties. Canadian lenders can force delinquent borrowers into bankruptcy. After foreclosure, Canadian lenders can pursue borrowers for any unrecovered losses. Mortgage interest is not tax deductable in Canada. Capital gains on a principal residence are usually not taxed. Canada has a small Alt-A or "non-prime" mortgage market for borrowers who do not document their income. In 2006, Canadian non-prime mortgage originations were 5% compared with 14-20% in the United States. The federal and provincial governments have a number of affordable housing programs, which include rental and homeownership. Low-income homeownership programs frequently target indigenous populations. Denmark traces its current mortgage finance system to 1797. The Danish mortgage market is based on underwriting criteria established by law, matching mortgages' terms to bond terms (the balance principle), high securitization rates, and recourse lending which makes a borrower personally liable if foreclosure does not raise sufficient funds to cover the outstanding debt and costs of foreclosure. Denmark and the United States offer 30-year mortgages with constant (fixed) interest rates. Mortgages in most other nations are fixed for a few years at most. Mortgages in Denmark are made by specially authorized banks and subject to underwriting criteria established by law. For example, the maximum loan-to-value (LTV) ratio is currently 80% for owner-occupied homes; the maximum LTV on other homes (e.g., vacation) is lower regardless of borrower credit history. Mortgage interest rates are published, and there are no adjustments for borrower characteristics. To qualify for any kind of mortgage, the borrower will typically be required to qualify for a 30-year fixed-rate mortgage. This cost is generally higher than for adjustable-rate mortgages. Recent legislation, including the Financial Business Act of 2009, allows banks to apply to join mortgage banks in issuing Danish mortgage bonds. Another recent change, based on EU requirements, is that collateral must be added to mortgage bonds when an individual mortgage's loan-to-value ratio exceeds 80%. Key differences between the mortgage finance systems in the United States and Denmark are as follows: In Denmark, borrowers have two options to refinance: they can refinance as in the United States or they can purchase their mortgage at the current market price. When interests decrease, they will use the refinancing option. When interest rates increase, bond prices decrease, and Danish homeowners can buy back their mortgages out of the bonds. This second option is not available in the United States. The Danish system uses mortgage bonds. In the United States, Federal Deposit Insurance Corporation (FDIC) regulations protect the government's claim on the assets of an insolvent insured depository by limiting the use of mortgage bonds. Danish mortgage bonds are issued at market rates, and, except for a small processing fee, the corresponding interest rate is passed directly on to the homeowners. All borrowers with the same kind of mortgage will pay the same interest rate. The Danish mortgage bond system does not have risk-based tranches with different repayment priorities. The United States' MBS issued by the GSEs commonly have risk-based tranches. Denmark has statutory underwriting standards that would disqualify some homeowners in the United States. Foreclosure and deficiency judgments in Denmark are based on national law and typically take six months. In the United States, foreclosure and deficiency judgments vary by state and generally provide greater protection for homeowners. Danish mortgage banks retain credit (default) risk and pass onto investors prepayment and interest rate risk. In the United States, most mortgage originators pass on all risk to the secondary mortgage market. The housing GSEs and the federal government retain credit risk, but investment banks in the secondary mortgage market pass credit risk on to investors. Prepayment and interest rate risk is held by whoever purchases the MBS (sometimes the housing GSEs, and sometimes institutional investors). The Danish mortgage system offers three types of mortgages: fixed rate, adjustable rate and floating rate. FRMs typically are for 30 years and have the same interest rate for the life of the mortgage. Interest rates are usually higher than the alternatives, but monthly mortgage payments are fixed. The interest rate on ARMs changes at predetermined intervals of one, two, three, four, or five years. The amount of the change depends on the interest index rate on mortgage bonds. ARMs generally offer lower initial interest rates (and monthly payments), but future payments and interest rates are not known. Floating-rate mortgages are similar to ARMs, but the interest rate adjusts at shorter intervals such as three to six months. Floating-rate mortgages are set based on a reference rate (not the bond rate) such as the Copenhagen Interbank Offer Rate (Cibor). Interest rate caps are available. All three types of mortgages can have initial interest-only payments. Mortgages can be payable either in Kroner or Euro, but most are Kroner-denominated. Most Danish mortgages are for 30 years and are fully amortized over the term of the mortgage. Prepayment depends, in part, on the type of the mortgage, but all borrowers can prepay their mortgage by purchasing their bond in the market. Mortgage transaction costs (closing costs) are around 0.4% of the amount borrowed compared with 2% in the United States. Fixed-rate mortgages. FRMs can be prepaid by paying the balance owed. If interest rates decrease, which generally raises the price of a bond, the borrower can use this option. If interest rates increase, which generally lowers the price of the bond, the bond repurchase option is used. Adjustable-rate mortgages. ARMs can be prepaid for the amount owed at any interest rate reset, or by purchasing the bond on the market. Floating-rate mortgages. Floating-rate mortgages can be prepaid in three ways: first, for the unpaid balance at an interest rate reset, the same as an ARM; second, at a previously agreed price, typically 100% of the unpaid balance at any time; and third, by purchasing the underlying bonds. There are no absolute limits on the size of Danish mortgages, but there are limits on the LTV (80% for prime residences). A typical residential foreclosure in Denmark takes six months from default to sale of the property. The homeowner is responsible if the proceeds of the sale do not cover the amount owed. Further legal action is possible if no other arrangements have been made to repay the balance owed. Danish mortgages can be assumed by the purchaser of the house. Mortgage interest payments are partly tax-deductible. There is no tax on capital gains from the sale of one's primary residence. The U.S. and Australian housing finance systems exhibit both similarities and differences. Differences include the following: Australians appear to be more likely to select ARMs over FRMs. From July 2008 through February 2010 (the most recent available data), fewer than 10% of new mortgages have been "fixed rate," which in Australia means fixed for the first five years or less. The reason for this might be that interest rates on ARMs have been much lower than on FRMs. Sometimes borrowers respond to price wars on a portion of the mortgage market. In contrast, in the United States, approximately 85% of mortgages outstanding are fixed rate. Australians that have made extra payments on their mortgages can withdraw the prepaid funds. Some mortgages tie a credit card to the prepaid funds, but other mortgages charge a fee for redraws. This feature is not available in the United States, although U.S. lenders offer home equity lines of credit (HELOCs) that require a new loan application, approval and fees. The Australian government has no equivalent to the U.S. government's guaranteed mortgages. Homeowners obtain mortgages from banks, credit unions and building societies (CUBS), and mortgage originators, which are similar to U.S. mortgage brokers and bankers. The Australian mortgage finance system offers fixed- and adjustable-rate mortgages. Fixed-Rate Mortgages. FRMs are generally limited to 15 years or less. Some FRMs convert after one to five years to ARMs for a total term of 25 years. Adjustable-Rate Mortgages. ARMs (commonly called floating-rate mortgages in Australia) are more common than FRMs. Most Australian mortgages are for 20-30 years, with the most typical maturity being 25 years. Monthly payments fully amortize the mortgage. Australian lenders charge most borrowers the same rate. There are, however, discretionary discounts offered to some borrowers, with sources indicating that this discount can be as much as 0.70% (70 basis points). Low documentation loans are available, but they have higher interest rates. Self-employed borrowers frequently have difficulty providing independent verification and take out low-documentation loans even at this higher cost. ARMs usually do not contain any prepayment penalties. FRMs frequently have either a fixed penalty or a penalty based on the difference between fixed and adjustable interest rates. Some Australians pay their mortgages off early by making monthly payments in excess of the contractual amount. Some mortgages have "redraw" facilities that allow households to withdraw excess payments and provide tax advantages to the homeowner. In Australia, the cost of refinancing averages about 1.4% of the mortgage amount. Prepayment fees average over 40% of the refinancing cost. Australian mortgages cannot be assumed. Unlike the United States, there is no government mortgage insurance in Australia. Authorized deposit-taking institutions (ADIs) making mortgage loans must meet requirements promulgated under Basel II by the Australian Prudential Regulation Authority (APRA). Mortgages are classified as standard eligible or non-standard eligible. To be considered standard, income must be documented and verified, property offered as collateral must be appraised, and the property offered as collateral must be readily marketable. All other mortgages are non-standard. Capital to offset potential losses is reduced for low LTV mortgages, when there is lender insurance covering at least 40% of the mortgage, and for standard mortgages. In the United States, capital requirements are reduced for mortgages packaged by the GSEs into mortgage-backed securities and for government guaranteed mortgages. In the United States, private mortgage insurance is usually required for mortgages with LTVs above 80%. In Australia, there are no loan limits. In addition to foreclosing on delinquent borrowers, lenders can use the legal process of sequestration to force borrowers into bankruptcy if the proceeds of foreclosure do not satisfy the debt. In the United States, state law determines if a borrower's other assets can be seized. Australia's tax system does not provide for any special treatment of mortgage interest. To the extent that a home is one's principal residence and not used to produce income, gains from selling the home are not taxed. When taxed, capital gains on a home are adjusted for inflation. In July 2000, Australia adopted a First Home Owners Grant (FHOG) of AU$ 7,000 (approximately $5,600). Since 2000, there have been a few first homeowners' assistance programs, augmenting the original AU $7,000. Most recently, this has included the "First Home Owners Boost Scheme" between October 2008 and December 2009. However, these temporary programs have expired and only the $7,000 FHOG remains. Since October 2008, Australia has reduced the tax rate on savings dedicated to purchasing a first home. In the past, subprime (credit-impaired or non-conforming) borrowers have been able to obtain mortgages, but at a higher interest rate than prime borrowers. It is estimated that less than 1% of outstanding loans in 2009 were subprime. Mortgages are designed to allow households to purchase homes that cost many times their annual incomes without waiting many years to accumulate sufficient savings to pay the full price. Funding long-term, fixed-rate mortgages, such as the 30-year mortgage, that is most common in the United States and Denmark challenges lenders because most funds directly available to financial intermediaries, such as banks, are for relatively short terms (less than five or 10 years), whereas mortgages are paid off over longer time periods. The United States and the rest of the world have developed different solutions to this mismatch of the duration of funding and mortgages. The prevalence of 30-year self-amortizing, fixed-rate mortgages in the United States makes mortgage funding more difficult than in countries with shorter-term or adjustable mortgages. A bank can minimize its interest rate risk—the risk that its profit margins will be reduced because of rising interest rates—by matching the term of its mortgages to the term of its deposits. As a practical matter, the longest-term insured bank deposits (certificates of deposit) are for five years. When a bank makes a mortgage loan for more than five years, it knows that it will have to obtain new funds or persuade the depositor to roll over the funds when the deposit term expires. The result is that while funding mortgages with federally insured deposits can be profitable, there are certain risks that lenders need to consider. One solution to the long-term funding challenges is ARMs, which are more popular in many other countries, because they shift the lender's interest rate risk to the borrower. In the United States, ARMs have been popular only in times of high fixed interest rates, such as the 1970s. In the United States, a secondary mortgage market has developed in which Fannie Mae, Freddie Mac, Ginnie Mae, and others purchase existing mortgages. The mortgages are pooled into mortgage-backed securities (MBS), which are sold to institutional investors. MBS represent a claim on the monthly payments of the underlying mortgages. Fannie Mae, Freddie Mac, and Ginnie Mae add their guarantee of timely payment of principal and interest to the investor; other MBS issuers do not add any guarantee to the MBS that they create. The MBS are normally liquid and can be resold later to other investors. Between 2001 and 2009, the GSEs share of the MBS market ranged between a low of 40% (2006) and a high of 73% (2008). Since 2008, the GSEs and Ginnie Mae together have issued 95% or more of the MBS issued. Table 3 reports covered bonds and MBS issues as a percentage of all residential mortgages outstanding. In the United States, new MBS volume was 10.1% of mortgages outstanding. In Canada, new MBS volume was 3.6%. In Denmark, new MBS were 0.1%, and new covered bonds were 58.5%. In Australia new MBS were 15.6%. New covered bond issues were negligible or zero in the United States, Canada, and Australia. In many other nations, mortgage funds are frequently raised in financial markets using covered bonds. This financial product, uncommon in the United States, provides the issuer's legal commitment to pay interest and principal, and the pledge of specific mortgages as collateral to guarantee this payment. The mortgages used as cover remain on the issuer's balance sheet. Covered-bond issuers make the payments regardless of the borrower's actions. As required by law or contract, a mortgage in default must be replaced, and if the value of the mortgages declines, additional mortgages (or other specified high-quality assets) must be added to the collateral pool. Like MBS, mortgage bonds are normally liquid and can be resold. Unlike MBS, Danish mortgage bonds are usually not divided into tranches. As a practical matter, the only MBS in Canada are NHA loans pooled by and guaranteed by the government corporation, CMHC. Sometimes lenders will pay for CMHC insurance to allow the mortgages to be pooled. These MBS are pass throughs, have no risk-based tranches, and carry a Canadian government (CMHC) guarantee. In addition to the MBS, the government assumes prepayment and credit risk on Canadian Mortgage Bonds (CMBs). CMHC or a private insurer guarantees the underlying mortgages and CMHC guarantees timely payment of principal and interest on the MBS. This is similar to the roles played by the FHA and Ginnie Mae in the United States. Most non-NHA loans are held and serviced by the original lender. In the CMB program, the Canada Housing Trust purchases NHA MBS and issues the mortgage bonds, which pay interest semi-annually and return the principal at maturity. These mortgage bonds have a payment stream similar to corporate and government bonds, which usually pay interest semi-annually or quarterly and return the principal at maturity. The bonds are issued in sizes as small as C$ 1,000 and can be issued for any term, but usually are for five years. In Canada, depositories hold 69% of residential mortgage debt. Of this 69%, chartered banks, which are depositories, hold 56%. To raise funds for mortgages, a Danish mortgage bank sells mortgage bonds to investors. By Danish law, the term and interest rate of the mortgages and bonds must match. This is called the "balance principle." The Danish bonds use "tap" funding, that is, mortgages are added to a bond for two or three years. Bond rates are reported in Danish media. The interest rate on a specific mortgage depends on the specific bond used to fund it. Every qualifying applicant for a given mortgage type gets the same interest rate. The mortgage bank passes through homeowner payments to the investor holding the bond funding the specific mortgage, and the bank charges a margin (typically 0.5% of the loan balance) for operating costs including any losses. Until it is paid off, the mortgage remains on the bank's books. There are currently seven Danish mortgage banks and one other bank issuing Danish mortgage bonds. Unlike in the United States, most Australian MBS have adjustable rates. Mortgage originators (brokers) largely sell their mortgages in MBS. The four largest Australian banks, which provide approximately 70% of the mortgage market, generally retain mortgages in portfolio. The CUBS (credit unions and building societies) securitize approximately 22% of their mortgages. The Australian Prudential Regulatory Authority (APRA), which regulates all financial services firms in the country, prohibits covered bonds. Table 3 reports the extent that various countries issue covered bonds and MBS. The mortgage markets in all four nations—the United States, Canada, Denmark, and Australia—seem to have more differences than features in common. Yet except for Denmark, they have similar homeownership rates. Some possible reasons for this similar outcome are as follows: Demographic similarities could be more important than institutional details. Some differences in mortgage underwriting, such as minimum downpayment requirements, could delay homeownership on average for relatively short periods of time. Some features, such as the mortgage interest deduction and the treatment of capital gains on owner-occupied homes, could be built into the price of housing, reducing or eliminating the advantages given to homeownership. Green, Richard K. and Susan M. Wachter. "The American Mortgage in Historical and International Context." Journal of Economic Perspectives , vol. 19, no. 4 (Autumn 2005), pp. 93-114. Lehnert, Andreas. "Overview of US Mortgage Markets." Bank for International Settlements. Housing Finance in the Global Financial Market. CGFS Publications no. 26 (2005). At http://www.bis.org/publ/cgfs26cbpapers.htm . Canada Mortgage and Housing Corporation. The Newcomer's Guide to Canadian Housing . 2007. At http://www.cmhc-schl.gc.ca/en/co/buho/upload/TheNewcomersGuide_E.pdf . Kiff, John, Steve Mennill, and Graydon Paulin. "How the Canadian Housing Finance System Performed through the Credit Crisis: Lessons for Other Markets." Journal of Structured Finance (Fall 2010), pp. 1-21. Kiff, John. Canadian Residential Mortgage Markets: Boring but Effective . International Monetary Fund, Working Paper WP/09/130. June 2009. At http://www.imf.org/external/pubs/ft/wp/2009/wp09130.pdf . Klyuev, Vladimir. Show Me the Money: Access to Finance . International Monetary Fund, Working Paper WP/08/22. January 2008. At http://www.imf.org/external/pubs/ft/wp/2008/wp0822.pdf . Frankel, Allen, Jacob Gyntelberg, Kristian Kjeldsen, and Mattias Persson. "The Danish Mortgage Market." BIS Quarterly Review (March 2004), pp. 95-109. At http://www.bis.org/publ/qtrpdf/r_qt0403h.pdf?noframes=1 . Realkreditradet, The Traditional Danish Mortgage Model . At http://www.realkreditraadet.dk/Files/Filer/Engelsk/2010/Publikation_engelsk.PDF . Ellis, Luci, Sue Black, and Liz Dixon Smith. Housing Finance in Australia: 2005 . Bank for International Settlements. At http://www.bis.org/publ/wgpapers/cgfs26ellis.pdf . | The United States, Canada, Denmark, and Australia are advanced economies that share many features, but their approaches to financing homeownership have differed. As the U.S. Congress considers housing finance reform, the experiences of these other nations may suggest some potentially useful policy approaches. In recent years, homeownership rates in the United States, Canada, and Australia have been similar: 66.9% in the United States, 68.4% in Canada, and 69.8% in Australia. Denmark's homeownership rate of 54.0% is low for this group of nations and for countries with developed economies. Of these four nations, only the United States and Denmark offer mortgages with payments that are fixed for 30 years. In Australia and Canada (and most of the world), mortgages adjust to current interest rates at intervals of one month to five years. Of the four nations, between 1991 and 2008, house prices increased the most in Australia and Denmark, but other countries including Ireland, the Netherlands, New Zealand, and Norway had still greater increases. Underwriting standards have been the most flexible in the United States and less flexible in Canada and Denmark. Some homeowners in the United States would not qualify for mortgages in Canada or Denmark. The United States and Australia have programs to encourage homeownership. Canada offers limited support for home purchases, and Denmark has no homeownership programs. Nevertheless, homeownership rates are similar in the United States, Australia, and Canada. U.S. and Canadian governments directly or indirectly guarantee most mortgages and assure lenders that mortgage payments will be made in a timely manner. Australia and Denmark have no such government guarantee. In Canada, Denmark, and Australia, borrowers who default remain responsible for any unpaid balances, but it is not clear how frequently this is pursued. In the United States, the ability of lenders to seek compensation beyond a foreclosure sale depends on state law and frequently this remedy is not invoked. Capital gains from the sale of one's main home are usually tax-exempt in all four nations; all but Canada allow taxpayers to deduct mortgage interest payments. Only the U.S. government has a maximum size on the mortgages that it will support. In the other nations, government support is offered to all mortgages. This report will be updated as warranted. |
During the latter years of the Clinton presidency, the United States began to focus on the possible deploymentof defenses against long-range ballistic missiles. The Administration, and many missile defense supporters, claimed that the United States needed to pursue NationalMissile Defenses (NMD) because "rogue"nations such as North Korea, Iran, and Iraq might soon acquire longer range missiles that could strike U.S. territory,and the United States could not be certain thatthe threat of offensive retaliation would deter these unpredictable actors. The Clinton Administration realized thatits plans for NMD would exceed the limitsimposed by the 1972 Anti-Ballistic Missile Treaty between the United States and Soviet Union. Consequently, theAdministration opened discussions with Russiain an effort to negotiate amendments to the Treaty that would permit the deployment of a limited NMD system. Russian officials consistently and repeatedly insisted that the 1972 ABM Treaty is the cornerstone of strategic stability (this is defined on page 4). They arguedthat any changes to the Treaty that permitted the deployment of defenses against long-range ballistic missiles wouldundermine international strategic stability,upset the nuclear balance established by the Treaty, and interfere with Russia's nuclear deterrent capabilities. Duringtalks with the Clinton Administration,Russia refused to accept any modifications to the ABM Treaty that would permit national missile defenses andcampaigned against the U.S. policy at meetingswith other nations and international organizations. Russia also offered alternatives, suggesting that the UnitedStates, Russia, and the international communityaddress emerging missile threats with diplomacy and arms control measures that would seek to stop the proliferationof new threats and with cooperation ontheater-range ballistic missile defenses to address those threats that did emerge. This report provides a detailed review of Russia's reaction to U.S. policy on missile defense and U.S. proposals for modifications to the ABM Treaty. It beginswith a brief background section that describes the central limits in the ABM Treaty and U.S. policy on thedeployment of missile defenses. It then describes, inmore detail, Russia's objections to the U.S. proposals. The report also provides a summary of possible militaryresponses that Russia might take after the UnitedStates withdraws from the ABM Treaty and begins deployment of missile defenses and contains a discussion ofRussia's proposals for diplomatic and militaryalternatives to the U.S. plans to deploy missile defenses. The report concludes with a brief discussion of the U.S.response to Russia's objections, a few issues forCongress, and a summary of the Russian reaction to the U.S. withdrawal from the ABM Treaty. The United States and Soviet Union signed the Treaty on the Limitation of Anti-Ballistic Missile Systems (ABM Treaty) in May 1972. This Treaty prohibits thedeployment of ABM systems for the defense of the nations' territory, or an individual region, or defenses that canprovide the base for such a defense. It permitseach side to deploy limited ABM systems at two locations, one centered on the nation's capital and one at a locationcontaining ICBM silo launchers. A 1974Protocol further limited each nation to one ABM site, located either at the nation's capital or aroundan ICBM deployment area. Each ABM site can contain nomore than 100 ABM launchers and 100 ABM interceptor missiles. The Treaty also specifies that, in the future, anyradars that provide early warning of strategicballistic missile attack must be located on the periphery of the national territory and oriented outward. The Treaty bans the development, testing, and deployment of sea-based, air-based, space-based, or mobile land-based ABM systems and ABM systemcomponents (these include interceptor missiles, launchers, and radars or other sensors that can substitute for radars). Each party can propose amendments, and, inthe Standing Consultative Commission established by the Treaty, they can consider possible proposals for furtherincreasing the viability of the Treaty. Each partycan also withdraw from the Treaty, after giving 6 months notice, if "extraordinary events related to the subject matterof this Treaty have jeopardized its supremeinterests." (1) In September 1997, the Clinton Administration signed a Memorandum of Understanding on Succession that named Russia, Ukraine, Belarus, and Kazakhstan asthe successors to the Soviet Union for the Treaty. This agreement never entered into force because Congressinsisted that the Clinton Administration submit it tothe Senate for advice and consent, as an amendment to the Treaty. The Clinton Administration never did so, in partbecause it feared that the Senate might rejectthe agreement in an effort to abolish the Treaty. Some Members of Congress argued that the ABM Treaty was nolonger in force because the Soviet Union hasceased to exist. The Clinton Administration, however, determined that, in the absence of alternative arrangements,Russia would serve as the successor to theSoviet Union for the Treaty. The Bush Administration did not explicitly accept the argument that the ABM Treaty was no longer in force and Deputy Secretary of Defense Wolfowitz said theUnited States would withdraw before violating the Treaty. During their nomination hearings, Secretary of DefenseRumsfeld referred to the Treaty as "ancienthistory" and Secretary of State Powell stated that the Treaty is no longer relevant to our strategic framework. The President Bush has also said that the ABMTreaty is outdated, and that the United States must move beyond the limits in the Treaty to deploy effective missiledefenses. He announced the U.S. withdrawalfrom the Treaty on December 13, 2001; this withdrawal took effect on June 13, 2002. Clinton Administration. The Clinton Administration's plan for NMD, which it outlined in 1999, called for thedeployment of 100 interceptor missiles at a single site in Alaska. (2) This system would have been designed to defend against a relatively limited threat of perhaps20 missiles. Eventually the system might have expanded to 200-250 interceptors at one or more sites to defendagainst a larger and more sophisticated threat. Itmight also have included space-based sensors and components currently banned by the ABM Treaty. TheAdministration recognized that this site, and some ofthe technologies under consideration, would not have been consistent with the limits in the ABM Treaty. As aresult, it participated in discussions with Russia inan effort to modify the ABM Treaty to permit a limited deployment. It would, however, have retained many of thecentral features of the Treaty that limit thecapabilities of ABM systems. President Clinton announced on September 1, 2000 that he had decided not to authorize deployment of an NMD system because he did not have "enoughconfidence in the technology, and the operational effectiveness of the entire NMD system." In two of three tests,the defensive missile had failed to intercept itstarget. The Administration announced that it planned to continue with research and development on its NMDtechnologies, and that it would continue discussionswith the Russians about the ABM Treaty. But the final decision on whether to begin NMD deployment would beleft to Clinton's successor. Bush Administration. President Bush has emphasized that he places a high priority on defenses that couldprotect the United States, its forces, and its allies from ballistic missile attack. He outlined his Administration'sapproach in a speech on May 1, 2001, (3) when heindicated that "we can draw on already established technologies that might involve land-based and sea-basedcapabilities to intercept missiles in mid-course orafter they re-enter the atmosphere." (4) During hearingsbefore Congress in July 2001, Deputy Secretary of Defense Wolfowitz provided more details on theAdministration's missile defense program. He stated that the Pentagon would pursue a robust research anddevelopment program into a wide range oftechnologies that could be based on land, at sea, or in space. He stated that the Administration had not yet identifieda specific architecture for its system becauseit would make use of the most promising technologies as soon as they were ready. Ultimately, though, theAdministration is seeking to develop and deploy anintegrated, layered system that can defend the United States, its forces, and allies from missiles of all ranges at allphased of their flight trajectories. Administration officials acknowledged that many parts of its missile defense program would not be consistent with the terms of the ABM Treaty. They arguedthat the Treaty, and the nuclear strategy it embodied, should be replaced by a new framework for deterrence thatcombines both offensive and defensivecapabilities. The Administration participated in consultations with Russia on a new strategic framework, but, whenit was unable to convince Russia to withdrawfrom the Treaty with the United States, it announced that the United States would withdraw itself. The dominant theme in Russia's response to the U.S. approach to missile defenses and the ABM Treaty is the idea that the ABM Treaty is the "cornerstone ofstrategic stability" and that the U.S. deployment of missile defenses would undermine stability and upset armscontrol. (5) According to this view, the Treaty, withits ban on widespread ballistic missile defenses, underscores the Cold War model of deterrence, where neither theUnited States nor Soviet Union could threatenan attack on the other without facing an overwhelming retaliatory strike. The assured destruction promised by thisretaliatory strike meant that the strategicbalance was stable, that neither side would risk an attack no matter how grave a crisis. Accordingly, the deploymentof ballistic missile defenses that could protectall U.S. territory (as opposed to the limited defenses permitted by the Treaty) would undermine this concept ofstability. If a nation could intercept missileslaunched in retaliation, particularly if it had diminished their numbers in its initial strike, it might believe it couldlaunch a first strike without fearing retaliation. Knowing this, the nation without the defensive system might conclude that it had to launch preemptively, beforelosing any of its forces in an initial attack. Underthese circumstances, stability would be lost and a nation might have an incentive to launch first in a crisis. Furthermore, Russian officials have argued that the ABM Treaty is the cornerstone of the entire network of agreements that reduce offensive nuclear weapons. (6) The Treaty's limits on ballistic missile defenses allowed the United States and Soviet Union to accept limits andreductions in their offensive forces because theyknew they could maintain an effective deterrent at lower levels when the offensive forces could not be blunted bydefensive systems. Accordingly, if the UnitedStates were to abrogate the ABM Treaty to deploy ballistic missile defenses, Russia might feel compelled toabrogate agreements on offensive forces so that itcould retain an arsenal of sufficient size to ensure that it could penetrate the U.S. ballistic missile defenses. Finally, Russian critics note that the U.S. approach to missile defenses and the ABM Treaty would upset not only strategic stability between the United States andRussia, but also international strategic stability. They argue that other nations, such as China, might believe thattheir offensive forces would be undermined byU.S. defenses, and might feel compelled to expand their arsenals to ensure an effective retaliatiory attack. But, ifone nation, such as China, were to react thisway, other nations might feel threatened and might react, themselves, by increasing their offensive militarycapabilities. Hence, the deployment of missiledefenses and U.S. abrogation of the ABM Treaty could set off a new, threatening international arms race. Russiancritics, and many critics of missile defense inthe United States argue that, in the long run, the United States could become less secure with nationwide missiledefenses than it is in its current more"vulnerable" condition. The Clinton Administration sought to reassure Russia about its concerns for strategic stability. On several occasions, when President Clinton met with PresidentYeltsin or President Putin, he signed statements and declarations acknowledging that the ABM Treaty remained thecornerstone of strategic stability. At theirsummit meeting in June 2000, Presidents Clinton and Putin signed a Joint Statement On Principles of StrategicStability. In this document, the Presidentsdeclared that "They agree on the essential contribution of the ABM Treaty to reductions in offensive forces, andreaffirm their commitment to that Treaty as thecornerstone of strategic stability." (7) At the same time,the United States sought to convince Russia that the Treaty could serve this purpose even if it weremodified or amended to allow the deployment of a limited NMD. (8) In addition, the Clinton Administration argued that the changes it sought in the ABM Treatywould permit only a limited NMD system that would address the emerging threat from "rogue" nations and that thesystem would not be capable enough tointercept the larger numbers of missiles that Russia would possess, even as its forces declined in the coming decade. Differing Threat Assessments. Russian officials have agreed with the U.S. view that ballistic missileproliferation could pose a problem and introduce new missile threats to both nations. The Joint Statement onPrinciples of Strategic Stability, signed after theJune 2000 summit, stated that the Presidents agreed "that the international community faces a dangerous andgrowing threat of proliferation of weapons of massdestruction and their means of delivery, including missiles and missile technologies..." Furthermore, the Presidentsagreed that "this new threat represents apotentially significant change in the strategic situation and international security environment." (9) In an interview held shortly before the summit,President Putinproposed that the United States and Russia cooperate on the development of a "boost-phase" theater missile defensesystem that could be based near "rogue"nations to address this emerging threat. (10) However, Russian officials disagree with the U.S. view that missile proliferation and the potential missile capabilities of "rogue"nations pose a significant orimmediate threat to the United States. In an interview with the Russian press, President Putin acknowledged that"such threats, theoretically, in principle, [could]emerge one day." But he went on to state that "we do not believe that there are such threats now nor that they arecoming from any specific states." (11) Consequently, President Putin did not agree with the U.S. view that these emerging threats justified the U.S.proposals for changes to the ABM Treaty and thedeployment of an NMD system. (12) Moreover,Russian officials claim that, even if "rogue" nations could threaten the United States with long-range missiles, theoverwhelming power of U.S. offensive forces would deter such an attack. Russia's former Defense Minister, IgorSergeyev, outlined this view when he stated: "the development of ICBMs entailed a colossal strain on the economy even for giants like the USSR and the United States. So assertions that ICBMs will appearin the near future in the possession of Third World states that do not possess a sound economy or the relevanttechnologies appear very lightweight andunfounded. Indeed, even if we imagine the purely theoretical situation where such missiles will become part of thearmory, the nuclear deterrence factor thatdemonstrated its effectiveness back in the Cold War years will still apply to those countries." (13) Thus, Minister Sergeyev, and others in Russia have concluded that, if the emerging missile threats in "rogue" nations do not really threaten U.S. territory, then aU.S. NMD system cannot really be directed against those threats. Instead, the United States must be seeking todevelop a missile defense system that cancontribute to its global drive for domination and undermine Russia's nuclear deterrent. "The results of our military-technical analysis indicate that the threat of the carrying out of a strike against the USA by intercontinental ballistic missiles launchedby so-called "problem" states, which the USA sets forth as the primary reason for the development of its nationalABM system, is, in realty, not being considered[i.e., it is not the real reason for the development of the national ABM system]. We do not see any [real] motivesfor the deployment of this national ABM systemother than the striving of the USA to acquire strategic domination in the world. We are deeply convinced that sucha deployment would be primarily directedagainst Russia." (14) Skepticism about "Limited NMD". Many Russian officials and analysts did not believe that the United Statesplanned to limit its missile defense system, even under the Clinton Administration. Some argued that the UnitedStates would not spend more than $100 billiondollars to develop and deploy a missile defense system, then limit it to a capability to intercept only 10-20missiles. (15) The Clinton Administrationcontributed tothis disbelief when it stated that it would seek modifications to the ABM Treaty in two phases; the first wouldsimply allow the deployment of a single NMD sitein Alaska and the upgrades to some early warning radars. In the second phase, the Clinton Administration plannedto request an increase in the permitted numberof interceptor missiles and the addition of space-based sensors. Some Russians suspected that additional phases,with additional "minor modifications" wouldhave followed, and that, eventually, the U.S. approach would have loosened the Treaty enough to permit thedeployment of more extensive defenses. The BushAdministration also insists that its missile program would be limited to address only the threat from rogue nations. But the Administration has outlined plans todevelop and deploy a robust, layered system, as opposed to the limited land-based system considered by the ClintonAdministration, which could provide a morecapable defense against Russian missiles. Russian analysts calculated that, even with the Clinton Administration's limited defensive system, the United States could expand its missile defense capabilitiesby upgrading its early warning and command and control structures, then quickly adding to the number of deployedinterceptors. Former Defense MinisterSergeyev outlined this concern in an interview with the Russian press. He noted that "It is not the quantity ofinterceptor missiles that determines the combatpotential of any antimissile defense system. First and foremost, it depends on the system's information componentswhich ensure the acquisition and tracking oftargets, the ability to distinguish real warheads from dummy targets." (16) A Russian analyst, Alexander Pikayev, also noted that the United Statescould easilyexpand its NMD capabilities once it had developed the space-based sensors that would improve targeting andtracking capabilities. He stated that, once it haddeveloped and deployed these capabilities, "it would be easy for the U.S. to produce and deploy large numbers ofinterceptors." (17) In April 2000, Pentagon officials presented Russia's Foreign Minister Igor Ivanov with a detailed briefing about the capabilities of the radars planned for the U.S.NMD system in an effort to convince him that the system would not pose a threat to Russia's strategic deterrentforces. (18) But Russian officials were notconvinced. (19) The Bush Administration alsoprovided Russian officials with detailed briefings on the new U.S. missile defense program in early August 2001. Consequently, with their doubts about the U.S. assessments of emerging ballistic missile threats and their doubts about the limited nature of a prospective U.S.NMD system, many Russian officials and analysts concluded that "the so-called limited nature of the U.S. NMDsytem is based on the desire to obscure the veryessence of the system. The NMD is only a stage in the development and deployment of a full-scale ABMsystem." (20) Former Defense Minister Sergeyevstatedthat the Clinton Administration's limited NMD would be the "first step toward the future emergence of amultifunctional global system for combating all types ofballistic, aerodynamic, and space targets and subsequently also surface and land targets. This comprehensive defensesystem will be directed first and foremostagainst the deterrent potential of the Russian Federation and the People's Republic of China." (21) The Threat to Russia's Deterrent. Russian analysts have argued that the United States could undermineRussia's strategic nuclear deterrent, and possibly acquire a disarming first strike capability, with even a relativelylimited missile defense capability. First, theynote that Russia's arsenal of strategic offensive nuclear weapons is likely to decline sharply over the next decade,to perhaps fewer than 1,500 warheads, as olderweapons are retired and financial constraints preclude the acquisition of newer weapons. But the United Statescould maintain a much larger offensive nuclearforce of several thousand nuclear weapons, even under prospective arms control scenarios. In addition, NATOenlargement, the U.S. advantage in anti-submarinewarfare, and the U.S. advantage in precision-guided conventional weapons, such as the sea-launched Tomahawkcruise missile, provide the United States and itsallies with the ability to conduct conventional attacks on strategic targets in Russia in a comprehensive first strike. If the United States launched an attack againstRussia with its conventional and nuclear forces, and destroyed a large percentage of Russia's diminished nuclearforces, a few hundred missile defenseinterceptors could be sufficient to intercept Russia's retaliatory strike. Hence, according to this argument, even alimited missile defense system could "underminestrategic stability" and contribute to U.S. efforts to "achieve radical changes in the military balance." (22) Russian analysts also note that China is likely to react to the deployment of a U.S. NMD system by expanding its military capabilities and its offensive missileforces. One Russian analyst, Alexander Pikayev, has stated that China has already adopted a $10 billion packagefor a new nuclear buildup in reaction to U.S.plans to deploy an NMD system together with a TMD system in the Western Pacific, and that China would haveto significantly increase the size of its missileforce to maintain the credibility of its deterrent in the face of a U.S. NMD. But, according to Pikayev and otherRussian analyts, these weapons could pose asmuch of a threat to Russia as they could to the United States: "Currently, the predominance of Chinese conventionalweapons vis-a-vis the vast but sparselypopulated Russian Far East is balanced by Moscow's superiority in nuclear weapons. China's nuclear build-up mightconsiderably erode this superiority, furtherweakening Russia's position in the Far East." (23) According to Pikayev, this imbalance with Chinese forces might compel Russia to withdraw from the 1987Intermediate Forces Treaty. Hence, in spite of U.S. claims to the contrary, many Russian officials and analysts appear to believe that U.S. withdrawal from the ABM Treaty and deployment ofa nationwide missile defense system would undermine the existing framework of arms control agreements, upsetinternational strategic stability, incite new armsraces, and threaten the credibility of Russia's strategic nuclear deterrent. Several Russian officials have declaredthat, if the United States were to follow this path,Russia would feel compelled to withdraw from a range of arms control agreements so that it could deploy themilitary forces that it would need to offset the U.S.threat to its nuclear deterrent. These military responses could include changes in the deployment of several differenttypes of nuclear weapons. Deploy Multiple Warheads on New ICBMs. The 1993 START II Treaty, which has not yet entered into force,would have banned the deployment of land-based strategic ballistic missiles with multiple warheads (MIRVedICBMs). Under this agreement, Russia would havehad to eliminate its 10-warhead SS-18 ICBMs and 10-warhead SS-24 ICBMs. It also would have to reduce, from6 to one, the number of warheads deployed onits SS-19 ICBMs. This would leave Russia with an ICBM force that consisted of single warhead SS-25 and SS-27missiles and around 100 aging SS-19 missiles.. Even without Treaty implementation, Russia is likely to eliminate many of the older multiple warhead missiles. The SS-18s, which have long been considered thebackbone of Russia's strategic nuclear force, are likely to reach the end of their service-lives by the end of thedecade. Russia would find it hard to maintainthese forces because the missiles were produced at a plant in Ukraine, which is no longer making ICBMs for Russia,and Russia lacks the economic resourcesneeded to build a new plant to support these missiles in Russia. However, if it were not bound by the START IIban on MIRVed ICBMs, Russia could deploy itsolder single-warhead SS-25 ICBM and new single-warhead SS-27 ICBM with 3 warheads. (24) Alternatively, Russia could develop new typesof decoys andpenetration aids for these missiles, to complicate U.S. efforts to intercept them with its missile defense system. Russia currently has 360 SS-25 missiles and 30 operational SS-27 missiles. The SS-27 missiles were expected to replace the SS-25 missiles in Russia's force. Russia is currently producing fewer than 10 of these missiles per year, but had hoped to produce up to 30 missilesper year later this decade. Many expertsbelieved Russia would eventually produce 300 SS-27 missiles, but with the low production rates currently in place,this number is likely to be lower. Even if eachof these missiles were to carry 3 warheads, Russia's ICBM force would likely include fewer than 1000 warheadsby the end of the decade. This contrasts withmore than 3,500 warheads on Russia's ICBM force now. So, even if Russia were to abrogate START I and set asideSTART II, it would probably institute sharpreductions in the size of its ICBM force. Deploy new intermediate range missiles. Several Russian officials have also suggested that Russia mightabrogate the 1987 INF Treaty and deploy new shorter-range and intermediate-range missiles. (25) As was noted above, Russia could pursue thisoption in an effortto offset any advantages that China might acquire if it expanded its nuclear forces in response to a U.S. NMD. Butthe threat to deploy new missiles in this rangecan also be seen as a part of Russia's attempt to convince U.S. allies in Europe to join it in opposing U.S. NMDplans. (26) In discussing this option, VladimirYakovlev, the former Commander of Russia's Strategic Rocket Forces noted that "in the event of the repudiationof the INF Treaty, Europe once again fallshostage to a clash between the nuclear superpowers. The United States is planning to [maintain] a 100,000-stronggrouping on the continent of Europe withcommand and control posts and the relevant infrastructure and all this is an extremely worthy target for Russianmissiles. (27) Russia could reportedly produce new intermediate range missiles in a relatively short amount of time. According to one official, the Moscow Institute of Heat andEngineering, Russia's leading design bureau for ballistic missiles, has already prepared blueprints and technicaldocuments for the system and could transfer themto the Votkinsk missile assembly facility as a soon as a decision was made to begin producing missiles. (28) Nevertheless, it is unlikely that it could producelargenumbers of these missiles in a short period of time. The Votkinsk Missile Assembly facility is the same locationwhere Russia produced the SS-25 missiles and iscurrently producing the SS-27 missile, at a rate of fewer than 10 per year. Economic constraints would make it verydifficult for Russia to expand production atthis facility. Hence, any increase in the production of intermediate-range missiles could come at the expense of thealready-low production rate for SS-27 missiles. Redeploy shorter-range nuclear delivery systems. During the early 1990s, the United States and Soviet Unionboth withdrew from deployment many of their shorter-range nuclear delivery systems. They did this unilaterally,without any negotiated agreements and withoutany formal monitoring or verification provisions. For Russia, these weapons came out of deployment areas in theother former Soviet republics and near Russia'sborders. Many were consolidated at storage areas within Russia. Some analysts in the United States have expressedconcerns that Russia might return some ofthese weapons to deployment or to storage areas closer to Russia's western borders. The Commander of Russia'sStrategic Rocket forces indicated that this was apossibility when he stated that Russia could also institute "changes to the principles of employment and deploymentof operational-tactical nuclear weapons" as apart of its response to U.S. deployment of NMD. (29) This type of response would not give Russia any new capabilities to threaten the United States or to penetrate U.S. missile defenses. However, it would beconsistent with Russia's new national security strategy, which allows for the possible use of non-strategic nuclearweapons in response to conventional militaryattacks on Russia. Most experts believe that this change in Russia's strategy is a response to the degradation inRussia's conventional military capabilities, and itsgrowing concern about the military implications of NATO enlargement. In addition, the threat of new nucleardeployments near Europe could be a part ofRussia's efforts to draw support from the United States' allies in Europe for Russia's opposition to missile defense. According to this school of thought, the morethreatened the Europeans feel by Russia's potential responses, the more likely they are to pressure the United Statesto alter its policy on missile defense. Most experts agree that Russia will not win the support of U.S. allies in Europe, even if it threatens to redeploy shorter-range or intermediate-range nuclear forcesnear its western borders. However, if Russia intends to make these changes anyway, in response to its diminishedconventional capabilities, then the collapse ofarms control in response to U.S. missile defense policy could provide a convenient excuse. Russian officials have stated that, instead of relying on missile defenses that could upset stability and underminearms control, the two sides should rely on "anumbrella based on diplomacy" (30) and has offeredproposals for measures that the international community might adopt to address the threat posed by missileproliferation. The Clinton Administration did not dismiss the Russian approach, but also did not accept it as analternative to the U.S. approach. Then-Secretaryof Defense Cohen noted, after the June 2000 summit between Presidents Clinton and Putin, that the response tomissile proliferation should include bothdiplomatic efforts to stop proliferation and defensive systems to protect the nations from possible attack. (31) In June 1999, Russia proposed that the international community establish a Global Missile and Missile Technology Non-proliferation Control System (GCS). Russia advocated this regime as "component part of the global regime of the non-proliferation of missiles andmissile technologies." (32) It would, in part,complement the Missile Technology Control Regime - which regulates the supply side of missile technologies - byregulating the behavior of nations that mightseek to acquire ballistic missile technologies; and, would operate under U.N. auspices. It would also provideincentives to nations so that they would forgo theirown missile arsenals. Russian officials said the goal was to present an alternative to NMD that maximizes"peaceful" diplomatic and political efforts to addressconcerns about missile proliferation. (33) Specifically, Russia proposed that the international community create a pre-launch and post-launch notification launch-monitoring regime to build transparencyinto ballistic missile developments. Nations that participated in this regime would gain an understanding of missiledevelopments in neighboring countries andmight feel less threatened, and therefore, less compelled to develop their own missiles. The regime would alsoinclude a global monitoring system to provide a"mechanism for detection of missile launches for any purpose." This monitoring system, which could build on thesystem under development by the United Statesand Russia, might also ease tensions and uncertainties about ballistic missile developments. For nations who agreedto forgo the development of their ownballistic missiles, the Russian proposal offered security guarantees, with the international community coming to anation's assistance if it were attacked by ballisticmissiles. Finally, the proposal contained incentives for countries to forgo the development of ballistic missiles. (34) The Clinton Administration responded cautiously to the Russian proposal. It reportedly saw some positive elements, but also had concerns that the discussionsmight be used as a forum to criticize U.S. NMD plans and undermine U.S. efforts to win support for missiledefenses. (35) Furthermore, although the UnitedStatessupported the principle of a multilateral launch notification regime, it preferred to focus its attention on the bilateralU.S.-Russian effort. It believed it would beeasier to make the Joint Data Exchange Center available to other countries once it was operational than to conductmultilateral negotiations to establish the center. Russia has held two organizational meetings on its proposal for a GCS. At the first conference, in March 2000, Russia outlined its plan for the regime. At thesecond, in February 2001, the participants talked about an international code of conduct on missile technologytransfers that had been proposed at the MTCRmeetings in 2000. This code would affect the demand side, placing limits on nations seeking to advance theirmissile capabilities. The United States has notparticipated actively in the GCS forum. The U.S. embassy sent an observer to the first meeting but no U.S. officialattended the second. The ClintonAdministration agreed to try to integrate the GCS proposal into the existing MTCR framework, but it did not supportthe creation of a separate regime outside ofthe MTCR framework. (36) The Russian Proposal. Russia's President Vladimir Putin first proposed that Russia cooperate with nations inEurope in developing defenses against theater ballistic missiles in June 2000, shortly after his summit meeting withPresident Clinton. He referred to this conceptas "a regionally-based missile defense system" that would not require any changes in the ABM Treaty." (37) Putin's initial, general proposal was followed bymeetings between NATO officials and Russia's Minister of Defense, Igor Sergeyev, later in June. At that time,General Sergeyev reportedly outlined theframework for cooperation that Russia had in mind. He said that possible areas of cooperation could include: -- joint assessment of the nature and scale of missile proliferation and possible missile threats; -- joint development of a concept for a pan-European nonstrategic missile defense system and of a procedure for its creation and deployment; -- joint creation of a pan-European multilateral missile launch warning center; -- the holding of joint command and staff exercises; -- the conducting of joint research and experiments; -- joint development of nonstrategic missile defense systems; -- creation of nonstrategic missile defense formations for joint or coordinated actions to protect peacekeeping forces or the civilian population. (38) Russia's second proposal was included in a nine-page paper entitled "Phases of European Missile Defense" that was presented to NATO's Secretary General LordGeorge Robertson in Moscow in February 2001. This paper reportedly added details to the general outline thatRussia had first presented in June 2000. One keydifference was that, instead of hinting at the use of boost-phase defenses, as Russia had done in June 2000, the newpaper indicated that the defensive systemwould rely on more conventional terminal defenses in transportable units that could be moved to counter specificthreats during a crisis. (39) But the rest of theproposal remained essentially the same. Russia and the European nations would first cooperate in a forum thatwould review and assess emerging ballistic missilethreats. They could then establish a joint early warning center to process data and share information on missilelaunches. These nations could also jointlydevelop, build and deploy a non-strategic anti-ballistic missile system that could be ready for rapid deployment toany area in Europe where the threat of missileattack might arise. (40) According to some reports,the plan was "long on generalities and short on specifics." It provided "little technical evaluation and no costestimates, development timetables, or organizational structures." It simply represented a "theoretical basis for howa mobile European-based system might bedeveloped using Russian technology." (41) Russian officials emphasized that Russia had the technology, industrial base, and testing facilities needed to develop and produce a mobile non-strategic ballisticmissile defense system. They also noted that Russia had the early warning network needed to monitor and respondto ballistic missile threats that might emergefrom nations to the south of Europe. (42) The paperpresented to Lord Robertson did not identify the technologies that could be used in the system, but it did containa diagram, and analysts who reviewed the material concluded that Russia intended to use its S-300 and S-400air-defense systems. (43) The S-300 reportedlyincludes a sophisticated set of tracking devices and rockets that can reportedly intercept up to six missiles or aircraftat one time. (44) These systems are reportedlybased on the SA-10 air-defense system that the Soviet Union first deployed in the late 1960s. The systemaccomplished some successful intercepts of theater-range ballistic missiles in the mid-1990s. Jane's StrategicWeapons Systems attributes this system with capabilities similar to the U.S. Patriot system, which canintercept shorter-range ballistic missiles. (45) ButRussian sources claim the S-400 version will be able to intercept missiles with ranges up to 3,500 kilometers. This version reportedly entered production in mid-2000 and may become operational in 2001. (46) The U.S. and European Reactions. When Russia first offered its proposal for a European missile defensesystem, the Clinton Administration said the idea could not serve as a substitute for a U.S. NMD. Specifically,Secretary of Defense Cohen stated that it wouldleave the United States and Europe vulnerable to attacks from long-range rockets being developed by countries suchas Iran and North Korea. Therefore, it couldnot protect the United States or its allies from the full range of emerging threats. (47) To be acceptable to the United States, a missile defense sytem would haveto"protect all of the United States territory." Therefore, the Russian suggestion for a cooperative system with Europe"could supplement, but not substitute for thesystem that the U.S. is developing." (48) The European reaction to Russia's initial proposal was also "guarded" According to a European diplomat, "There is a lot of skepticism because this would seemto be another attempt by Moscow to drive a wedge between Europe and the United States." (49) Many analysts also considered the proposal to abe a "clumsy"attempt by Moscow to draw the European nations away from the United States and to increase pressure on theClinton Administration to defer missile defensedeployment and remain within the ABM Treaty. The reaction to Russia's February 2001 paper that added details to the June 2000 proposal was not as critical. Officials from the both Bush Administration andNATO noted that Russia's focus on theater missile defenses for Europe indicated that Russia appeared to agree withthe United States that missile proliferationposed a threat and agreed that missile defense systems, as well as diplomacy and arms control, could play a role inaddressing the threat. (50) Some analystssuggested that a change in tone that accompanied Russia's second proposal, and the fact that it came less than amonth into the Bush Administration, signaled thatRussia realized that the new President was more committed to the deployment of missile defenses and that Russia'sopposition could be futile. Instead, byoffering more details on the Russian alternative, Russia could be seeking to maintain a dialogue with the UnitedStates on missile defenses. (51) The Clinton Administration sought to address Russian concerns about the U.S. plans for missile defense by convincing Russia that the ABM Treaty would remainlargely in place, that missile defenses would remain relatively limited, and that they would be directed againstpossible small-scale attacks from "rogue" nations. As was noted above, the Clinton Administration agreed with the Russian view that the ABM Treaty was thecornerstone of strategic stability. It proposed onlymodest changes to the Treaty, so that it could deploy a limited ground based site in Alaska, rather than NorthDakota, and so that it could upgrade radarcapabilities. It acknowledged that the United States might seek further modifications in the future, but it neversuggested that it would deploy a robust, layereddefense that included sea-based or space-based interceptors. Administration officials also met frequently with Russian officials to discuss U.S. NMD plans and to seek Russian agreement on changes to the ABM Treaty. Although these discussions proved futile, and Russia offered little more than a simple "no" in response to U.S.initiatives, this effort appeared to indicate that theUnited States placed a high priority on reaching agreement with Russia before it proceeded with its missile defenseplans. Administration officials indicated thatthe United States would consider withdrawing from the ABM Treaty if Russia failed to accept modifications butRussia apparently never believed that the ClintonAdministration would take this step. This view may have contributed to Russia's reluctance to accept or evendiscuss the U.S. proposals. The Bush Administration has altered sharply the U.S. approach towards addressing Russia's concerns. First, the Administration does not support the view that theABM Treaty remains the cornerstone of strategic stability. To the contrary, Secretaries Rumsfeld and Powell statedthat the Treaty is "ancient history" and "notrelevant in the current strategic framework." In his speech on May 1, 2001, President Bush said the United Statesmust "leave behind the constraints of the ABMTreaty" and, instead, "replace this treaty with a new framework that reflects a clear and clean break from the past..." Second, the Bush Administration has not accepted the limited approach to missile defenses that had been pursued by the Clinton Administration. Although theAdministration insists that its defensive systems will also be directed against "rogue" nation threats and accidentallaunches, it has not pledged to keep that systemlimited to a few hundred interceptors based at one or a few sites on land. Instead, the Administration has pledgedto develop a "layered" defense that will includecomponents based on land, at sea, and in space. Unlike the Clinton Administration, and possibly because it has notyet settled on an architecture, the BushAdministration has not yet sought to convince Russia that the technologies included in U.S. missile defense planscould not intercept a deliberate Russian attackand would not undermine Russia's deterrent. Instead, the Administration has offered verbal assurances that it doesnot view Russia as an adversary, and,therefore, would not direct U.S. missile defense efforts against Russian forces. In late July 2001, Presidents Bush and Putin agreed that the two nations would hold discussions on their offensive nuclear weapons and missile defenses, and seekto reach agreement on a new strategic framework. These discussions began in early August, when Russian officialsreceived a detailed briefing on U.S.technologies and the Bush Administration plans for missile defenses. But the Bush Administration did not viewthese discussions as the opening round in aformal negotiating process that might produce a new treaty limiting offensive nuclear weapons or missile defenses. Instead, the United States wanted Russia toagree to set aside the ABM Treaty, or to have both parties withdraw from it together, so that the United States couldproceed with missile defense. Russia, on the other hand, preferred to keep some form of Treaty regime in place. It acknowledged that the world has changed and that the relationship with theUnited States has changed, but it continued to place a value on the predictability and formality offered by armscontrol agreements. Reports indicate that it mayhave been willing to permit more extensive testing of missile defense systems, and to relax the definitions in theAgreed Statements on Demarcation so that theUnited States can test TMD systems against a wider range of targets. It also sought details about how the U.S.missile defense program would be constrained bythe ABM Treaty, so that the two sides could devise amendments to relax the relevant constraints. In essence, Russiaapproached the Bush Administration with aresponse that would have been acceptable, and possibly even effective, during the Clinton Administration, whenthe United States was willing to modify the ABMTreaty. But the Bush Administration did not offer any proposals for amendments because it did not want anyconstraints to remain on U.S. missile defense plans. Members of Congress have expressed a range of opinions about the Bush Administration's approach to missile defense and arms control. (52) Congress did not votedirectly on binding legislation that would address the question of whether the United States should withdraw fromthe ABM Treaty. It does, however, have annualopportunities to review the Administration's plans for missile defenses when it reviews the Administration's budgetrequests during the annual authorization andappropriations process. These debates may be dominated by questions about the costs and technical feasibility ofU.S. missile defense plans. But the Membersmay also address some questions about the implications of these plans for the U.S. relationship with Russia and thefuture of the arms control process. Will Russia continue to cooperate on offensive arms reductions? Many critics of U.S. missile defense policyconsider Russia's threat to withdraw from a range of offensive arms control agreements as a key threat to U.S.security. They note that these agreements not onlyreduce the size of the only arsenal that can threaten U.S. survival, but they also include monitoring and verificationprovisions that bring predictability,transparency, and cooperation to the U.S.-Russian nuclear relationship. Others, however, argue that the benefitsof arms control are not worth the cost ofremaining vulnerable to missile attack. They note that Russian nuclear forces are likely to decline sharply duringthe next decade under economic constraints,with or without arms control. They also note that the United States and Russia have signed a new Treaty that wouldreduce their offensive nuclear forces, so thatRussia's withdrawal from older Treaties would not undermine U.S. security. (53) Finally, they contend that the United States and Russia have established amature,cooperative relationship on nuclear weapons issues and that the transparency and predictability from this relationshipcould continue even if the countries were notmonitoring compliance with arms control treaties. Will Russia continue to cooperate in non-proliferation and threat reduction activities? Some critics of U.S.missile defense policy argue that Russia might cease its cooperation in a range of other policy areas if the UnitedStates were to withdraw from the ABM Treaty. They point to Russia' expanding nuclear cooperation with Iran as evidence that Russia could do serious harm to U.S.national security if it chose to pursue a lessrestrained nonproliferation policy. Some also contend that Russia might withdraw from participation in theNunn-Lugar Cooperative Threat Reduction Program,where the United States provides financial and technical assistance in securing and eliminating Russian nuclearweapons and materials. Without U.S.participation, these weapons and materials might be lost, stolen, or sold to nations seeking their own nuclearweapons. Some believe these possibilities could posea greater threat to U.S. security than the emerging missile threats that would be the target of U.S. missile defenses. Others, however, doubt that Russian policies in these areas would be linked to U.S. withdrawal from the ABM Treaty. They note that Russia has been cooperatingwith Iran in nuclear developments and military sales for many years, and that these activities are driven more byRussia's interest in earning hard currency than byRussia's interest in undermining U.S. non-proliferation objectives. Some also argue that Russia would not be likelyto cut off cooperation under the Nunn-Lugarprograms because it recognizes the threats posed by the potential loss of nuclear weapons and materials and it wouldbe unable to safeguard and eliminate agingnuclear weapons without U.S. assistance. Will Russia convince other nations to support its objections to U.S. missile defense policies? Russia conducteda world-wide public relations campaign in an effort to win the support of other countries in its opposition to U.S.missile defense policies. It joined with China onnumerous occasions to criticize U.S. missile defenses as a threat to international stability and it has sought to winsupport from U.S. allies in Europe by promisingto cooperate on the development of theater missile defenses for Europe. It has also issued declarations with manyother nations in support of the ABM Treaty andopposition to U.S. missile defense plans. Some critics of U.S. missile defense plans argue that the United States might find itself isolated in the international community if it continues to pursue missiledefenses and withdraws from the ABM Treaty. They note that most countries are at least uncomfortable, if notoutright opposed, to this policy. Some fear thatthese nations might interfere with or complicate other areas of U.S. policy if they feel that the United States hasupset the international order with its pursuit ofmissile defenses. The Bush Administration pledged to consult with U.S. allies before it proceeded with missile defense, in part to ease their concerns and reduce their resistence. Supporters of missile defense deployments generally support consultation with U.S. allies, although some haveexpressed concern that the Administration'semphasis on these consultations could leave U.S. policy vulnerable to the objections of other nations. And manydo not think these objections will affect the U.S.international position. They argue that U.S. missile defenses will enhance, not degrade, international security, andthat other nations will realize that they willbenefit in the long run if the United States pursues this course. Some also note that international criticism will not,in the long run, affect U.S. policy objectives. Finally, as is noted below, the international reaction to the U.S. withdrawal from the ABM Treaty was relativelyquiet, in large part because Russia's reaction wasso mild. During the first months of the Bush Administration, analysts and observers debated how Russia would react ifand when the United States withdrew from theABM Treaty. They questioned whether Russia would continue to press its objections to U.S. policies on missiledefense and the ABM Treaty, or whether it wouldtry to reach an accommodation with the Bush Administration on a new framework for strategic stability. Manymembers of the Bush Administration believed thatthe United States would gain Russia's cooperation when Russia realized that the U.S. was committed to withdrawingfrom the ABM Treaty. They noted thatRussia remained extremely interested in reductions in offensive nuclear forces and that the Bush Administration'splans to reduce U.S. forces would ease Russia'sconcerns about U.S. intentions. Others, however, argued that Russia had outlined well-reasoned and complex objections to U.S. policies on missile defense and the ABM Treaty, and that it wasnot likely to change its views in the near term. Instead, they believed that Russia could follow through on its threatsto withdraw from a range of arms controlagreements and its plans to augment its nuclear forces. They argued that the United States might eventually becomeless secure, even if it deployed missiledefenses, because it would be faced with a more adversarial, less cooperative Russia. And Russia would retainenough nuclear weapons to saturate the U.S.defenses and threaten the survival of the United States. This debate grew silent in September 2001, after the terrorist attacks on the World Trade Center and Pentagon. Russia's President Putin was the first internationalleader to call President Bush after the attacks and he quickly offered his support to the U.S. war on terrorism. Heallowed U.S. forces to use bases in formerSoviet republics and he cooperated by sharing intelligence and Russian knowledge about Afghanistan. TheU.S.-Russian relationship that emerged in the lattermonths of 2001 seemed to prove the Bush Administration's view that the two nations were no longer enemies andthat they could build a new, more cooperativerelationship. Thus, when President Bush announced, on December 13, 2001, that the United States had given Russia the six-month notice of its intent to withdraw from theABM Treaty, Russia's reaction differed sharply from the conventional wisdom. Reports indicated that the WhiteHouse called President Putin in the days beforethe announcement, and that the two sides worked together to craft statements that would indicate that the withdrawalwould not upset their relationship. In hisstatement, President Putin said that he considered the U.S. decision to be "mistaken" and he emphasized that Russiahad done everything it could to preserve theTreaty. But he indicated that the U.S. withdrawal would not undermine U.S.-Russian relations, and that the twosides should work out a "new framework ofmutual strategic relations." (54) The White Housewelcomed Putin's statement and said that it agreed that the U.S. withdrawal presented "no threat to the security ofthe Russian Federation." The White House also pledged to work with Russia to formalize reductions in offensiveforces, a process that Russia viewed as a highpriority. (55) Other officials and analysts in Russia responded with a similar, mild tone. Andrey Kokoshin, who had served as Russia's Deputy Defense Minister and was amember of the Duma, also referred to the U.S. decision as a mistake, but said that it would not undermine Russia'ssecurity because Russia had weapons systemsthat were capable of overcoming U.S. defenses. Kokoshin said that Russia would not have to "step up thecapabilities" of its strategic nuclear forces. (56) MarshallIgor Sergeyev, the former Defense Minister and an adviser to Putin, echoed these views. He said that the U.S.withdrawal would not create any problems forRussia's military security for 10-15 years. He also supported the negotiation of a new strategic framework, arguingthat it "would be extremely undesirable toremain in a legal vacuum on strategic stability matters for a long time." (57) Some in Russia, however, offered a more negative response. The Dumaapproved aresolution that called the U.S. withdrawal "mistaken and destabilizing." (58) By the time the U.S. withdrawal took effect, on June 13, 2002, the United States and Russia had negotiated a new Treaty limiting strategic offensive weapons andthe Presidents had signed a Joint Declaration outlining a new framework for cooperation between the two nations. Although some tensions remained in thisrelationship, particularly with respect to Russia's nuclear cooperation with Iran, cooperation between the two nationscontinued to grow. The U.S. withdrawalfrom the ABM Treaty no longer seemed like a potentially divisive issue. Foreign Minister Ivanov noted the event,but stated the "the primary aim now is tominimize the negative consequences of the U.S. withdrawal." (59) He, and others, noted that Russia had convinced the United States to continue negotiations onreductions in strategic offensive forces, which represented a significant achievement for Russian diplomacy. Furthermore, Defense Minister Sergei Ivanov notedthat the U.S. missile defense system did not yet exist and, therefore, there was no reason for Russia to retaliate. (60) The Russian Duma, on the other hand, criticized the U.S. withdrawal, calling it a "gross political mistake" and proposed that, in response, Russia "declare itselffree from its commitments under the START II Treaty." (61) The Russian government took this step on June 13, 2002, when the Foreign Ministry issued astatement saying that Russia no longer felt bound by the Treaty. (62) This step, however, was largely symbolic. Officials in both the U.S. and Russian governmentshave indicated that the Treaty has been set aside; they acknowledged its absence when they referred to the STARTI Treaty as "START" in the text of the newStrategic Offensive Reductions Treaty. Hence, although Russian officials criticized U.S. missile defense plans and promised to take military and diplomatic steps in response to the U.S. withdrawal fromthe ABM Treaty, the Russian reaction when the event occurred was far less aggressive. The changes in theinternational security environment, and the continuingimprovements in the U.S-Russian relationship, had essentially buried the debate over the ABM Treaty. | In the late 1990s, the United States began to focus on the possible deployment of defenses against long-range ballistic missiles. The planned National MissileDefense (NMD) system would have exceeded the terms of the 1972 Anti-Ballistic Missile Treaty. Recognizing this,the Clinton Administration sought toconvince Russia to modify the terms of the Treaty. But Russia was unwilling to accept any changes to the Treaty. It also decried the U.S plan to deploy NMD,insisting that it would upset strategic stability and start a new arms race. Russia claimed that the ABM Treaty is the "cornerstone of strategic stability" and that, without its limits on missile defense, the entire framework of offensivearms control agreements could collapse. Furthermore, Russia argued that a U.S. NMD system would undermineRussia's nuclear deterrent and upset stability byallowing the United States to initiate an attack and protect itself from retaliatory strike. The Clinton Administrationclaimed that the U.S. NMD system would bedirected against rogue nations and would be too limited to intercept a Russian attack. But Russian officialsquestioned this argument. They doubted that roguenations would have the capability to attack U.S. territory for some time, and they believed that the United Statescould expand its NMD system easily. Furthermore, they argued that, when combined with the entirety of U.S. conventional and nuclear weapons, an NMDsystem would place the United States in aposition of strategic superiority. During the Clinton Administration and first year of the Bush Administration, Russian officials stated that, if the United States withdrew from the ABM Treaty anddeployed an NMD, Russia would withdraw from a range of offensive arms control agreements. Furthermore, Russiacould deploy multiple warheads on itsICBMs to overcome a U.S. NMD, or deploy new intermediate-range missiles or shorter-range nuclear systems toenhance its military capabilities. Russia has also outlined diplomatic and cooperative military initiatives as alternatives to the deployment of a U.S. NMD. Russia has proposed that theinternational community negotiate a Global Missile and Missile Technology Non-Proliferation regime as a meansto discourage nations from acquiring ballisticmissiles. It has also suggested that it would cooperate with nations in Europe to develop and deploy defensesagainst theater-range ballistic missiles. Manyanalysts believe this proposal was designed to win support among U.S. allies for Russia's opposition to the U.S.NMD program. U.S. officials expressed aninterest in the idea but said it could not substitute for defenses against longer-range missiles. The Clinton Administration sought to address Russia's concerns by offering continued support to the fundamental principles of the ABM Treaty and by seeking toconvince Russia that the U.S. NMD system would remain too limited to threaten Russia's nuclear deterrent. TheBush Administration, in contrast, has supportedmore robust missile defenses, but it also has stated that they will not be directed against Russia's offensive forces. The President has indicated that the UnitedStates will need to move beyond the limits in the ABM Treaty, but he suggested that Russia join the United Statesin developing a new strategic framework. |
C hild welfare services are intended to prevent the abuse or neglect of children; ensure that children have safe, permanent homes; and promote the well-being of children and their families. As the U.S. Constitution has been interpreted, states bear the primary authority for ensuring the welfare of children and their families. At the same time, the federal government has shown long-standing interest in helping states improve their services to children and families and, through the provision of federal funds, compels states to meet certain child welfare requirements. For FY2018, an estimated $9.5 billion in federal support was made available for child welfare purposes. Comparable funding for FY2017 is estimated at $9.3 billion. The increase reflects additional discretionary program funding provided by the Consolidated Appropriations Act of 2018 (FY2018 omnibus, P.L. 115-141 ) to address the impact of parental substance abuse on children and the child welfare system, to help implement the Family First Prevention Services Act (Family First; Div. E., Title VII, of P.L. 115-123 ), and to pay incentives to states that increase the rate at which children leave foster care for permanent adoptive or legal guardianship families. Additionally, mandatory funding made available under the Title IV-E foster care and permanency program is expected to increase in FY2018, primarily for support of adoption assistance. This report begins with an overview of FY2018 federal funding made available for child welfare programs. Next, it shows program-level funding provided in FY2018 and several recent fiscal years in Table 1 . The report then discusses in greater detail the purposes and distribution of the additional FY2018 discretionary funding provided for child welfare programs. Federal child welfare funding for FY2018 is expected to be $9.5 billion. This amount includes $8.3 billion in open-ended mandatory dollars and $1.2 billion in combined capped mandatory and discretionary funding. Most child welfare funding is authorized under Title IV-E of the Social Security Act for support of children in foster care, including ensuring that they are afforded certain protections while in care, and for assistance to children who leave foster care for new permanent families via adoption or legal guardianship. For FY2017, the federal government's budget authority for Title IV-E foster care and permanency totaled $8.2 billion, and for FY2018 may exceed $8.3 billion (+$111 million). All of the increase is tied to expected growth in program spending for adoption assistance and kinship guardianship assistance (+$195 million), while obligations for foster care are projected to decline (-$85 million). Title IV-E funding for these purposes is authorized on a mandatory and "open-ended" basis. Under this kind of authorization, the law stipulates that states, territories, or tribes operating a Title IV-E program are entitled to receive reimbursement for a part of every dollar spent on behalf of an eligible child and for an eligible program purpose. In February 2018, Congress passed Family First. Among other changes to child welfare programs, it authorizes— as of FY2020 —open-ended and mandatory Title IV-E funding for a part of the cost of providing certain time-limited substance abuse and mental health treatment services and in-home parent skills based programs. These services and programs may be made available to children and their parents or kin caregivers to prevent the need for children to enter foster care. Separately, Family First authorizes— as of FY2019— open-ended and mandatory funding for state kinship navigator programs. While none of this Family First-authorized Title IV-E funding is available in FY2018, as is discussed later in this report, some funding provided as part of the FY2018 omnibus is intended to support implementation of Family First. Funding for child welfare services to children and families and for related research and evaluations, demonstration projects, and incentive payments totaled $1.2 billion for FY2018. This funding is authorized primarily in Title IV-B and in certain sections of Title IV-E of the Social Security Act, as well as in the Child Abuse Prevention and Treatment Act (CAPTA). Some additional support is made available through Adoption Opportunities, and the Victims of Child Abuse Act. Most of this funding is counted as discretionary, with the funding level determined each year as part of the appropriations process. Some of this funding is considered as "capped mandatory" because the law entitles states to receive a portion of a total funding level that is specified in the program's authorizing law (and thus that total funding is provided in annual appropriations acts). The $1.2 billion in total capped mandatory and discretionary child welfare funding for FY2018 is $140 million above comparable funding provided in FY2017. This is due to increases in discretionary funding. Specifically, the FY2018 omnibus ( P.L. 115-141 ) provided increased discretionary funding as follows: $60 million in additional CAPTA state grants funding, with instructions for states to "prioritize" development of plans of safe care for infants identified as substance-exposed; $40 million in additional Title IV-B (Promoting Safe and Stable Families) funding to (1) support state and tribal kinship navigator programs, (2) increase support for grants to regional partnerships to improve outcomes for children affected by parental substance abuse, and (3) expand the ability of the U.S. Department of Health and Human Services (HHS) to provide technical assistance to states in implementing the evidence-based requirements included in the Family First Prevention and Services Act (Div. E., Title VII, of P.L. 115-123 ); $37 million in additional funds to make Adoption and Legal Guardianship Incentive Payments (authorized in Title IV-E of the Social Security Act); and $3 million in additional funding for Court Appointed Special Advocates (CASAs) (under the Victims of Child Abuse Act). Table 1 provides a snapshot of child welfare funding provided in each of FY2014-FY2018. Funding is shown by program or program component and within the part of the law where the program is authorized. The amount shown is the level appropriated in the final appropriations bill for the given fiscal year, or, in the case of Title IV-E foster care, adoption assistance, and kinship guardianship, it is based on the budget authority provided in that legislation or the most recent level of funds obligated under the program during that year. At the federal level, nearly all of this funding is administered by the Children's Bureau, which is an agency within HHS's Administration for Children and Families (ACF). The only exception to this concerns the several grant programs authorized under the Victims of Child Abuse Act. Funding for these programs is administered federally by the Office of Justice programs at the Department of Justice. Most of the increase in discretionary funding for child welfare was provided with the opioid crisis in mind. Substance use disorders often impair parenting, and as such are a perennial challenge for child welfare agencies. They may be accompanied by mental health challenges or depression, and can lead to unemployment or otherwise limit the ability of parents to provide for the physical and developmental well-being of their children. The current epidemic of opioid abuse has been accompanied by an increase in the number of infants who, having been exposed to drugs in-utero, experience a set of withdrawal symptoms after birth referred to as neo-natal abstinence syndrome (NAS). Separately, the number of children entering foster care, and for whom parental drug abuse is associated with their entry to care, has been growing. During FY2016, nearly 274,000 children entered foster care (up from 251,000 in FY2012). For more than one-third (92,000) of those children, drug abuse by a parent was associated with their removal from the home. Many child welfare administrators believe the increase in children and families in need of services is a consequence of the opioid crisis, and some research shows a statistical relationship between increased drug overdose rates and drug-related hospitalizations, and higher rates of child abuse and neglect reports, substantiated child abuse, and entry to foster care. As of the last day of FY2016, the number of children remaining in foster care had grown to 437,000 (compared to 397,000 on the last day of FY2012). Traditionally, kin caregivers have helped mitigate the strain on child welfare agencies brought on by a drug epidemic by providing care that enables children to remain outside of foster care or to leave care more quickly. At the same time, studies of kin caregivers have shown that they may have limited income, be older, and may have their own service needs (e.g., health care). In the current opioid epidemic, state child welfare agencies are again seeking help from kin caregivers. Funding for CAPTA state grants was $25.3 million in FY2017 and increased to $85.3 million for FY2018. Generally, states must use CAPTA state grant funds for any of 14 categories of spending intended to improve the way the state receives and responds to reports of child abuse and neglect, and they must provide certain assurances to HHS regarding the policies they have in place to carry out child protection activities. The explanatory statement that accompanied the FY2018 omnibus spending measure ( P.L. 115-141 ) notes that the additional $60 million in FY2018 funding for these grants is to help states "improve their response to infants affected by substance use disorder and their families." While the additional CAPTA state grant funds are not strictly limited to this use, the explanatory statement does direct states to "prioritize" development of plans of safe care for substance-exposed infants. Under current law, as part of receiving CAPTA state grant funds, states are required to have policies in place for the development of a plan of safe care for infants who are identified as affected by "substance abuse or withdrawal symptoms." Under the amendments to CAPTA by the Comprehensive Addiction and Recovery Act of 2016 (CARA, P.L. 114-122 ), these plans are expected to protect the safety and well-being of such infants by addressing the health and substance use disorder treatment needs of the infants and the affected families or caregivers. Additionally, the CARA amendments to CAPTA direct states to develop monitoring systems to determine how local entities are providing services or referrals under such plans and as required by state policy. Close to half of the states (23) were initially unable to provide assurances to HHS of their compliance with the plan of safe care requirements as amended by CARA, thus putting their receipt of CAPTA state grant funds in jeopardy. However, in May 31, 2018, program instruction, HHS's Children's Bureau noted that all states had taken the compliance steps necessary to receive their FY2018 CAPTA funding. Therefore, the only additional step required to receive the full amount of FY2018 funding was for each state to include in their Annual Progress and Services Report (which was due to the HHS-Children's Bureau by June 30, 2018) how they intend to use the increased FY2018 CAPTA funding, with a priority on developing, implementing, or monitoring plans of safe care. States have five years from the first day of the fiscal year in which these CAPTA funds are awarded to use them. This means they have until September 30, 2022, to expend FY2018 CAPTA funds. The explanatory statement also directs HHS to provide "necessary technical assistance, monitoring and oversight to assist and evaluate State's activities on plans of safe care," and it requests that an update on those activities be provided to Congress in early 2019. As noted above, states have met the minimum compliance standards for this CAPTA requirement. However, a Government Accountability Office (GAO) survey conducted last year found that a majority of states agreed that it would be "extremely to very helpful" to receive additional technical assistance regarding developing, implementing, and monitoring plans of safe care for substance-exposed infants. Related topics for which states sought further guidance or information included requirements for health care providers to notify child protective services (CPS) of substance-affected infants; assessing risks and needs of substance-affected infants and their families; specific needs of infants prenatally exposed to opioids or diagnosed with neonatal abstinence syndrome (NAS); interagency collaboration, and services to address the needs of substance-affected infants and their families; and data collection or information sharing. CAPTA state grant funding is awarded to the 50 states, the District of Columbia, Puerto Rico, and four additional territories. Each of these 56 jurisdictions receives a base amount of $50,000 and remaining funds are distributed based on a jurisdiction's share of the national child population. The increased CAPTA state grant funding triggers a modification to this distribution that will ensure that no state (including the 50 states, DC, or Puerto Rico) receives an award of less than $150,000. There is no cost sharing or state match requirement in this grant program. Kinship navigator programs are intended to help kin caregivers identify and access services and supports they need to care for children living with them and themselves. The FY2018 omnibus ( P.L. 115-141 ) included $19 million in discretionary funding to allow states and tribes to develop, enhance, or evaluate kinship navigator programs. This funding was included in the FY2018 discretionary appropriation made for the Promoting Safe and Stable Families (PSSF) program. The explanatory statement notes that "as parents struggle with opioid addiction and substance use disorder, more grandparents and relative caregivers are taking primary responsibility for the care of children." According to the omnibus ( P.L. 115-141 ), the FY2018 funding for kinship navigators is also provided to assist states in developing programs that meet the evidence-based practice standards that are included in the Family First Prevention Services Act (Title VII, Div. E of P.L. 115-123 ), which was enacted in February 2018. Under that law, states will be able to claim federal support for fully 50% of their kinship navigator programs beginning with FY2019. However, they may only claim this funding for kinship navigator programs that have been found to meet "promising," "supported," or "well-supported" evidence standards. Further, beginning with FY2019 the kinship navigator programs supported via Title IV-E dollars must do each of the following: establish information and referral systems that link kinship caregivers to other kin caregivers/support groups, public benefit eligibility and enrollment information, and relevant training and legal services; be planned and operated in consultation with kin caregivers, youth raised by kin, organizations representing kin caregivers, and relevant public and private agencies; provide outreach to kinship care families; and promote public and private partnerships to increase knowledge about the needs of kinship families (including families fostering teen parents) and improve services to them. Jurisdictions seeking to receive these FY2018 funds were instructed to submit documentation indicating this as of July 20, 2018, along with a brief outline describing how they intend to use the funds. Additionally, HHS notes that while all the navigator programs should be planned so they will, in the end, include all of the activities listed above, a jurisdiction does not need to ensure that all of these activities will immediately be a part of their navigator programs. The FY2018 funds may be used to support kinship navigator activities during FY2018 and FY2019 (October 1, 2017–September 30, 2019). The FY2018 omnibus makes any state (including DC), territory, or tribe that has an HHS-approved plan to operate a foster care prevention and permanency program under Title IV-E is eligible to receive some of this funding. Specifically, the law provides that every eligible state (including DC) and territory choosing to participate must receive a minimum grant of $200,000 and every eligible tribe choosing to participate must receive a minimum grant of $25,000. The remaining funds are to be allocated to these participating jurisdictions based on applicable formulas used in the PSSF program. Unlike the kinship navigator funding that will be available under the Title IV-E program (as of FY2019), there is no matching requirement for jurisdictions receiving the FY2018 funding for kinship navigators. Forty-five states, the District of Columbia, two territories, and eight tribes submitted requests for this funding by the July 20 deadline. HHS has determined it may be "more flexible" on the deadline for jurisdictions that did not submit by that date and expects it may still receive a few more applications. P.L. 115-141 also included an additional $19 million to increase support for grants to regional partnerships to improve outcomes for children affected by parental substance abuse. This funding for regional partnership grants (RPGs) was also included in the PSSF discretionary funding account for FY2018 and was provided in addition to the separate $20 million in PSSF mandatory funding reserved annually for the regional partnership grant program. Regional partnerships are collaborations of two or more agencies (one must be the child welfare agency administering the Title IV-E foster care program or a tribal child welfare agency) in a defined region or area. Since the RPG program was launched in September 2006, more than 80 partnerships have been funded in at least 36 states, including some tribal areas. Of those, 21 grantees in 19 states are currently being funded. The additional FY2018 RPG support provided in P.L. 115-141 is expected to enable HHS to award up to 10 additional competitive grants. Each grantee is expected to receive between $1.5 million and $1.9 million in funds to be spent across a 36-month period. Grantees must provide some matching funds. Applications for this competitive grant funding are due August 13, 2018. Strategies used to improve outcomes for children and families affected by substance use disorders in the initial round of RPGs included strengthening or expanding services to families with substance abuse concerns; providing more timely access to treatment services (residential treatment and out-patient/home-based); enhancing or creating court-based drug treatment programs; creating better service integration; and improving knowledge, skills, and collaboration across practice areas. Additionally, grantees quickly learned the importance of strengthening their recovery services, especially through implementing or enhancing peer/parent mentors, recovery coaches, or other substance abuse specialists; providing key supportive services, particularly housing (the lack of which grantees noted directly impacts the ability of families to be reunited) as well as medical and health care services; integrating services to adults and children to serve the family as a whole; better identifying child-specific needs and connecting them to services (e.g., early childhood development); and designing services to identify and address effects of trauma on both the adults and children served. Subsequent RPG awards announced in 2012 and 2014 required grantees to implement evidence-based or evidence-informed programs, including trauma-informed services. An ongoing cross-site evaluation of grantees initially funded in 2012 and 2014 has tracked measures of child and parent well-being as part of assessing program impacts. Of the increased discretionary PSSF funding, $2 million is reserved to HHS for research and evaluation activities. These funds may be used to identify, establish, and disseminate practices that meet the evidence-based standards that will apply to foster care prevention services—including substance abuse and mental health treatment services and in-home parent skills-based programs. Under the recently enacted Family First Prevention Services Act, those services are authorized to be supported under the Title IV-E program beginning with FY2020. States earn Adoption and Legal Guardianship Incentive Payments if they increase the rate at which children who would otherwise remain in foster care are safely placed in new permanent families via adoption or legal guardianship. The FY2018 omnibus roughly doubled funding for these incentive payments—increasing the overall funding from $37 million in FY2017 to $75 million in FY2018. Because the amount of incentive payments earned by states in the most recent award cycle exceeded the amount of funding HHS had on hand to pay those awards, this funding enables HHS to make states whole for awards already earned and will allow some funds on hand to be used to make payments for a new award cycle later this year. Specifically, the most recent awards were announced in September 2017 (for adoptions and legal guardianships completed in FY2016). In that year, 47 states (including DC) earned incentive payments totaling $55 million. However, HHS had just $5 million available to make the incentive awards. Accordingly, $50 million of the FY2018 funding for these incentive payments (provided as part of P.L. 115-141 ) was used by the HHS-Children's Bureau to complete full awards to states for FY2016 performance. The remaining FY2018 appropriated funds (circa $25 million) remain available for awards to states related to increases in adoptions or legal guardianships completed in FY2017. Those performance awards are expected to be announced in August or September 2018. Appendix C provides a funding history for the program, and shows incentives earned by state. Subtitle II of the Victims of Child Abuse Act authorizes funding to strengthen Court Appointed Special Advocates (CASA) programs. Funding for CASA grew to $12 million in FY2018 (the full authorization level for the program) compared to $9 million in FY2017. Appendix A. Distribution of FY2018 PSSF Funding The Promoting Safe and Stable Families (PSSF) program receives some capped mandatory funding and is also authorized to receive funding on a discretionary basis. The bulk of this combined PSSF funding is provided for formula grants to states (including DC), territories, and tribes for provision of four categories of child and family services: family support, family preservation, family reunification, and adoption promotion and support. However, in each year a portion of the funding (mandatory, discretionary, or both) is reserved for the State Court Improvement Program (CIP); tribal court improvement; monthly caseworker visit grants; regional partnership grants (RPGs) to improve outcomes for children affected by parental substance abuse; and program-related research, evaluation, and technical assistance. For FY2018, additional PSSF funding was provided to support kinship navigator programs and to increase funding reserved for RPGs and technical assistance. Separately, existing PSSF funds were tapped to support development of increased electronic interstate case processing capacity. Table A-1 shows FY2018 PSSF funding by activity (including whether the funding was provided on a mandatory or discretionary basis, or both). For FY2018, the total PSSF appropriation was $445 million, including $345 million in mandatory funds and just under $100 million in discretionary funding. However, PSSF mandatory funding is subject to sequestration applied to nonexempt, nondefense accounts (6.6% for FY2018). This reduced mandatory funding available to about $322 million and overall PSSF funding to about $422 million. Appendix B. Currently Funded Regional Partnership Grants (RPGs) HHS expects to award the additional $19 million in RPG funding provided in the FY2018 omnibus ( P.L. 115-141 ) to 10 partnerships before the end of September 2018. (For more information, see the funding opportunity online at https://www.grants.gov/web/grants/view-opportunity.html?oppId=304263 . ) As shown below, there are 21 grantees in 19 states that are currently receiving RPG funding. This funding was initially awarded in September 2014 (4 grantees) or September 2017 (19 grantees) and each grantee is expected to receive funding across a five-year period (based on continued reservation of mandatory PSSF funds). Appendix C. Adoption and Legal Guardianship Incentive Payments Incentive payments for increased permanency via adoption were established by the Adoption and Safe Families Act (ASFA, P.L. 105-89 ). Incentive payments for establishing permanency via legal guardianship were added as of earnings year FY2014 ( P.L. 113-183 ). The law provides that data reported by a state as of August must be used to calculate incentive payments for performance during the previous fiscal year. Accordingly, incentive payments earned in a given fiscal year (e.g., FY2017) are initially announced for award at the end of the succeeding fiscal year (e.g., FY2018). Table C-1 shows the funding and total incentive payments awarded under the Adoption and Legal Guardianship Incentive Program since it was established by ASFA. Incentive payments earned for FY2017 are expected to be announced by September 2018 and, as shown in Table C-1 , about $25 million in FY2018 funding is available to make those payments. (Incentive payments earned for FY2016 were announced in September 2017. See Table C-2 for awards by state.) Awards by State for FY2016 Performance In numerous recent years, not enough funding was available for HHS to make full payment to states at the time the initial award was announced. Accordingly, HHS prorated an initial award amount and used appropriations in a subsequent year to make states whole. For example, in September 2017 HHS had $5.3 million in program funds to award. Accordingly, it provided this amount on a prorated basis to each state that earned an award (for FY2016 performance) and in April 2018, following the appropriation of full-year program funding, it awarded the remaining funds. Table C-2 shows incentive payments awarded for state performance in FY2016 (the most recent year available) by category of awards earned. Those categories, and the measure used to determine whether an increase is achieved, have varied over the years. For more information on the current categories and the categories previously used, see CRS Report R43025, Child Welfare: The Adoption Incentive Program and Its Reauthorization . The incentive structure described in this report (as included in H.R. 4980 (113 th Congress)) was subsequently enacted in the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ) and is currently in use. | Child welfare services are intended to prevent the abuse or neglect of children; ensure that children have safe, permanent homes; and promote the well-being of children and their families. For FY2018, an estimated $9.5 billion in federal support was made available for child welfare purposes. Comparable funding for FY2017 is estimated at $9.3 billion. At least $100 million of the FY2018 increase was provided as discretionary appropriations intended to address the impact of parental substance abuse on children and the child welfare system and to help implement the Family First Prevention Services Act (Div. E., Title VII, of P.L. 115-123). About $37 million in additional discretionary funding was provided to enable the U.S. Department of Health and Human Services to provide full incentive payments to states that are increasing the rate at which children who are otherwise expected to remain in temporary foster care are placed in permanent adoptive families or with a legal guardian. Finally, mandatory funding made available under the Title IV-E foster care, prevention, and permanency program is expected to increase by some $111 million in FY2018. The bulk of this increase is expected to provide ongoing assistance to children who leave foster care for permanent adoptive or guardianship families. Spending on foster care is not projected to grow and Title IV-E funding for prevention activities (as provided for by the Family First Prevention Services Act) is not available before FY2020. FY2018 began on October 1, 2017, but full funding levels for it were not determined until enactment, on March 23, 2018, of the Consolidated Appropriations Act, 2018 (P.L. 115-141). In the interim, funding to continue child welfare programs in FY2018 was provided via short-term funding measures, including P.L. 115-56 (through December 8, 2017), P.L. 115-90 (through December 22, 2017), P.L. 115-96 (through January 19, 2018), P.L. 115-120 (through February 8, 2018), and P.L. 115-123 (until March 23, 2018). |
On August 24, 2016, Colombian government negotiators and the negotiating team for the Revolutionary Armed Forces of Colombia (FARC) signed a final peace agreement in Havana, Cuba, after almost four years of formal peace talks. On September 17, 2016, the FARC began their 10 th National Guerrilla Conference, which lasted for five days. At the conference's conclusion, 200 FARC delegates present at the event gave unanimous support to the peace agreement. On September 26, 2016, Colombian President Juan Manuel Santos and the head of the FARC—Rodrigo Londoño, alias "Timochenko"—signed the final agreement in a ceremony held in the port city of Cartagena, henceforth known as the Cartagena Agreement. On October 2, 2016, a peace plebiscite vote was held. The measure was narrowly rejected by 50.21% compared to 49.78% of the vote, with departments (or states) and municipalities most affected by the conflict generally voting in favor of the accord. On October 7, 2016, the Norwegian Nobel Peace Prize Committee awarded President Santos the Nobel Peace Prize for his "tenacious effort to put an end to the civil war that has ravaged his country for more than 50 years." On November 12, 2016, the FARC and government negotiators concluded a revised accord that the Santos Administration maintained had modifications and adjustments based on consulting the opposition. On November 30, 2016, the Colombian Congress ratified the new accord with unanimous votes in both chambers. Members who were in opposition (largely the Democratic Center Party headed by former President Álvaro Uribe) walked out and did not vote. On December 13, 2016, the Colombian Constitutional Court approved the fast-track mechanism for swift implementation of the peace accord between the Colombian government and the FARC. On December 28, 2016, the Colombian Congress unanimously approved a law with conditions to benefit rank-and-file FARC. Its passage was seen as a precondition for the FARC's demobilization process to be carried out in different concentration zones around the country. Colombia, a longtime U.S. ally, has long been riven by internal conflict. Its legacy of political violence has roots in the late 19 th century. Despite its long history of democracy, Colombia's lack of a strong central government with presence across the country left room for an insurgency. In the 1960s, numerous leftist groups inspired by the Cuban Revolution accused the Colombian central government of rural neglect that resulted in poverty and highly concentrated land ownership. These groups formed guerrilla organizations to challenge the state. The ensuing internal civil conflict between violent, leftist guerrilla groups and the government continued unabated for half a century. The two main leftist groups are the FARC and the smaller National Liberation Army (ELN). Since the mid-1960s, both rebel groups have conducted terrorist attacks, destroyed infrastructure, and engaged in kidnapping and extortion and other criminal profiteering. Right-wing paramilitaries arose in the 1980s, when wealthy landowners organized to protect themselves from the leftist guerrillas and their kidnapping and extortion schemes. Most of the paramilitary groups organized under an umbrella organization, the United Self Defense Forces of Colombia (AUC). Intertwined with this legacy of conflict is Colombia's predominant role in the illicit international drug economy. Colombia has been a source country for both cocaine and heroin for more than four decades. Drug trafficking has helped to perpetuate Colombia's internal conflict by funding both left-wing and right-wing armed groups The shift of cocaine production from Peru and Bolivia to Colombia in the 1980s increased drug violence and provided revenue to both guerrillas and paramilitaries. By the late 1990s, the FARC, the ELN, and the AUC were all deeply involved in the illicit drug trade. The U.S. government designated all three violent groups as Foreign Terrorist Organizations (FTOs). Armed conflict in Colombia over the past five decades has taken a huge toll. Tens of thousands of Colombians have died in the conflict, and the government has registered more than 25,000 as missing or disappeared. According to government figures, more than 6 million people have been displaced, creating one of the largest populations of internally displaced persons in the world (greater than 10% of Colombia's estimated 48 million inhabitants). This large displacement has generated a humanitarian crisis, which has disproportionately affected women, Afro-Colombians, and indigenous populations, and left many dispossessed and impoverished. In addition, the use of land mines laid primarily by the FARC has caused more than 11,000 deaths and injuries since 1990. According to the government, Colombia's casualty rate from land mines is second in the world, behind only Afghanistan. The armed group that came to be known as the FARC began as a rural peasant movement that traced its roots to Colombia's armed peasant self-defense groups that emerged in the 1940s and 1950s. It grew from largely a regional guerrilla movement based in the mountainous region between Bogotá and Cali in a period called " la violencia " to become the armed wing of the Colombian Communist Party. In 1964, the guerrillas announced the formation of the FARC, a group dedicated to rural insurgency and intent on overturning what it perceived as Colombia's systemic social inequality. Working to take power militarily, the FARC grew steadily over the decades and drew resources from criminal activity to better equip and expand its forces. Observing the growing revenues of the illegal drug trade, the FARC initially began collecting taxes from marijuana and coca growers in areas that they controlled, but their role in the drug trade expanded rapidly. The FARC also conducted bombings, mortar attacks, murders, kidnapping for ransom, extortion, and hijackings, mainly against Colombian targets. The FARC's involvement in the drug trade deepened to include all stages of drug processing, including cultivation, taxation of drug crops, processing, and distribution. By the early 2000s, the FARC was thought to control about 60% of the cocaine departing Colombia. During the 1980s, under Colombian President Belisario Bentancur, the FARC attempted to enter politics by establishing a political party, the Patriotic Union ( Union Patriotic a [UP]) as part of the peace process then underway with the government. While scores of UP officials won office in the 1986 and 1988 elections, the group was targeted for assassination, and the UP was soon wiped out by its enemies, mainly paramilitary forces, collaborating Colombian security forces, and, to a much lesser extent, rogue elements of the FARC. As a result, the FARC withdrew from the political process to concentrate on a military victory. Between 1998 and 2002, the Administration of President Andrés Pastrana attempted new negotiations with the FARC and granted a large demilitarized zone (approximately 42,000 square mile area, about the size of Switzerland) within which negotiations could take place. The FARC was widely perceived to have used the demilitarized zone as a "safe haven" to regroup, re-arm, and rebuild its forces. With continued FARC military activity, including the hijacking of a commercial airliner and the kidnapping of a Colombian senator, President Pastrana halted the peace negotiations in early 2002 and ordered the military to retake control of the designated territory. At the same time, President Pastrana began to develop Plan Colombia—a strategy to end the country's armed conflict, eliminate drug trafficking, and promote development. Introduced in 1999, Plan Colombia was originally conceived as a $7.5 billion, six-year plan, with Colombia providing $4 billion and requesting the rest from the international community. In June 2000, the U.S. Congress approved legislation in support of Plan Colombia, providing $1.3 billion for counternarcotics and related efforts in Colombia and neighboring countries, which began a multi-year effort with the United States as the major international funder. In the late 1990s, partly due to the drug profit-fueled FARC insurgency, the Colombian government was near collapse. According to a poll published in July 1999, a majority of Colombians thought the FARC might someday take power by force. In areas where the state was weak or absent, the void had been filled by armed actors. Some observers estimated as much as 40% of Colombian territory was controlled by the FARC forces and the state had no presence in 158 (16%) of Colombia's 1,099 municipalities (counties). By the time the faltering negotiations between the FARC and the Pastrana government broke off in 2002, the Colombian public was totally disillusioned with the prospects for a peace deal with the leftist insurgents. It was during this period of the early 2000s that the FARC reached the peak of its size and power, with an estimated 16,000-20,000 fighters. In 2002, independent candidate Álvaro Uribe was elected president upon assurances that he would take a hard line against the FARC and the ELN and reverse their military gains. President Uribe served for two terms (2002-2010), during which time he reversed Colombia's security decline and made headway against the illicit drug trade. His high levels of popular support reflected the notable security gains and accompanying improvements in economic stability during his tenure, although his policies were criticized by human rights organizations. President Uribe's "democratic security" policy made citizen security the preeminent concern of state action. It combined counterrorism and counternarcotics efforts in a coordinated approach with the goal to assert state control over the entire national territory. In late 2003, the Uribe Administration began a new offensive against guerrilla forces known as Plan Patriota. In this U.S.-supported effort, Colombian ground troops were sent into rural southern Colombia to retake territory that had been ceded to the FARC. Between 2003 and 2006, the government deployed 18,000 troops in the departments (states) of Caquetá, Meta, Putumayo, and Guaviare against the FARC's most powerful structures—its eastern and southern blocs (see Figure 1 for map of the departments). Plan Patriota reduced FARC ranks, recaptured land held by the FARC, and confiscated large amounts of equipment used to process cocaine. Despite those advances, critics point to the enormous number of civilians who were displaced during the campaign and the lack of a strategy to hold the territory taken from the FARC by establishing a permanent state presence. During President Uribe's second term, considerable headway was made in further reducing the strength of the FARC. Several events in 2008 considerably weakened the guerrilla group. On March 1, 2008, the Colombian military bombed the camp of FARC's second in command, Raúl Reyes, killing him and 25 others. But the bombing created a major controversy because the camp was located in Ecuador, a short distance over the border. The Reyes bombing raid in Ecuador, conducted when Juan Manuel Santos was serving as defense minister under President Uribe, was the first time the Colombian government had succeeded in killing a member of the FARC's ruling seven-member secretariat. In May, the FARC announced that their supreme leader and founder, Manuel Marulanda, had died of a heart attack in March. Also in March 2008, a third member of the ruling secretariat was murdered by his own security guard. These three deaths were a significant blow to the organization. In July 2008, the Colombian government dramatically rescued 15 long-time FARC hostages, including three U.S. defense contractors who had been held since 2003—Thomas Howes, Keith Stansell, and Marc Gonsalves—and French Colombian presidential candidate Ingrid Bentancourt and other Colombians. The widely acclaimed, bloodless rescue further undermined FARC morale. Following the August 2010 inauguration of President Juan Manuel Santos, who had pledged in his electoral campaign to continue the aggressive security policies of his predecessor, the campaign against the FARC's leadership (as well as mid-level commanders) continued. The Colombian government dealt a significant blow to the guerrilla group by killing the FARC's top military commander, Victor Julio Suárez (better known as "Mono Jojoy") in September 2010 in a raid on his compound in central Colombia. A year later, in November 2011, the Colombian military located and killed the FARC's top leader, Alfonso Cano, who had replaced founder Manuel Marulanda in 2008. A week later, the FARC announced that their new leader would be Rodrigo Londoño Echeverri (known as "Timoleón Jiménez" or "Timochenko"), who quickly made a public overture to the Santos government to open a political dialogue. In an announcement in February 2012, the FARC said it would release all its "exchangeable hostages" (security personnel who FARC forces had captured or kidnapped) and stop its practice of kidnapping for ransom. In April 2012, the FARC released what it claimed were its last 10 police and military hostages. The government estimated in 2012 that the FARC had 8,000-9,000 fighters. The FARC fronts—which have been pushed back to more remote rural areas, including along the jungle borders with Venezuela and Ecuador (see map contrasting 2002 presence with 2012 presence in Figure 2 )—had diversified their income sources from drug trafficking, extortion, and kidnapping to cattle rustling, illegal logging, and illegal mining, particularly gold mining in Colombia's north and along its Pacific Coast. Despite important military victories against the FARC by the Santos government, there was a gradual increase in both FARC and ELN attacks. This increase was especially notable in 2011 and early 2012, with the largest jump in rebel attacks on infrastructure such as electricity towers, trains carrying coal, and oil pipelines. Some observers speculate that this upswing in violence was an effort to demonstrate their strength to position themselves more strongly in peace talks that both the FARC and ELN actively sought. Despite public overtures by FARC leader Timochenko to engage with the Santos Administration in a political dialogue in late 2011 and early 2012, the Colombian government stated that the FARC was not meeting their minimum criteria to engage in peace discussions. The government suggested such criteria might include a release of all hostages (not just security force members), a cease-fire, an end to the use of land mines, and a halt in recruitment of children soldiers. The FARC's capability to revive itself and continue to threaten Colombia was considerable. The guerrilla organization had repeatedly proven itself capable of adaptation. Although the Uribe strategy made significant military gains, and President Santos's changes did not significantly alter the security policy's direction, the FARC demonstrated that it could not be readily overcome through military victory. Even after the Santos government in early 2012 shifted the focus of action from taking down high-value individual targets to dismantling the FARC's most important military and financial units, a clear end-game was not, in the view of many observers, in sight. Some observers suggested that the FARC's relative weakness and the government's military superiority engendered conditions favorable for a negotiated conclusion. Others questioned whether, after decades of conflict, both sides had arrived at a "hurting stalemate" in which each side viewed negotiations as more attractive than continuing to fight an unwinnable war. Several observers believed that the FARC's military capacity, if negotiations failed, would have allowed the FARC to fight on for another 10-15 years. The FARC, though clearly weakened, was spread out in difficult terrain, making detection and targeting by the security forces extremely challenging. The smaller ELN was formed in 1965, inspired by the ideas of Fidel Castro and Ché Guevara. The membership of this insurgent group was initially left-wing intellectuals, students, and Catholic radicals. Some observers maintain this organization is more ideologically motivated than the FARC, and stayed out of the drug trade for a longer period because of its political principles. Like the FARC, however, the ELN has long funded itself through extortion and kidnapping ransoms. In addition to terrorizing rural civilian populations, the ELN has especially targeted the country's infrastructure, particularly the oil sector (frequently hitting the Caño-Limón pipeline) and electricity sector. In the 1990s, the ELN turned to the illegal drug trade that began with the taxation of illegal crops. The ELN's size and strength have been dramatically reduced since that time, when its membership reportedly reached 5,000, although there have been periodic revivals. Advances by paramilitary groups, a consistent campaign against the rebel group by the Colombian government, and frequent competition and clashes with the FARC all contributed to its weakening. The ELN is now largely based in the northeastern part of the country and operates near the Venezuelan border. The ELN today is estimated to have fewer than 2,000 fighters, but the group remains capable of carrying out high-profile kidnappings and bombings. Over the years, the ELN has periodically engaged in peace discussions with the Colombian government, including attempts held both inside and outside the country to open a peace dialogue with the Uribe Administration. The last round of talks, which ended in June 2008, was followed by the government's stepped up operations against the insurgent group. During the first two years of the Santos Administration, ELN supreme leader Nicolas Rodriguez Bautista (known as "Gabino") made several overtures to find a "political solution" to the conflict. When the exploratory talks between the FARC and the government were announced by President Santos in late August 2012, the ELN leader expressed an interest in joining the process that was acknowledged by the President. After the FARC-government talks moved to Cuba in November 2012, the ELN leadership expressed again its interest in participating and reportedly started back-channel discussions with the Colombian government. The Santos Administration expressed a willingness to engage with the ELN, but indicated that the ELN would not be invited to join the peace talks with the FARC. If any formal talks were to commence, the government believed that the talks would be independent, at least initially. In June 2014, the Santos Administration announced that it had begun preliminary talks with the ELN's leadership, and agreement on a framework for formal talks and terms or conditions for initiating formal negotiations were under discussion. The framework for separate talks with the ELN may differ in some significant ways from the FARC-government agenda because the two leftist guerrilla groups have different concerns and ideologies. As mentioned above, recent evidence indicates that the ELN has raised its level of violence. Some analysts believe that the ELN has been able to build up its forces because a truce between the ELN and the FARC agreed to in December 2009 may have finally gone into effect in 2011 following years of clashes and competition. The ELN has also reportedly made pacts with some of the criminal bands (or Bacrim , see below) that pursue drug trafficking and other illicit activities. The modest "comeback" of the ELN and increased attacks by the FARC on infrastructure in recent years come at a time when there is a growing threat from former rightist paramilitaries (see below). In March 2016, the ELN and the Santos government said they would begin formal peace talks, but that deadline was never met. Later in the year, after a peace plebiscite vote was held on October 2, 2016, that rejected the FARC-government accord by a narrow margin, the Santos Administration said that talks would formally begin with the ELN in late October 2016. However, the deadline was not met because the ELN failed to release kidnap victims it had held for some time and negotiations were again delayed. Paramilitary groups originated in the 1980s when wealthy ranchers and farmers, including drug traffickers, organized armed groups to protect themselves from kidnappings and extortion plots by the FARC and ELN. In 1997, local and regional paramilitary groups formed an umbrella organization that joined them together under the banner of the United Self Defense Forces of Colombia (AUC). The AUC massacred and assassinated suspected insurgent supporters and directly engaged the FARC and ELN in military battles. The Armed Forces of Colombia have long been accused of ignoring and at times actively collaborating with these activities. The AUC, like the FARC, earned much of its funding from drug trafficking, and, at the time the organization disbanded in 2006, AUC paramilitaries were thought to control a significant portion of cocaine production in Colombia. In July 2003, President Uribe concluded a peace deal with the rightist AUC in which the AUC agreed to demobilize its troops and conditional amnesties were proposed for combatants under a controversial Justice and Peace Law (JPL). At the time the demobilization began in 2004, the State Department estimated AUC troop levels between 8,000 and 10,000 members, although some press reports estimated up to 20,000. When the demobilization officially ended in April 2006, more than 31,000 AUC members had demobilized and turned in more than 17,000 weapons. Despite the demobilization, many AUC leaders remained at large until August 2006, when President Uribe ordered them to surrender to the government to benefit from the provisions of the Justice and Peace Law. By October 2006, all but 11 paramilitary leaders had complied with the presidential order. Many observers, including human rights organizations, have been critical of the demobilization of the AUC, which is sometimes described as a partial or flawed demobilization. Some critics are concerned that paramilitaries were not held accountable for their crimes and adequate reparation has not been provided to AUC victims, among other concerns. There is a general consensus that not all former paramilitaries demobilized and many who did have reentered criminal life by joining smaller criminal organizations, collectively called Bacrim (for bandas criminales emergentes , "emerging criminal bands") by the Colombian government and some analysts. The U.S. government did not remove the AUC's designation as an FTO until July 2014. The Bacrim—which carry out many types of violent crime, including drug trafficking and political killings—are considered by many observers and the Colombian government to be the biggest security threat to Colombia today. Some analysts contend that these powerful groups, successors to the paramilitaries, are tolerated by corrupt officials, and prosecution of their crimes has proceeded slowly. As noted above, the Bacrim both compete with and cooperate with the FARC and the ELN. In 2012, some analysts estimated that Bacrim groups had a presence in more than a third of Colombia's 1,100 municipalities. A 2013 study by Colombia's National Federation of Ombudsmen found that the Bacrim are responsible for 30% of human rights violations in the country, and that percentage has reportedly increased over the course of negotiations with the FARC. The Bacrim are primarily involved in drug trafficking but also engage in extortion and other violent crimes. A group known as Los Urabeños emerged in 2013 as the dominant Bacrim (sometimes referred to as the Clan Úsuga), gaining nearly 3,000 members by 2015. A Colombian nongovernmental organization (NGO), Indepaz, has anticipated that there could be a territorial reorganization of the "narco-paramilitary groups" in the aftermath of the peace accord with the FARC, with Bacrim groups vying to take over FARC drug and illegal mining businesses. In the 1990s, the illegal armed groups and powerful drug trafficking organizations (sometimes working together) noted above threatened to overpower Colombia's police and weak justice system. At the time, the commission of human rights abuses was also rampant in the relatively weak and undertrained Colombian military. Accepting these harsh realities, President Pastrana began to expand both the Colombian National Police and the military, recognizing that a much larger, more professional, and better-equipped military and police would be required to regain state control over Colombia's territory. Between 1998 and 2002, the armed forces in Colombia grew by 60% to 132,000. Before the Uribe Administration took over in 2002, Colombian administrations had generally treated the growth of the FARC and drug trafficking as separate issues. After negotiations between the Pastrana government and the FARC failed, the government abandoned its strategy of attempting to negotiate with the guerrilla insurgents. President Uribe refocused efforts on defeating the guerrillas, which became the primary thrust of his government's "democratic security policy." An early element of the strategy was the invasion launched in 2003 against FARC strongholds in southern Colombia called Plan Patriota. By the end of Uribe's second term in August 2010, the Colombian military numbered 283,000 and the national police numbered 159,000. Along with new personnel (roughly a doubling between 1998 and 2010), the Pastrana and Uribe governments reformed the military's command and control structures, upgraded equipment, and extensively increased training, partly funded by the United States under Plan Colombia. Some analysts maintain that the U.S. support to Plan Colombia was a "robust but not massive" amount of assistance. They estimate that the United States provided approximately 10% of Colombia's total expenditures on security between 2000 and 2009. As noted earlier, Plan Colombia, a multi-faceted program first conceived under the government of President Pastrana but reinforced and refocused under President Uribe, was designed to strengthen democratic institutions, combat drug trafficking and terrorism, promote human rights and the rule of law, and foster economic development. The majority of U.S. funding, which began in 2000, was originally for counternarcotics support. Because narcotics trafficking and the insurgency had become intertwined, in 2002 the U.S. Congress granted the State Department and the Department of Defense flexibility to use U.S. counterdrug funds for a unified campaign to fight drug trafficking and terrorist groups. U.S. assistance was critical to improve the mobility of both the armed forces and the national police by providing helicopters and other aircraft. U.S. support under Plan Colombia also provided assistance in training, logistics, planning support, and intelligence to the Colombian security forces. Other important programs supported rule of law and human rights, alternative development efforts, assistance to internally displaced persons and refugees, and the demobilization of illegally armed groups. Since 2008, as Colombia's security and development conditions improved, former U.S.-supported programs have been nationalized to Colombian control and Plan Colombia funding has gradually declined. U.S. assistance provided through State Department and Department of Defense accounts declined to less than $500 million in FY2012. Plan Colombia's follow-on strategy, the National Consolidation Plan (PNC), formally launched in Colombia in 2009, was a whole-of-government effort that integrated security, development, and counternarcotics by consolidating state presence in previously ungoverned or weakly governed areas. The PNC aimed to reestablish state control and legitimacy in strategic "consolidation zones" where illegal armed groups operate through a phased approach that combines security, counternarcotics, and economic and social development initiatives. The consolidation strategy in Colombia that replaced Plan Colombia was reorganized several times under the Santos Administration. The peace negotiations with the FARC initiated by the Santos government were the fourth attempt in 30 years to engage in formal talks to end that insurgency. In announcing exploratory peace talks in August 2012, President Santos said that the errors of past negotiations with the guerrilla organization would not be repeated. He said that the talks would be prudent and pragmatic and that they would learn from the past. Two key precedents weighed most heavily on the talks launched in 2012—negotiations that took place during the Administrations of President Betancur (1982-1986) and President Pastrana (1998-2002). President Betancur reached out to the guerrillas in his inauguration in August 1982 with an offer to pursue peace talks. His first substantive move in that direction was a broad amnesty law that did not require disarmament for its implementation and included various other guerrilla groups, many of whom took advantage of the sweeping amnesty to demobilize. The negotiations with the FARC began following the government and FARC's agreement to a bilateral cease-fire, with a small demilitarized zone established in the municipality of La Uribe in the Meta department, long a FARC stronghold. Under the terms of the cease-fire, FARC forces would simply retain their locations where they were operating before the cease-fire. The cease-fire lasted from May 1984 to June 1987, although disarmament remained a major sticking point. During this period, the FARC announced they were going to establish a political party to compete in the mainstream political system. The party, Unión Patriótica (UP), founded in May 1985, contemplated the idea that the FARC would bring some of its reform ideas into the political sphere. However, the formation of the UP was not predicated on a disarmament (the FARC were allowed to keep their arms as a guarantee, without demobilizing). The UP party won national and local seats. For example, in the 1986 elections the UP won eight congressional seats and six Senate seats in Colombia's bicameral Congress. In municipal elections held in 1988, it won hundreds of city council seats and several mayorships. But the UP was soon decimated by its enemies, which according to some sources were largely paramilitaries or drug traffickers. Reportedly, more than 3,000 UP members were killed, including its presidential candidates, who were assassinated in 1986 and 1990, with few suspects ever prosecuted. As a result of the violence against the UP, the FARC withdrew from politics to concentrate on a military victory. The major lesson learned from this experience was that the integration of insurgent groups into the democratic political process is precarious and requires effective guarantees. The UP's historical experience was (and is) one that many in the FARC are wary not to repeat. The FARC's leaders have sought to ensure that adequate conditions for their participation in the political arena, which had not existed earlier, and particularly their security, would be ensured. In the talks that began in 2012, one of the main topics negotiated concerning the political participation of the FARC "and new movements that may emerge" was their security and viability after the signing of a final agreement. The second precedent involved negotiations under President Pastrana that began in 1998, shortly after his inauguration. Again, the then-President ceded to a FARC demand that negotiations must take place within a demilitarized zone inside Colombia. The large demilitarized zone or " despeje " was established in five municipalities in the south-central departments (states) of Meta and Caquetá (as mentioned earlier often compared to the size of Switzerland). The Pastrana government pursued negotiations with the FARC in a period when FARC power was ascendant, and many had fears that the Colombian state was weak and might even fail as a result of pressure from insurgents. The FARC demonstrated its lack of commitment to the peace process by using the demilitarized zone to regroup militarily, launch violent attacks, grow coca on a large scale, and hold hostages. Peace negotiations with the FARC were ongoing for most of Pastrana's single term in office until he closed them down and asked the military to retake the demilitarized zone in February 2002. The failed negotiations severely disillusioned the Colombian public and generated widespread support for adopting a hardline approach to security embodied in the presidential campaign of Álvaro Uribe, who took office in August 2002. During Uribe's inauguration, the FARC launched a mortar attack at the ceremony (an apparent assassination attempt), which killed 21 and injured many more. The Colombian public's hardened views against the FARC and the security gains made during his eight years in office helped to make President Uribe and his democratic security policy tremendously popular. During his campaign for office, Juan Manuel Santos, who had served as defense minister in Uribe's second term, pledged to continue the security and trade policies of his predecessor, while pursuing a reform agenda in a program he called "democratic prosperity." In remarks at his August 2010 inauguration, President Santos stated that the door to negotiate an end to the five-decade armed conflict was not closed. In his first two years in office, President Santos launched a number of reforms and achieved some legislative victories. In late August 2012, he announced that exploratory peace talks with the FARC had taken place in secret in Cuba, to the surprise of many. Out of these preliminary discussions, the government and the FARC leadership agreed to a framework for formal peace talks that began in Norway in October 2012. A number of the reforms promoted by the Santos Administration reoriented the government's stance toward the internal armed conflict—both its victims and its combatants. The government proposed a landmark Victims and Land Restitution Law ("Victims' Law") to compensate an estimated 4 million-5 million victims of the conflict with economic reparations and provide land restitution to victims of forced displacement and dispossession. Implementation of this complex law began in early 2012, and the government estimates over its 10-year time frame the Victims' Law will cost about $32 billion to implement. The Victims' Law, which committed the Colombian government to restituting victims and returning stolen land to former owners, was not a land reform measure. It did, however, tackle the issue of land distribution, which is a core concern of the FARC. In June 2012, the Colombian Congress approved another government initiative—the Peace Framework Law. This constitutional amendment provided a transitional justice structure for an eventual peace process if the Congress passed enacting legislation. When implemented, the law gave incentives for combatants to provide information about their crimes and reparations to victims in exchange for reduced or alternative sentences. In late August 2013, Colombia's Constitutional Court upheld this law. Later, in June 2016, the Colombian lower house approved the Legislative Act for Peace, granting an accord arrived at in Havana special judicial standing. Another constitutional reform bill, which passed the Colombian Congress in late December 2012 by a wide margin despite controversy, expanded the jurisdiction of military courts. Human rights groups criticized several of the bill's provisions for shifting jurisdiction of serious human rights crimes allegedly committed by Colombia's public security forces from the civilian courts back to military courts, increasing the likelihood of impunity (a lack of prosecution) for such crimes. While not technically a "precursor" because its passage took place after announcement of the exploratory talks, the military justice reform could also have had implications for the future treatment of members of the Colombian Armed Forces who have fought the FARC. However, in October 2013, Colombia's Constitutional Court ruled the law expanding military jurisdiction was unconstitutional. Since that time, the Santos Administration has introduced legislation (including one bill that was a constitutional amendment) that would again expand military jurisdiction. According to Human Rights Watch, as of early 2015, the constitutional amendment had passed through several of the needed debates in the Colombian Congress to ensure the legislation's passage. Ultimately, the law was not approved. The Ministry of Defense retracted the controversial piece of legislation and replaced it with another that limited the adjudicating powers of Colombia's military tribunals to only cases associated with military service. As a result, all extrajudicial execution cases labeled "false positives" by Colombian journalists, involving hundreds of civilian murders allegedly carried out by Colombian security forces to gain benefits by falsely dressing victims as guerilla fighters, would come under the purview of the civilian court system. Colombia's warming relations with neighboring Ecuador and Venezuela also seemed to have laid the groundwork for the peace talks. Shortly after Santos was inaugurated in 2010, diplomatic relations between Colombia and the two countries were reestablished, having been broken off under former President Uribe. Improved ties with both left-leaning governments led to greater cooperation on trade, counternarcotics, and security. Moreover, Venezuela's former President Hugo Chávez played an important role in facilitating the FARC's participation in the exploratory peace talk phase beginning in early 2012 (described below). Initial contacts between the FARC leadership and the Santos government in late 2010 reportedly involved Chávez's support. As noted above, in late August 2012, President Santos announced that secret "exploratory" talks between his government and the FARC had taken place over several months in Cuba. In his announcement, the President made clear that the errors of past negotiation efforts would not be repeated, that the goal of the talks was to end the conflict, and that the Colombian military would not cede any territory for a demilitarized zone nor roll back its operations against illegal armed groups. He also said the second-largest insurgent group in the country, the ELN, had expressed interest in joining the negotiations. On September 4, 2012, the surprise announcement was followed by more detailed information from the government and the FARC's supreme leader Timochenko, who said that formal talks would begin in October in Oslo, Norway, and continue afterwards in Cuba. Subsequently, both sides announced their negotiating teams (5 lead negotiators representing a team of up to 30). The government team as it was originally composed had a cross-section of influential actors within Colombian society, including Humberto de la Calle, a former vice president, as lead negotiator; General Jorge Enrique Mora, former commander of the Army, and a prominent spokesperson for retired military personnel; Luis Carlos Villegas, former president of the National Association of Business Leaders; retired General Oscar Naranjo, former head of the Colombian National Police; Frank Pearl, former minister of environment and former high commissioner of peace under Uribe; and Sergio Jaramillo, former top security advisor in the Santos Administration and now its high commissioner of peace. The FARC team was led by Luciano Marín Arango (known as "Iván Márquez"); member of the FARC's ruling seven-person secretariat and a veteran of prior negotiations. Others named initially to the FARC team included Seuxis Paucias Hernández (alias "Jesús Santrich"), Ricardo Tillez (alias "Rodrigo Granda"), Jesús Carvajalino (alias "Andrés Paris"), and Luis Alberto Albán (alias "Marco León Calarcá"). The FARC requested in 2012 that Ricardo Palmer (alias "Simón Trinidad") be freed from prison in the United States to join their negotiating team. Trinidad is serving a 60-year sentence in a Colorado Supermax prison for "hostage-taking conspiracy," and he was not released. Some observers maintained that the FARC would repeatedly request his presence, but the requests were never granted. The August 2012 framework for the talks, signed by both parties, identified six principal themes to be addressed during the negotiations: (1) rural development and land policy; (2) political participation of the FARC; (3) ending the armed conflict including reinsertion into civilian life of rebel forces; (4) illicit crops and illegal drug trafficking; (5) victims' reparations; and (6) the implementation of the final negotiated agreement, including its ratification and verification. (For an English translation of the framework agreement text, see Appendix ). The first topic under discussion, land and rural development, was one of particular importance to the FARC given its rural peasant origins and historic concern with Colombia's unequal land tenure patterns. The framework agreement also identified roles for Cuba, Norway, Venezuela, and Chile to support the negotiation process. The announcement of the talks was widely praised from within and outside of the region. The White House and the U.S. State Department, the Secretary General of the Organization of American States (OAS), and U.N. General Secretary General Ban Ki-moon all expressed their support for the peace initiative in Colombia soon after it was announced. Many nations in the region expressed support, with Brazil and others offering to assist in the mediation effort. The formal launch of the peace talks took place in Oslo, Norway, in mid-October 2012. The opening ceremony was punctuated by a joint news conference in which the FARC's lead negotiator, Iván Márquez, made some strident remarks about the guerrilla organization's many grievances against the Colombian government beyond the scope of the negotiated framework, dimming the hopes of some optimists. The FARC team also pushed for a bilateral cease-fire. The brief opening ceremonies held in Norway were followed by a month interlude as the talks moved to Cuba. On November 19, 2012, as the substantive phase of the peace talks opened in Cuba, the FARC announced a two-month, unilateral cease-fire they described as a goodwill gesture. The Colombian government responded that it would continue normal operations against rebel forces and would not agree to a bilateral cease-fire until there was a final accord. The peace talks in Havana, Cuba, were sometimes described as the second phase of the peace process, following the first phase of exploratory talks and initial contacts. The substantive discussions held in Cuba began with the weighty topic of rural development and land policy, the first on the six-point agenda articulated in the framework agreement. The closed-door meetings in Havana, whose confidentiality had been largely respected by both sides and the media, avoided the fate of prior negotiations, where positions were thrashed out in the media and tentative areas of agreement overcome by public posturing. Since the talks were essentially shielded from the media in Havana, there was not a great deal of detail about what the teams actually discussed, although regular press statements were posted on a government website, especially at the opening and closing of each round of talks. (This changed in 2014 with the publishing of the partial agreements negotiated to date. See " Developments in 2014 ," below.) At the outset, President Santos pledged the talks would not drag on indefinitely, and that he foresaw an end point in November 2013, although the FARC remained wary of any deadline. Coincidentally, November was when President Santos had to declare his run for reelection to a second term. Many observers contend that the Santos government gambled that the FARC would negotiate in good faith, and that the peace talks were likely to be the most significant political development of the Santos term in office. Popular support for the peace talks between the FARC and the government, which was crucial for their success, was at times high despite widespread mistrust of the FARC and deep skepticism of its leaders' intentions. In both September and December 2012, more than 70% of Colombians polled said they supported the talks, although far fewer thought the peace talks were likely to succeed. There were many vocal opponents to the Santos peace initiative, including former President Uribe, who decried the negotiations as a concession to terrorists. The former president was to become the most outspoken critic of President Santos and the negotiations, opposing many of his reform measures, his appointments, and especially his security policy, embodying what Uribe maintained was a conciliatory approach to the FARC and the leftist government of Venezuela. In mid-2012, Uribe launched a conservative political movement, the Democratic Center, to oppose the Santos government's coalition in Congress and Santos's policies. In September 2013, the former president announced his campaign to run for senator in the March 2014 congressional elections. (For further discussion of the elections, see below). The two-month unilateral cease-fire implemented by the FARC from November 20, 2012, to January 20, 2013, had numerous violations including aggressions by both sides. However, the number of FARC attacks fell overall by 87% compared to the equivalent period a year earlier, according to one think tank that monitors FARC activities, which demonstrated what some analysts saw as the leadership's "command and control" over far-flung FARC fronts. In addition, during the unilateral cease-fire, the closed door talks in Cuba took place without interruption except for agreed upon breaks between sessions. Immediately after the cease-fire ended in January 2013, attacks and kidnappings increased, such as the FARC's kidnapping of three oil engineers (who were subsequently released unharmed) and the kidnapping of two policemen and an army officer in the departments of Valle Del Cauca and Nariño. The government reiterated that it would not participate in a cease-fire. In early February 2013, the Colombian military killed a FARC military commander close to the FARC's lead negotiator, Iván Márquez. Such developments on the battlefield raised the issue of what influence the violence would have on the talks in Cuba. Public support continued to fluctuate as the military situation on the ground evolved and the talks traversed difficult issues. Violence levels periodically spiked during 2013, with FARC and government forces each suffering significant casualties at different points. Much of the violence by the insurgents was focused on infrastructure sabotage. Throughout the year, the FARC-government peace talks proceeded without a cease-fire honored by both sides. The Santos government continued its vow to not roll back its operations against illegal armed groups, including the FARC, during the peace negotiations, and said they would not agree to a bilateral cease-fire until there was a final accord. Although the FARC has called a unilateral cease-fire several times, including in mid-November 2012 through mid-January 2013 and mid-December 2013 through mid-January 2014, it did not abide by them absolutely. The talks in 2013 were bookended by unilateral cease-fires with a tacit awareness by both parties that a significant increase in violence could affect the peace talks or diminish public support for them. The negotiating teams announced that the complex issue of land and rural development in Colombia, the first topic on the agenda, was resolved in late May 2013, following six months of talks. In November 2013, the controversial issue of the FARC's political participation following disarmament was reported to be resolved. None of the details of those agreements were initially disclosed, and only the most general outlines were publicized. One of the principles of the peace talks in the framework agreement was nothing is agreed until everything is agreed , so that commitments made by the government and the FARC remained tentative until a comprehensive agreement was signed by both parties. (The partial agreements, however, were made public in September 2014. For more, see "Milestones at the Peace Talks During 2014," below.) Agreement on the issue of land and rural development, critical to the mostly peasant-based FARC, appeared to involve significant compromise. The broad outline of the agreement when announced in May 2013 alluded to the redistribution of farmland through a land bank (the Land for Peace Fund) and a process to formalize land ownership. The accord seemed to provide legal and police protection for farmers, infrastructure, and land improvement, as well as loans, technical assistance, and marketing advice to benefit small farmers and peasants, and other measures to alleviate rural poverty. The FARC's demand for as many as 9 million hectares of land in autonomous "peasant reserve zones" was rejected. However, the number of peasant reserve zones likely would increase and become the focus of rural development programs. Some observers noted that the mention of land titling—in a country where much rural land is held informally—and references to address both poverty and inequality in rural Colombia, following decades of conflict, signaled important advances of the land and rural development partial agreement. The joint declaration released on November 6, 2013, outlined the second issue of agreement, political participation. Agreement on this contentious issue –including the FARC's role in a post-conflict democracy—set out to ease political participation for opposition movements including parties that attracted demobilized FARC. It envisions a new "opposition statute" guaranteeing the rights of the political opposition within Colombia's institutional framework; enhanced access to the media; improved processes to form new political parties; citizen oversight through "Councils for Reconciliation and Coexistence;" security for opposition political candidates, especially for FARC- organized parties; guarantees for women's participation; and improved election transparency. The most controversial element was the establishment of special temporary districts for historically conflictive areas to elect legislators to Colombia's Chamber of Representatives, the lower house of Colombia's bicameral legislature. The temporary congressional districts fell short of FARC demands for guaranteed congressional seats or the formation of a new chamber in Congress, but were nevertheless controversial as many Colombians thought former FARC members should not be allowed to stand for political office. Late in 2013, the FARC-government negotiations took up the third topic in the six-point agenda—illicit drug crops and drug trafficking. Elements of the close counternarcotics cooperation between Colombia and the United States, including coca eradication (especially aerial spraying) and alternative development were considered and became features of the final partial agreement signed in May 2014. (For more, see " Developments in 2014 .") Throughout the peace process, there has been input from civil society groups by means of proposals made at public forums organized by the United Nations and the National University of Colombia. For example, in advance of the negotiations on the topic of illegal drugs, a forum was held in Bogotá in late September 2013 that involved some 1,200 participants representing civil society groups to suggest proposals. One of the most common issues of concern was reported to be coca eradication, with many advocating for an end to aerial fumigation or spraying of illegal crops (a practice used only in Colombia) and for compensation for victims of spraying who reportedly suffered physical side effects, the loss of food crops, or the contamination of water resources. Through these forums, thousands of proposals were submitted to the negotiators. The pace and timing of the talks remained an issue since the throughout formal talks. At the outset, President Santos urged the negotiators to only take "months rather than years" to reach an agreement, but his target date of November 2013 to complete the negotiations soon passed. Campaigns for congressional and presidential elections in March and May 2014 as the talks continued allowed the election to be viewed as a referendum on the peace process. Polls continued to indicate that a majority of Colombians viewed the Santos peace initiative favorably, but a much smaller portion of the public expressed optimism about the likelihood of a successful outcome. During 2013, there were changes to the FARC and government's negotiating teams. Notably, in November 2013, President Santos appointed one of the lead government negotiators, Luis Carlos Villegas, to be the Colombian Ambassador to the United States. On November 26, 2013, President Santos announced that two women would join the government's negotiating team: María Paulina Riveros, a noted lawyer and human rights advocate who had been in the Ministry of the Interior, and Nigeria Renteria, previously the High Presidential Adviser on Women's Equality. Riveros would become one of the five lead negotiators, replacing Villegas, and would be the first woman serving in that position, and Renteria would be in the larger 30-person team of alternates. In President Santos's announcement, he said that Renteria would coordinate with victims groups and be in communication with women's organizations, noting that more than half the victims of the conflict had been women. The FARC made adjustments to its 30-person negotiating team at different points, including fighters from the FARC's southern bloc, which helped to dispel rumors that this large unit of FARC combatants, known to be heavily involved in drug trafficking, was not represented at the peace talks. In a historic first, national elections were held during an extended peace negotiation with the FARC. On March 9, 2014 candidates, including those supporting and opposing the peace talks, competed for seats in the 102-member Senate and the 166-member Chamber of Representatives. Of note, former President Uribe, barred from seeking a third presidential term, ran for the Senate and won. In the Senate and over social media, Uribe became an ardent opponent of the peace talks. His party, the Democratic Center, was launched to defeat President Santos and his policies, especially the peace negotiations. Uribe's frequent criticism of the peace process, largely disseminated over Twitter, also was broadcast via debate in the Colombian Senate and the lower chamber, where the Democratic Center also won seats. The results of the March legislative elections recalibrated expectations for the first round of the presidential election held on May 25, 2014. (To win in the first round, a candidate must receive at least 50% of the votes cast, or a second round is held between the two highest vote getters three weeks later.) President Santos announced that his bid for reelection to a second term was to "finish the job" of concluding a peace agreement. He campaigned almost exclusively on a peace platform. As noted above, former President Uribe, who once considered President Santos his protegé, had in Santos's first presidential term become his most vocal critic. Óscar Iván Zuluaga, who was nominated by the Democratic Center to become the party's presidential nominee, opposed Santos's call for a continuation of the peace talks. Like Santos, Zuluaga was a former finance minister and had served under President Uribe. Zuluaga held similar center-right views on the economy as President Santos, but he took a hard line on security and threatened to suspend the peace talks if he was elected. In the May first-round elections, Zuluaga came in first, finishing almost 4 percentage points above Santos with 29.4% of the vote. Zuluaga and Santos, as the two top vote getters, competed in the June 15, 2014, runoff. President Santos won reelection to another four-year term by winning 51% of the vote to Zuluaga's 45%, suggesting a mandate to continue the peace talks, although nearly half of Colombian voters favored Zuluaga, who was opposed to the FARC-government negotiations. The FARC declared a unilateral cease-fire during and between the presidential elections, making them the most peaceful in recent times. On May 16, 2014, the peace talks reached another breakthrough just days before the first-round presidential vote, when the FARC and government negotiators announced a third partial agreement on the topic of illicit drugs. The agreement on drugs to be enacted if a final agreement were signed by both parties committed them to work together to eradicate coca and to combat drug trafficking in the territory under guerrilla control. The partial agreement, titled "The Solution to the Problem of Illicit Drugs," laid out three main points: (1) eradication of coca and crop substitution, (2) public health and drug consumption, and (3) the solution to the phenomena of drug production and trafficking. Just before the presidential-second round vote in mid-June 2014, the Santos government announced that it had launched secret exploratory peace talks early in the year with Colombia's smaller insurgent group, the ELN. The government indicated that it was negotiating with the ELN to develop a framework agreement to launch formal talks on a parallel basis to the talks in Cuba, also likely to be held outside Colombia. The joint statement made with the leadership of the ELN did not specify the timing of the formal talks, which ultimately did not get under way. Shortly after President Santos's inauguration to a second term on August 7, 2014, at which he stated "our first pillar will be peace," the 27 th round of talks opened. At the end of the round, the government and FARC negotiators announced the establishment of two new entities. A 14-member Historical Commission on the Conflict and Its Victims, made up of experts chosen by the government and the FARC, was assembled to spend four months writing and compiling a "consensus report" on the origins of the conflict and its effects on the civilian population. (The report was scheduled for release in February 2015.) In addition, a subcommittee to end the conflict was convened, made up of active duty and retired Colombian military officers and prominent FARC members. On September 7, 2014, a subcommittee on gender was also seated with the purpose of including the perspectives of women on the peace accords and negotiations. According to some analysts, another innovation in the FARC-government peace talks was the inclusion of victims' perspectives at the peace table. From August through December 2014, the parties to the talks invited five delegations of victims (usually made up of 12 members each) to participate directly in the peace discussions as the negotiators wrestled with the fourth topic of reparations and justice for victims. The challenge of representing more than 6.5 million conflict victims was addressed by selecting different types of victims (who had been victimized by different actors), from distinct regional backgrounds, and representing gender and ethnic diversity. Also in September 2014, the full texts of the three partial agreements on land, political participation, and drug trafficking were made public on the government's peace talks website. The previously undisclosed accords were published to increase transparency according to the announcements made by the Colombian government and FARC negotiators. On November 16, 2014, the FARC captured and detained Brigadier General Rubén Darío Alzate and two companions, an army corporal and a civilian lawyer who advised the Colombian Army. The three had travelled upriver through a remote area to visit a civilian energy project in the Colombian department of Chocó. President Santos immediately suspended the peace talks over the incident. The general was the highest level military officer ever captured by the FARC. The FARC, in light of the ongoing hostilities, said that they viewed those captured as "prisoners of war" and not kidnap victims. The break in the talks was unprecedented. Mediators from Cuba and Norway, who served as "guarantors" of the peace process, successfully negotiated the release of the three captives and also of two soldiers who had been seized by the FARC earlier in November. The FARC released all the captives on November 30, 2014, and the President announced the talks could resume. Some analysts maintained that the General's abduction, which temporarily threatened the future of the talks, ultimately strengthened the process, while others contended it indicated their fragility. The talks resumed in their 31 st round on December 10, 2014. Ten days later the FARC declared an indefinite, unilateral cease-fire. They said they would maintain the cease-fire as long as the Colombian security forces no longer took aggressive action against FARC troops. The FARC urged the Colombian government to undertake a bilateral cease-fire that the Santos Administration at first rejected, as the government had resisted the calls for a bilateral cessation of hostilities since the beginning of the peace talks. However, in a surprise announcement on January 14, 2015, President Santos stated that he had "given instructions to the negotiators that they start, as soon as possible, the discussion on the point of the bilateral and definitive cease-fire and cessation of hostilities." When the talks resumed after a lengthy holiday break in early February 2015, it remained unclear how the bilateral cease-fire proposal might progress. At the end of the negotiating session, on February 12, 2015, the FARC announced it would cease recruiting youth under age 17. The government welcomed this development as another sign of a willingness to de-escalate the conflict, but noted it did not make clear what would happen to underage members of the FARC who had been previously recruited. The FARC and Santos government negotiators received a report prepared by the Historical Commission on the Conflict and Its Victims, authored by 12 Colombian historians (half selected by the FARC and half by the government), and compiled by two rapporteurs. The 800-page report discussed the origins, causes, and consequences of the Colombian armed conflict. The report was intended to assist the negotiators to construct better agreements to meet the needs of the conflict's victims. Shortly after the report was released, Senator Uribe traveled to Washington, DC, to meet with Members of the U.S. Congress to discuss his opposition to the peace process. On February 20, 2015, President Obama named veteran U.S. diplomat, Bernard ("Bernie") Aronson as U.S. Special Envoy to the FARC-government peace talks. Aronson had previously assisted with the peace efforts in Nicaragua and El Salvador and both the Santos government and FARC negotiators welcomed his appointment. Soon after his appointment, Aronson met with each negotiating team separately and in private on his first trip (and subsequent trips) to Havana. In March 2015, two new developments to de-escalate the conflict appeared to some to be government concessions, but others viewed these developments as significant confidence-building measures. On March 7, 2015, the Colombian government and the FARC announced that they would initiate a pilot program to remove land mines, improvised explosive devices, and unexploded ordnance. More than 11,000 Colombians have been injured or killed by land mines since 1990, according to government estimates, and approximately half of Colombia's 32 departments (states) have existing mined areas. A team that included members of the FARC, the government, and representatives from affected communities oversaw the work of an army battalion that specialized in mine removal starting in May 2015 in the departments of Meta and Antioquia. The effort was coordinated by the Norwegian People's Aid organization. The mine removal pilot was followed by an announcement that the Colombian military would temporarily cease bombing FARC encampments for a month. The suspension of air strikes would be evaluated at the end of the period. The next development at the peace talks came slowly and was not finalized until late in 2015. President Santos formed an Advisory Commission of Peace that included prominent leaders who supported and opposed the peace talks. Former President Uribe was invited to participate, but he declined. Although the negotiators from the other insurgent group, the ELN, and the Santos government continued their "preparatory" talks for formal negotiations in parallel with the FARC-government peace talks, nothing was announced during the year. In September 2015, President Santos met with FARC chief Timochenko in Havana. Santos and Timochenko publicly shook hands and announced that a final agreement would be signed not later than March 23, 2016. On December 15, 2015, the FARC and government negotiating teams signed a partial agreement on victims of the conflict, providing a comprehensive system for reparation, justice, truth, and guarantees for non-repetition and outlining a transitional justice system. By end of 2015, four partial agreements had been concluded during more than 45 negotiation rounds, leaving only two of the original six topics to be discussed. In January 2016, the negotiating parties set up a commission to begin work on a bilateral cease-fire. On January 25 th , the U.N. Security Council adopted Resolution 2261, which committed a U.N. mission to monitor and verify a definitive bilateral cease-fire, once it was negotiated. The U.N. mission also would monitor the cessation of hostilities and disarmament following the signing of a final peace accord. In early February, President Obama and Colombian President Santos met at the White House to celebrate the 15-year anniversary of Plan Colombia. The Colombian-written Plan Colombia received the backing of three U.S. presidential administrations and garnered $10 billion in support from the U.S. Congress. In addition to celebrating the gains of Plan Colombia, President Obama proposed a new "post-peace accord" approach to U.S.-Colombian cooperation, a program called Peace Colombia (sometimes referred to by its name in Spanish, Paz Colombia ). The proposed funding for the Obama Administration's initiative was $450 million, $391 million of which was requested in the FY2017 congressional budget justification for foreign operations. Funding for FY2017 and the Peace Colombia request, however, was not completed in 2016. A continuing resolution passed by Congress on December 9, 2016, funds assistance programs to Colombia at slightly below the FY2016 level ($300 million) through April 28, 2017, with the balance of FY2017 assistance levels to be determined after the 115 th Congress takes office. In mid-February, several of the FARC negotiators, including lead FARC negotiator Iván Márquez (Luciano Marin Arango), led a rally in La Guajira, the far northern department of Colombia. The FARC negotiators were allowed by the Santos government to travel from Cuba to visit their forces in the northern part of the country as part of an effort to educate their rank-and-file about the prospective peace agreement, which was nearing completion. However, Marquez and others led a political rally in the village of Conejo on February 18, 2016, which was protected by a reported 500 armed FARC guerrillas and involved local townspeople. According to press accounts, the five-hour armed gathering violated the government's understanding of the visit and led to a crisis and a temporary stoppage of the peace talks until Norwegian and Cuban mediators helped to cajole the FARC leaders to return to the negotiations in Cuba. By early July 2016, the Colombian government and the FARC negotiators had resolved most topics on the six-point negotiating agenda after more than 50 rounds of peace talks. In Washington, DC, on a trip in mid-July, Colombia's Post-Conflict Minister Rafael Pardo suggested that a final accord would be signed by the end of August 2016 (having missed two earlier deadlines: March 23, 2016 and July 20, 2016). The U.S. Congress continued to express bipartisan support for the peace process at various points. The Senate passed a resolution ( S.Res. 368 ) by unanimous consent on April 27, 2016, in support of the peace talks, and a similar resolution was introduced in the House but never made it to the floor. On July 18, 2016, the Colombian Constitutional Court approved a peace plebiscite that would allow Colombians to vote on the agreement. The court also ruled that the vote would be binding on the executive branch. On August 24, 2016, the two sides reached the long-awaited final accord. Two events underscored the expectations of a successful referendum or plebiscite to approve that accord by the Santos government. In mid-September 2016, the FARC held its 10 th National Guerrilla Conference, which lasted five days and brought together 200 FARC delegates. Those present voted unanimously to accept the accord. On September 26, 2016, the Santos government invited world leaders to a ceremony for officially signing the peace accord in Cartagena, Colombia. To educate the citizenry across Colombia, the Santos Administration traveled to different parts of the country to instruct community members and leaders on the merits of the peace accord negotiated with the FARC. For instance, at an event on July 6, 2016, in the department of Guaviare, one of the hardest hit by the violence, President Santos explained the economic, political, and social benefits offered in the peace accord. Critics, however, led by popular former President (now Senator) Uribe, mobilized a campaign to reject the accord. The "No" campaign leaders highlighted many perceived weaknesses, such as inadequate punishment for FARC violations of legal and human rights, lack of an appropriate appeal for forgiveness from FARC leaders, and, overly generous guarantees for FARC's future political role, including 10 guaranteed seats in the Colombian Congress following the 2018 elections. Colombian voters surprised many on October 2, 2016, when, by a margin of 54,000 votes (out of 13 million cast) they rejected the original peace accord negotiated by the Santos government and the FARC. The razor-thin margin revealed polarization over how to resolve the decades-long violent insurgency, fueled by the drug trade and other illicit businesses. Several issues caused the peace accord to be defeated, including perceptions of inadequate punishment for FARC violations, lack of contrition or appropriate apologies, and the prospects of no jail time for FARC leaders. Some observers maintain that the accord's merits were not the cause of its defeat but that the No campaign focused instead on discontent with President Santos and his administration or unrelated policies. An organizer of the No campaign, Juan Carlos Velez, noted after the vote was held that he purposely steered voters away from the accord's content and subsequently stepped down from the Democratic Center party. After the agreement was rejected, the Santos government met with opposition leaders to discuss changes that might address their objections. The government's negotiators then worked with the FARC team to hammer out a revised accord over 41 days. Although the No campaign leaders largely rejected the changes agreed to by the FARC, the Colombian government asserted that the modifications they made were significant, touching 56 of 57 categories of changes that opponents set forth. (Opponents provided some 500 proposals critical of the earlier accord that were divided into 57 chapters by the Santos government). On November 30, 2016, the new accord—after debate lasting more than 10 hours in each chamber—was "ratified" by the Colombian Congress, first by the Colombian Senate by a vote of 75-0 (out of 101 Senators) and a day later by the lower house by a vote of 130-0 (out of 166). Congressional opponents either did not vote or walked out. A vexing issue for supporters of the peace deal was the timing of the demobilization and disarmament of the FARC. The Colombian Congress needed to enact a series of laws to implement the new 310-page accord, but an amnesty law first had to be adopted to trigger disarmament, slated to last six months. Without a law that provided amnesty for rank-and-file fighters who committed political crimes, the FARC refused to move into concentration zones agreed to in the bilateral cease-fire. (For a map of the demobilization zones, see Figure 3 ). The Colombian government has already pardoned at least 110 guerrillas as of mid-December 2016, and about 200 more pardons may be forthcoming, according to Justice Minister Jorge Londoño. On December 13, 2016, the Colombian Constitutional Court approved a fast-track mechanism for the implementation of the revised peace accord between the Colombian government and the FARC. The decision allowed the Colombian Congress to expedite the legislative process for those laws considered necessary for the implementation of the accord. The fast-track mechanism is viable for six months and can be extended for an additional six months if requested by the government. Additionally, this mechanism reduces the required number of debates on the floor for both regular and constitutional laws and grants the president special executive powers to expedite the laws necessary for implementation of the accord. Shortly after the fast-track mechanism was approved, the head of the Colombian Congress declared an emergency special session to last until December 30, 2016. On December 28, 2016, the Colombian Congress unanimously approved an amnesty law intended to benefit rank-and-file FARC accused of lesser crimes. The Colombian Senate voted 69-0 and the Chamber of Representatives 121-0 in favor of the law, which was seen as a precondition for the demobilization process to begin in different hamlets and demobilization zones around the country. The recently signed peace accord in a polarized Colombia faces a number of challenges or constraints. These include enduring public support; the activities of "spoilers" who wish to see the talks fail by fomenting violence against leftist parties and movements; and the uncertainty of the FARC's unity of command and level of fragmentation as demobilization proceeds. There is also speculation about how the formal negotiations with the ELN might influence the FARC-government peace accord implementation when (and if) those negotiations begin in 2017. A key challenge for the Santos government is to maintain continued public support for the peace process and peace accord implementation, which could take up to 10 years. Without the public's backing, the government's investment in the process could be challenged, especially in the first critical year. Continued support by key sectors, such as the military, the private sector, and Colombian civil society groups—or their disillusionment—could be critical. The government is also concerned about events that may influence public opinion in the lead-up to the campaign for the national legislature and president in 2018. Some analysts suggest the 2018 presidential elections could serve as a second referendum on the new peace accord. Senator Uribe stated his party, the Democratic Center, will seek to clinch the presidency under the banner of opposition to the new agreement. Internationally, the support for Colombia's post-accord peace implementation may be influenced by concerns about Colombia's cocaine exports. The Santos government has urged a more health-based and human rights-oriented counterdrug approach, which concentrates on alternative crops and livelihoods for peasant farmers who now cultivate coca and, to a lesser extent, opium for the production of heroin. The U.N. and the U.S. government reported an explosion of illicit drug cultivation in Colombia in 2015, particularly in coca bush and cocaine derived from it. The surge in cultivation generated between 46% and 68% more cocaine than the prior year, according to the respective U.N. and U.S. estimates. For the most part, Colombia has not followed through on its commitment to implement manual drug-crop eradication, alternative development, and licit livelihoods programs, envisioned in its new drug policy announced in September 2015, because the peace talks with the FARC became protracted. In the past, powerful business and political leaders who have been sympathetic to the paramilitaries have worked to undermine peace accords with insurgents. Prior efforts to reintegrate or open dialogue with the FARC were derailed through acts of violence instigated by paramilitaries or those sympathetic to them or by rogue units within the FARC itself. Such opponents include those who perpetrated attacks on members of the FARC-tied UP party in the 1980s or the "terror campaign" unleashed by paramilitaries during the peace talks that ultimately failed during the Pastrana Administration (1998-2002). Potential action by "spoilers" could be devastating for the implementation phase of the new peace accord. Exactly what the response of the numerous paramilitary successor groups, or Bacrim , will be to the peace deal between the government and the FARC also remains to be seen. The Bacrim may calculate that the government will focus its enforcement efforts on them as the FARC demobilizes. Many analysts anticipate some violent competition to take control of drug trafficking routes and mining interests as the FARC abandons these illicit enterprises. Colombian human rights defenders (HRDs) are already feeling the brunt of violence that typically accompanies these dramatic power shifts. According to the Colombian NGO Somos Defensores , 71 HRDs were killed within the first 11 months of 2016, a tally that is larger than the one registered by the same NGO for either 2014 or 2015. The spike in homicides prompted a group of U.S. Members of Congress to ask Secretary of State Kerry to address the violence against HRDs in Colombia. Another concern is whether the FARC negotiating team represented and spoke for the various FARC forces dispersed around Colombia. In other words, can the FARC team "deliver" the now-decentralized organization, or at least most of the FARC fronts operating in Colombia and along its borders? (Reportedly, the FARC is divided into seven regional blocs made up of 67 fighting fronts.) After the Cartagena accord was signed, some FARC leaders announced their opposition to the accord and apparently indicated that they would stay with their illicit businesses, such as drug trafficking or illegal mining. Younger and mid-level members may only have known life in the jungle or remote rural areas financed by drug profits or other illegal activities. Various commentators have speculated about which FARC fronts will turn in their arms and demobilize or reject the terms of the demobilization. At issue are estimates of the percentage of the FARC that would demobilize. In mid-December 2016, the FARC leadership rejected five commanders in Colombia's southeast who refused to accept the new accord. Other observers point to the FARC's relatively successful efforts to impose cease-fires and suggest that there is an adequate unity of command within the organization and sufficient loyalty to that command to get up to 90% of the FARC to demobilize. Forecasting what will happen as the FARC begins to demobilize over the early months of 2017 is difficult. The roles of the two dominant illegal armed groups that remain—the ELN and the Bacrim—are hard to predict. Few observers question that the government's implementation of the accord will be challenging. Since the beginning of the negotiations, there has been animated discussion over how the peace talks and a potential accord may affect the U.S.-Colombian relationship. Congress has made a substantial investment in enhancing stability in Colombia since the passage of an emergency supplemental appropriation in June 2000. Over the next 16 years, funding for Plan Colombia and its follow-on strategies, appropriated by Congress and provided through U.S. State Department and Department of Defense accounts, reached $10 billion. After 2008, U.S. foreign aid gradually declined as Colombia embraced funding and responsibility for programs once funded by the United States. In addition, Colombia, with U.S. support, has provided training to Central American and Caribbean military and police to help governments in the region meet their security challenges. Congress will be faced with many questions concerning U.S. assistance with the completion of the new peace accord as Colombia begins to implement the programs associated with it. How will the United States respond to requests by Colombia for increased assistance for disarmament, demobilization, and reintegration of FARC combatants? International donors, including the United States, may be asked to provide increased support to assist victims and help to improve their living conditions, develop remote rural parts of the country, and provide land restitution for the millions of persons who have been displaced. As foreign aid budgets have tightened, on the one hand, and Colombia has proceeded with nationalizing some of the programs once funded by the United States, on the other, U.S. assistance has evolved. Congress may consider if funding should now be increased as activities and obligations of the peace accord become due, or if funds should be shifted from one purpose, such as counterterrorism, to another, such as humanitarian assistance, as circumstances change. The U.S. government may continue to support compensation to victims of the conflict through improved implementation of the Victims' Law and other humanitarian and human rights-related programs associated with the new accord. Or Congress could, with an eye to global demands for U.S. assistance, assess that Colombia is an upper-middle-income country with considerable capacity, able to fund reconstruction activities on its own. Colombia has enjoyed bipartisan political support for many years, but the incoming Trump Administration's priorities for the region have not been formally announced. The English translation provided here of the general agreement signed by the parties to the negotiations appears in the International Crisis Group's report Colombia: Peace at Last ? (International Crisis Group, Colombia: Peace at Last? , Latin America Report, Number 45, September 25, 2012). GENERAL AGREEMENT FOR THE TERMINATION OF THE CONFLICT AND THE CONSTRUCTION OF A STABLE AND LASTING PEACE The below translation has been adapted by Crisis Group from the text at http://colombiareports.com/colombia-news/fact-sheets/25784-agreement-colombia-government-and-rebel-group-farc.html . The delegates of the Government of the Republic of Colombia (National Government) and the Revolutionary Armed Forces of Colombia-People's Army (FARC-EP): As a result of the Exploratory Meeting held in Havana, Cuba, between 23 February 2012 and 26 August 2012, that counted on the participation of the Government of the Republic of Cuba and the Government of Norway as guarantors, and on the support of the Government of the Bolivarian Republic of Venezuela as facilitator of logistics and companion: With the mutual decision to put an end to the conflict as an essential condition for the construction of stable and lasting peace; Attending the clamour of the people for peace, and recognising that: construction of peace is a matter for society as a whole that requires the participation of all, without distinction, including other guerrilla forces that we invite to join this effort; respect of human rights within the entire national territory is a purpose of the State that should be promoted; economic development with social justice and in harmony with the environment is a guarantee for peace and progress; social development with equity and well-being that includes big majorities allows growing as a country; a Colombia in peace will play an active and sovereign role in peace as well as regional and worldwide development; it is important to broaden democracy as a condition to build solid foundations for peace. With the government's and FARC-EP's full intention to come to an agreement, and the invitation to the entire Colombian society, as well as to the organisations of regional integration and the international community to accompany this process; WE HAVE AGREED: I.To initiate direct and uninterrupted talks about the points of the agenda established here that are aimed at reaching a Final Agreement for the termination of the conflict that will contribute to the construction of stable and lasting peace. II.To establish a Table of Talks that will be opened publicly in Oslo, Norway, within the first two weeks of October 2012 and whose main seat will be Havana, Cuba. Meetings can take place in other countries. III.To guarantee the effectiveness of the process and conclude the work on the points of the agenda expeditiously and in the shortest time possible, in order to fulfil the expectations of society for a prompt agreement. In any case, the duration will be subject to periodic evaluations of progress. IV.To develop the talks with the support of the governments of Cuba and Norway as guarantors and the governments of Venezuela and Chile as accompaniers. In accordance with the needs of the process and subject to common agreement, others may be invited. V.The following agenda: 1. Integrated agricultural development policy Integrated agricultural development is crucial to boost regional integration and the equitable social and economic development of the country. 1.Access and use of land. Wastelands/unproductive land. Formalisation of property. Agricultural frontier and protection of reservation zones. 2.Development programs with territorial focus. 3.Infrastructure and land improvement. 4.Social development: health, education, housing, eradication of poverty. 5.Stimulus for agricultural production and for solidarity economy and cooperatives. Technical assistance. Subsidies. Credit. Generation of income. Marketing. Formalisation of employment. 6.Food security system. 2. Political participation 1.Rights and guarantees for exercising political opposition in general and for the new movements that emerge after signature of the Final Agreement. Media access. 2.Democratic mechanisms for citizen participation, including direct participation, on different levels and on diverse issues. 3.Effective measures to promote greater participation of all sectors in national, regional and local politics, including the most vulnerable population, under conditions of equality and with security guarantees. 3. End of the conflict Comprehensive and simultaneous process that implies: 1.Bilateral and definitive ceasefire and end of hostilities. 2.Handover of weapons. Reintegration of FARC-EP into civilian life, economically, socially and politically, in accordance with their interests. 3.The National Government will coordinate revising the situation of persons detained, charged or convicted for belonging to or collaborating with FARC-EP. 4.In parallel, the National Government will intensify the combat to finish off criminal organisations and their support networks, including the fight against corruption and impunity, in particular against any organisation responsible for homicides and massacres or that targets human rights defenders, social movements or political movements. 5.The National Government will revise and make the reforms and institutional adjustments necessary to address the challenges of constructing peace. 6.Security guarantees. 7.Under the provisions of Point 5 (Victims) of this agreement, the phenomenon of paramilitarism, among others, will be clarified. The signing of the Final Agreement initiates this process, which must be carried out within a reasonable period of time agreed by the parties. 4. Solution to the problem of illicit drugs 1.Illicit-crop substitution programs. Integral development plans with participation of communities in the design, execution and evaluation of substitution programs and environmental recovery of the areas affected by these crops. 2.Consumption prevention and public health programs. 3. Solution to the phenomenon of narcotics production and commercialisation. 5. Victims Compensating the victims is at the heart of the agreement between the National Government and FARC-EP. In this respect, the following will be addressed: 1.Human rights of the victims. 2.Truth. 6. Implementation, verification and ratification The signing of the Final Agreement initiates the implementation of all of the agreed points. 1.Mechanisms of implementation and verification: a.System of implementation, giving special importance to the regions. b.Verification and follow-up commissions. c.Mechanisms to settle differences. These mechanisms will have the capacity and power of execution and will be composed of representatives of the parties and society, depending on the case. 2.International accompaniment. 3.Schedule. 4.Budget. 5.Tools for dissemination and communication. 6.Mechanism for ratification of the agreements. VI.The following operating rules: 1. Up to ten persons per delegation will participate in the sessions of the Table, up to five of whom will be plenipotentiaries who will speak on behalf of their delegation. Every delegation will be made up of up to 30 representatives. 2. With the aim of contributing to the development of the process, experts on the agenda issues can be consulted, once the corresponding procedure is realised. 3. To guarantee the transparency of the process, the Table will draw up periodic reports. 4. A mechanism to jointly inform about the progress of the Table will be established. The discussions of the Table will not be made public. 5. An effective dissemination strategy will be implemented. 6. To guarantee the widest possible participation, a mechanism will be established to receive, by physical or electronic means, proposals from citizens and organisations on the points of the agenda. By mutual agreement and within a given period of time, the Table can make direct consultations and receive proposals on these points, or delegate to a third party the organisation of spaces for participation. 7. The National Government will guarantee the necessary resources for the operation of the Table; these will be administered in an efficient and transparent manner. 8. The Table will have the technology necessary to move the process forward. 9. The talks will begin by discussing the issue of integral agricultural development policy and will continue in the order that the Table agrees. 10. The talks will be held under the principle that nothing is agreed until everything is agreed. Signed on 26 August 2012, in Havana, Cuba. Signatures. | In August 2012, Colombian President Juan Manuel Santos announced that the government was engaged in exploratory peace talks with the violent leftist insurgent group, the Revolutionary Armed Forces of Colombia (FARC), in a bid to resolve a nearly 50-year internal armed conflict. The secret, initial dialogue between the Santos government and the FARC's leadership led to the opening of formal peace talks with the FARC—the oldest, largest, and best-financed guerrilla organization in Latin America. Formal talks began in Oslo, Norway, in October 2012 and then, as planned, moved to Havana, Cuba, where they continued for more than 50 rounds. Despite more than three years of negotiations, the leader of the FARC, Rodrigo Londoño, alias "Timochenko," had not met publicly with President Santos. In September 2015, the two leaders shook hands in a televised meeting and announced that the negotiating parties would reach a final accord no later than March 23, 2016. However, that deadline, as many others before it, went unmet. By the end of 2015, the most difficult issue in the peace talks' agenda, outlined in a framework agreement, was resolved. Government and FARC negotiators reached a partial agreement on victims of the conflict, providing a comprehensive system for reparations, justice, truth and guarantees for non-repetition and outlining a transitional justice system. In late January 2016, the United Nations (U.N.) Security Council adopted Resolution 2261, stating that a U.N. mission would monitor and verify a definitive bilateral cease-fire and cessation of hostilities between the parties, following the signing of the final peace agreement. Terms for operationalizing the accord were announced in June 2016, when the Santos government and the FARC agreed to a bilateral cease-fire, security guarantees for demobilized guerrillas, mechanisms for dismantling paramilitaries, and the location of demobilization zones. On July 18, 2016, the Colombian Constitutional Court approved a peace plebiscite as the appropriate mechanism for the public to endorse or reject the final agreement arrived at in Havana. The court also determined that the plebiscite vote would be binding for Colombia's executive branch. In a surprise loss, on October 2, 2016, the first accord—known at the Cartagena Agreement—was rejected in a peace plebiscite, defeated by 54,000 votes out of 13 million ballots cast. In November 2016, the government and the FARC signed a second accord, which the government maintained responded to criticisms of the "No" campaign leaders, who objected to the first accord. The Colombian Congress approved the second accord, and the Colombian Constitutional Court upheld the fast-track mechanism that would have allowed rapid implementation of the Cartagena Agreement was upheld to apply to the second accord on December 13, 2016. The Santos Administration had anticipated the peace process with the FARC by proposing several legislative reforms that were enacted in the first years of Santos's first term (2010-2012), including a law to restitute victims of the conflict and a "peace framework" law. In addition, the warming of relations with neighboring countries, such as Ecuador and Venezuela, helped to lay the groundwork for the peace process. Venezuela, Chile, Cuba, and Norway also actively supported the process, which most countries in the region have lauded. The U.S. Congress remains deeply interested in Colombia's political future, as the country has become one of the United States' closest allies in Latin America. Congress has expressed that interest by its continued investment in Colombia's security and stability. Over the years, the U.S.-Colombian relationship has broadened from counternarcotics to include humanitarian concerns; justice reform and human rights; and economic development, investment, and trade. Peace Colombia, the assistance program proposed by the Obama Administration, foresaw a peace accord with the insurgents building on many gestures of support made by the Administration. The initiative was designed to help Colombia secure peace with $450 million of support, $391 million of which was requested in the FY2017 congressional budget justification. A continuing resolution passed by Congress on December 9, 2016, funds assistance programs to Colombia at slightly below the FY2016 level ($300 million) through April 28, 2017, after the 115th Congress takes office. This report provides background on Colombia's armed conflict and describes its key players. The report briefly analyzes prior negotiations with the FARC and the lessons learned from those efforts. It examines what transpired during the preparatory negotiations and four years of formal talks that led to the final accord with the FARC. The report also examines some of the constraints that could limit the success of the peace accord's implementation and the possible influence of implementation on future U.S.-Colombian relations. |
The FY2013 budget deficit is projected to be $845 billion, or 5.3% of gross domestic product (GDP). From 2009 through 2012, the federal budget has exceeded $1 trillion annually. While budget deficits have begun to decline, current fiscal policies remain unsustainable, and budget deficits are projected to continue. Under CBO's alternative fiscal scenario, which assumes continuation of many current policies, the deficit as a percentage of GDP is projected to decline to 3.7% by 2016, before again increasing to exceed 5% by 2022. Over time, unsustainable deficits can have negative macroeconomic consequences, including reduced savings for investment, higher interest rates, and higher levels of inflation. Restoring fiscal balance will require spending reductions, revenue increases, or some combination of the two. Policymakers have considered a number of options for raising additional federal revenues (see the text box below). One potential option is a carbon tax. Several economists and policy analysts from across the political spectrum have expressed interest in a carbon tax mechanism in recent years. Other stakeholders have expressed strong opposition to carbon tax proposals. In the 113 th Congress, Senators Sanders and Boxer have introduced legislation ( S. 332 ) that would apply carbon tax (a "carbon pollution fee") on fossil fuels and other materials, starting at $20 per ton of CO 2 emissions, rising 5.6% per year over a 10-year period. In addition, Representative Waxman and Senator Whitehouse, among others, released a carbon tax discussion draft. Their proposal would also impose a carbon pollution fee, requiring certain carbon emitters to purchase "carbon pollution permits" from the Department of the Treasury. The discussion draft requests comment on the level of the tax and on how the revenues should be used. In addition, Members proposed several carbon price systems in previous Congresses—as identified in Appendix C —most frequently as an efficient means to stimulate greenhouse gas (GHG) emission reductions. In addition, some countries have levied carbon taxes (or something similar) for over 20 years. Several Members of the 113 th Congress have expressed opposition to a carbon tax. Two concurrent resolutions introduced in the House ( H.Con.Res. 8 and H.Con.Res. 24 ) propose to express the opposition of Congress to a federal carbon tax, citing concerns about the potential negative economic impact. A similar concurrent resolution has been introduced in the Senate ( S.Con.Res. 4 ). Other policy considerations, including environmental concerns, may also lead to consideration of a carbon tax. GHG in the atmosphere trap radiation as heat, warming the Earth's surface and oceans. The key human-related GHG is carbon dioxide (CO 2 ), primarily generated through the combustion of fossil fuels: coal, oil, and natural gas. Although fossil fuels have facilitated economic growth in the United States and around the world, fossil fuel combustion has inadvertently raised the atmospheric concentration of CO 2 by about 40% over the past 150 years. Almost all climate scientists agree that these CO 2 increases have contributed to a warmer climate today, and that, if they continue, will contribute to future climate change. Many economists have argued that current fossil fuel prices reflect a market failure , because GHG emissions from fossil fuels contribute to current and future climate change, yet fossil fuel prices do not reflect climate change-related costs. Market failures distort economic efficiency by affecting consumer behavior. For example, energy consumers may make choices that are not in society's best interest, consuming more than the optimal amount of GHG emitting fuels, if prices do not reflect climate change-related costs. Carbon taxes, or GHG fees, have been proposed as one means to correct such a market failure. Another option is a cap-and-trade program, which would attach a price to GHG emissions by limiting their generation. To some extent, a carbon tax and cap-and-trade program would produce similar effects: Both would place a price on carbon, and both are estimated to increase the price of fossil fuels. Preference between the two approaches ultimately depends on which variable one prefers to control—GHG emissions or costs. A tax based on carbon content of fuels is different from a tax based on energy content, such as a Btu tax (see the text box below). Placing an emissions fee on CO 2 (and possibly other GHG emissions) could stimulate lower emissions and spur innovation in new lower-emitting technologies. A tax or fee based approach would allow markets to determine the level of investment in lower-emissions technologies. In addition, carbon tax revenues could be used to support multiple objectives, such as deficit reduction, or to replace existing taxes (e.g., payroll, income). The first section of this report examines carbon tax design and implementation issues, including the point of taxation, the rate of taxation, and the distribution of tax revenue. The second section discusses several carbon tax policy considerations: revenue potential, economic efficiency, equity, and operability. The final section highlights key issues related to the use of carbon tax revenues. Specifically, how might addressing the regressivity of a carbon tax diminish its revenue-raising potential, and what is the potential for a carbon tax to contribute to deficit reduction goals? When establishing a carbon tax, there are several implementation decisions to be considered. Key considerations include (1) the point of taxation—where to impose the tax and what to tax; and (2) the rate of taxation. Information on how a carbon tax might affect fossil fuel prices is also provided. The point of taxation would influence which entities would be required to (1) make tax payments based on emissions or emission inputs (e.g., fossil fuels), (2) monitor emissions or emission inputs, and (3) maintain records of relevant activities and transactions. The point of taxation does not necessarily reveal who bears the cost of the tax, as the cost may be passed on to intermediate producers or consumers. (This will be discussed in a later section.) GHG emissions are generated throughout the economy by millions of discrete sources: smokestacks, vehicle exhaust pipes, households, commercial buildings, livestock, etc. Although CO 2 is the primary GHG at many sources, some sources predominantly emit non-CO 2 GHGs, such as methane. When determining which sources and which GHG gases to control through a tax, policymakers would need to balance the benefits of comprehensiveness with administrative complexity and costs. Applying a carbon tax at the points of emissions from all GHG sources would present enormous logistical challenges. CO 2 emissions are fairly easy to verify from large stationary sources, such as power plants. For almost 20 years, measurement devices have been installed in smokestacks of large facilities, reporting electronic information to the U.S. Environmental Protection Agency. For smaller sources, CO 2 emissions are a straightforward and accurate calculation based on the carbon content of fossil fuels consumed. Other GHG emissions, such as methane, nitrous oxides, sulfur hexafluoride, and others, could be more difficult or less reliable to verify. Thus, administrative costs and non-compliance risks would likely increase with a broader scope of an emissions tax. However, limiting the tax scope could result in perverse effects, with sources potentially shifting processes, facility size, or location to avoid taxes. Policymakers may consider limiting the tax to sectors or sources that emit large percentages of the total U.S. GHG emissions or those that are relatively easy to measure. Or, the tax could be applied to reliable proxies for emissions in the production-to-emission chain. For example, as illustrated in Figure 1 , potential emissions could be taxed at "upstream" (e.g., wells) or "midstream" (e.g., refineries) stages in that process, taking advantage of specific chokepoints in the fossil fuel market. Alternatively, policymakers could employ a "downstream" approach, applying a carbon tax at the point where the gas is released to the atmosphere. For example, a carbon tax could be applied at sources required to report GHG emissions to EPA. In 2011, EPA collected emissions data from approximately 8,000 facilities, covering between 85% and 90% of all U.S. GHG emissions. Table A-1 (in Appendix A ) lists the top emission sources of six principal GHGs in the United States. These sources combine to account for approximately 95% of these gases (based on 2011 data). Table A-1 also provides potential points of taxation that could cover some percentage of emissions from these sources. For example, fossil fuel combustion accounts for almost 80% of total U.S. GHG emissions. To attach a price to these emissions, policymakers could apply a carbon tax to a relatively small number of entities, including petroleum refineries (115) and petroleum importers (235); coal mines (1,296) and coal-fired generators using imported coal (19); and some combination of natural gas sector entities (discussed below). Table A-1 (in Appendix A ) provides several options of points in the natural gas production-consumption chain at which a carbon tax could be applied. See Figure B-1 (in Appendix B ) for an illustration of the natural gas production-consumption chain. For example, policymakers could apply a carbon tax at natural gas wellheads and points of import. This should cover 100% of the CO 2 combustion emissions from end-users as well as emissions downstream of the extraction process (e.g., fugitive emissions, pipeline operations). Although this option would involve a large universe of entities (over 500,000), a relatively small number of operators control a large percentage of domestic production. In addition, most of the natural gas producing states levy some type of tax or fee on natural gas, many of which apply at the point of production. Some of these taxes are based on volume (i.e., cubic feet); others are based on value of the resource. One potential challenge of applying the tax at the wellhead would be that the CO 2 content of the extracted gas may vary to some degree. In contrast, pipeline quality natural gas is more uniform. Employing another option, policymakers could apply the tax at (1) entities who report natural gas deliveries to the Energy Information Administration (EIA) on Form EIA-176 and (2) natural gas processors, in sum, about 2,200 entities. This would likely cover nearly 100% of the CO 2 emissions from combustion as well as some of the CH 4 emissions from natural gas systems ( Table A-1 ). Although setting the carbon tax rate would likely involve political considerations, several economic approaches could be used to inform the debate. As a public finance instrument, the tax rate could be based on the estimated revenues needed to reduce or eliminate projected budget deficits. This approach would be challenging, because estimates of future budget deficits (and thus the revenues needed to address them) are "inherently uncertain." Moreover, a carbon tax would have some impact on the overall economy (and thus the overall tax base) that would make such a calculation more difficult. Alternatively, the tax rate could be tied to climate change objectives. For example, Congress could set a tax rate based on the estimated benefits associated with avoiding climate change impacts. Some economists would say that the optimal level of a carbon tax would be at the "marginal cost of climate change," which is the incremental cost of damages of one more ton of emissions. This is sometimes called the Social Cost of Carbon (SCC). The rate could include, as well, the cost of incremental damages of ocean acidification and other possible effects associated with carbon emissions (e.g., related air pollution). Estimates of the risks of GHG emissions are uncertain and cover a wide range. Analysts must place monetary values on goods and services that may be difficult or controversial to estimate, such as human health/life, water supplies, agricultural production, or recreational activities. In addition, the element of time particularly complicates the valuation. The factor of time would demand a consideration of what global society should be willing to pay now to avoid future damages due to additional emissions generated today . In short, basing the tax rate on a precise estimate of GHG emission-related risks would present extraordinary challenges. An alternative climate change approach would involve basing the tax rate on an estimate of the carbon price needed to meet a specific GHG emissions target. Such estimates, though relatively more certain than the SCC, are similarly based on multiple assumptions. Accordingly, estimates of carbon prices in hypothetical carbon reduction schemes have varied dramatically. For example, multiple parties prepared such estimates during the development of H.R. 2454 (in the 111 th Congress), which intended to reduce GHG emissions to 17% below their 2005 levels by 2020. The emission allowance price estimates ranged from $16/metric tons of CO 2 equivalent (mtCO 2 e) to $49/tCO 2 e in 2015, with the estimated range increasing over time. Moreover, it could be challenging to reach political agreement on the GHG emissions target sought as well as the tax rate that would achieve it. Given the uncertainty in the above estimates and a desire to avoid "shocking" the economy with a sudden change in tax policy, some have proposed starting a carbon tax with a rate that is initially set at a low rate, with that rate rising annually as announced for a fixed period or indefinitely. This approach would have several potential advantages: it is simple to explain and understand; it provides predictability to investors and consumers; and it allows policymakers to hedge against the risks of carbon emissions. Different fossil fuels generate different amounts of CO 2 emissions per unit of energy. Therefore, a carbon tax, which is based on CO 2 emissions, would levy a higher charge (per unit of energy) on some fuels than others. As indicated in Table 1 , coal generates approximately 80% more CO 2 emissions per unit of energy than natural gas, and approximately 28% more emissions per energy than crude oil. These differences in emissions intensity would lead to different tax rates per unit of energy across different fuels in a carbon tax regime. Table 2 includes estimates of the tax levied on fossil fuels and motor gasoline at different carbon tax rates. The change in price that consumers would see would likely not be the same as the carbon tax. Carbon taxes could affect fuel prices in complex ways. For example, energy consumers, to the extent possible, would likely shift their preferences to less expensive fuels, and the underlying prices of the fuels would change. Actual price increases that result from the illustrative carbon taxes in Table 2 would depend on whether a carbon tax is applied at the beginning of the production process ("upstream") to fossil fuels ( Figure 1 ); the price impacts are passed through to end-users and not absorbed by upstream energy producers or midstream entities (such as retailers); and consumers modify their behavior in the marketplace—energy conservation, fuel substitution, etc. Policymakers may consider a carbon tax based on a number of policy motivations and potential benefits, including increased federal revenues, reduced federal budget deficits, reduced GHG emissions, climate change, and ocean acidification, enhanced energy security, improved economic efficiency, and/or reduced tax rates from other revenue sources. In recent years in the United States, most carbon tax proposals have aimed primarily to discourage GHG emissions. In these proposals, a tax or fee would be levied on GHG emissions or the inputs (i.e., fossil fuels) that lead to emissions. The tax or fee raises the price of the emission-generating products, and therefore can, on the one hand, motivate suppliers to reduce the emissions involved in making the product and, on the other hand, encourage consumers to buy less of the product. This policy instrument sets the tax (cost) per unit of emissions and relies on private decision-makers to find the most efficient means to reduce the emissions. A carbon tax is one of several "market mechanisms" that relies on the efficiencies of markets to maximize cost-effectiveness. Though this policy instrument is commonly called a "carbon tax," its application could be broader than this term suggests. First, the policy may apply not just to CO 2 emissions, but also to multiple GHGs (e.g., methane or sulfur hexafluoride), including some that may have no molecular carbon. Second, if the levy's primary purpose were to charge those who use the atmosphere to absorb the full cost of their GHG emissions, the levy might instead be considered a "user fee." Regardless, this report uses the term "carbon tax," because this report focuses on the policy instrument's potential to raise revenues and reduce the federal budget deficit. There are a number of issues to be considered when evaluating tax policy proposals. The following sections analyze a generic carbon tax option using the criteria listed below: adequacy— the ability to generate a desired amount of revenues; economic efficiency— the potential to enhance or diminish the productivity of the U.S. economy; equity— the subjective determination of a proposal's fairness; o perability— the combination of multiple factors, including administrative ease, transparency, avoidance of perverse outcomes, and consistency with federal and international norms and standards; and political feasibility— the likelihood of enactment given a tax's visibility to the public and public opinion, differential regional implications, contribution to deficit reduction or other objectives, pledges made by some lawmakers not to raise taxes, etc. The revenues that would be generated under a carbon tax vary greatly depending on the design features of the tax, namely the tax scope (i.e., base) and rate, as well as such independent factors as prices in global energy markets. Several recent proposals to price or tax carbon, where revenue estimates are available, are presented below. In 2011, the Congressional Budget Office (CBO) evaluated a hypothetical cap-and-trade program in which CO 2 emission allowances (i.e., permits to emit one metric ton of CO 2 emissions) would be sold at auction and traded in a carbon market. The auction revenues generated in this program would be analogous to tax revenues under a carbon tax system. CBO estimated the allowance price, which, under an actual program, would be determined by market forces, would begin at $20 per metric ton of CO 2 (mtCO 2 ) in 2012 and increase 5.6% annually. This allowance price estimate, and its projected annual increase, is akin to a prescribed carbon tax rate. CBO estimated that such a regime would raise $1.2 trillion over the 2012 to 2021 budget window ( Table 3 ). As a point of reference for the above carbon tax revenue estimates, Figure 2 identifies the major sources of federal receipts in FY2011. As the figure illustrates, the range of potential carbon tax revenues is comparable (at least in the early years of the carbon tax system) to the revenues collected from current federal excise taxes. Nearly half of all federal excise tax receipts come from taxes on gasoline and diesel fuels. Legislation introduced in the 112 th Congress, the Save Our Climate Act of 2011 ( H.R. 3242 ), would have established a carbon tax on domestic and imported fossil fuels, as well as the carbon content of biomass, municipal solid waste, and any organic material used as fuel. The tax rate would have begun at $10 per short ton of CO 2 emissions (tCO 2 ), increasing by $10 annually until total U.S. CO 2 emissions are 20% or less of CO 2 emissions in 1990. The bill states that it would reduce the federal budget deficit by $480 billion over 10 years. Other revenue estimates have been made in recent years of carbon taxes considered or included in a number of deficit and debt reduction proposals. As one example, in 2010, the bipartisan Debt Reduction Task Force (Domenici-Rivlin) considered, but did not ultimately recommend, a tax on CO 2 emissions. The report estimated that a tax of $23 per ton of CO 2 emissions starting in 2018, increasing 5.8% annually, would raise approximately $1.1 trillion in cumulative revenues through 2025. In addition to a carbon tax design, a 2012 Resources for the Future (RFF) study identified several factors—electricity demand and natural gas prices—that could influence carbon tax revenue. The study found that the magnitude of these factors' influence increases as the tax rate increases. Figure 3 illustrates the RFF study findings. In Figure 3 , RFF compares tax revenue estimates using assumptions from EIA's 2009 and 2011 Annual Energy Outlook (AEO) publications. According to the study, the AEO assumptions regarding future electricity demand and fuel prices, namely natural gas, varied dramatically between the 2009 and 2011 versions. These variances lead to different estimates of potential carbon tax revenue. For example, as illustrated in Figure 3 , estimated revenues in 2020 from a tax rate of $25/mtCO 2 would vary across scenarios by about $10 billion. A $40/mtCO 2 tax rate would generate an estimated revenue range across scenarios of almost $20 billion in 2020. Further, Figure 3 highlights a key result of a carbon tax that may affect its ability to provide a reliable source of revenue. Note that the tax revenues in the electricity sector begin to decline around 2030 with the $40/mtCO 2 tax rate. The study concluded this decline is due to a diminishing reliance on fossil fuels and relatively greater reliance on low-carbon energy sources, such as renewables and nuclear. The projected scenario in Figure 3 highlights a fundamental revenue adequacy concern associated with a carbon tax approach: if a primary goal of a carbon tax is to reduce its own tax base (i.e., carbon emissions), would this tax provide a reliable stream of revenues over time? With revenue reliability as a primary goal, governments impose taxes on activities to which producers and consumers are not very price-sensitive. In other words, the imposed taxes lead to minimal changes in market behavior. Researchers debate how much producers and consumers would respond to a tax on GHG emissions by reducing emissions or switching to goods and services that generate fewer emissions (because they embody lower taxes). With a higher degree of responsiveness, either revenues would decline or the tax rate per ton of emissions would need to increase over time to maintain the revenue stream (assuming that maintaining certain revenue stream is determined to be a policy objective). Economic theory suggests that a carbon tax could improve the efficiency of the economy by at least three means: first, markets could produce a more optimal mix of goods and services if the costs of emitting GHG while manufacturing products, providing services, or using goods were "internalized" into market prices; producers and consumers would more fully respond to the full costs of their decisions, resulting in a more economically efficient outcome; second, a tax on an activity that yields pollutants, such as GHG emissions, would discourage the polluting activity and therefore could be more efficient than an alternative tax that yields the same revenues but discourages a beneficial activity (e.g., investment); and third, adding a smaller tax on a new activity, such as potential carbon emissions, could be less distortionary to production and consumption than increasing the tax rate on currently taxed activities. The difficulty associated with setting an optimal carbon tax rate makes achieving potential efficiency gains challenging. Further, a stand-alone carbon tax (e.g., one where revenues were not used to offset other taxes) could have efficiency costs, as a carbon tax would increase existing distortions on inputs in the production process. The difficulty of implementing an efficiency-enhancing carbon tax is compounded in a tax system that already contains a number of distortionary taxes. Many people are concerned about several potentially "distortionary" effects of taxes on society. Many economists consider that taxes take money away from people and change the relative prices of goods and services compared to what they would be without taxes; thus, taxes are considered "distortionary" by altering free market decisions. To minimize distortions (and generate a reliable stream of revenues), governments often prefer to tax products or activities for which consumer demands are relatively insensitive to price increases. Some of these taxed items are recognized as essential or socially desirable, such as income, employment, and investment. Taxes may also be "distortionary" because they discourage a taxed but beneficial activity. For example, many economists argue that payroll and income taxes are distortionary because they discourage employment and investment. If these taxes were reduced, the incentives to hire/work and invest, they argue, would be greater. Also, as tax rates (i.e., the tax per unit of a product or service) increase, they become more distortionary. That is, higher tax rates have greater potential to shift choices away from optimal "free market" outcomes. As an example, consumers may respond proportionately more strongly to a $1.00 tax per gallon on gasoline than a $0.20 tax per gallon (in other words, the efficiency losses associated with a tax increase exponentially with the tax rate). Thus, applying lower tax rates to broader tax bases can help minimize inefficiencies. Not all results from economic activity are considered desirable—pollution being one example. When producers or consumers discharge pollution—including GHG emissions—to another person's private property or a publicly shared resource—such as the atmosphere—without paying to do so, they are not paying for the full cost of a product or activity. Economists would describe this outcome as a "market failure," because the costs associated with GHG emissions are not captured in the economic decision process. Economists contend that levying a charge on GHG emission would be an economically efficient way to correct the failure. For example, in terms of environmental policy, fossil fuel prices do not reflect the costs—related to climate change and ocean acidification damages—associated with the GHG emissions. A pollution discharge fee could internalize these external costs into market prices. A primary argument in favor of a carbon tax is that it would, in theory, increase the efficiency of markets by discouraging "bad" activities. A carbon tax would discourage pollution that imposes costs on others who do not necessarily benefit from the polluting activity. These may include future generations that bear the dislocations of climate change, or fishery sectors in developing countries that experience lower yields in acidified oceans. A carbon tax would encourage energy consumers—for example, power plants, industry, households, etc.—to (1) switch to less carbon-intensive fuels; (2) use less energy or use energy more efficiently; and (3) prefer products or services that are lower-priced by virtue of incorporating less emission tax. Each of these activities would reduce GHG emissions compared to a business-as-usual track and could improve economic efficiency. To improve efficiency, a carbon tax would need to be set at the "right" level. According to basic economic theory, the "right" level would be one that equilibrates the tax rate to the incremental harm, now and in the future, that a ton of GHG emissions imposes. To find this tax rate precisely, one would need to know the marginal costs of climate change and ocean acidification. However, estimating the effects and placing a monetary value on them is both controversial and reliable only over a wide range. Hence, no consensus is likely to emerge regarding a precisely "right" carbon tax rate. An analytical or political estimate is feasible but may not be the most economically efficient outcome. Further, setting carbon tax rates based on revenue needs for deficit reduction, or some other purpose, would not necessarily result in setting a rate that is proportional to the incremental harm of GHG emissions. The "equity" or "fairness" of taxes can be evaluated by looking at how different parties are affected. How the burden of a tax is ultimately divided between different parties is described as the economic incidence of the tax. To evaluate the subjective concepts of "equity" and "fairness" in tax policy, economists often examine two different types of equity: vertical and horizontal. In addition, some economists consider individual and generational equity. A complete policy analysis might consider the potential trade-off between economic efficiency and equity. These four elements of tax equity are discussed below. The notion of vertical equity suggests that those with a greater ability to pay should contribute more. Without some of tax revenue redistribution, carbon taxes are generally considered to be "regressive," because lower-income households generally spend a higher percentage of their income on energy-related goods and services than do higher-income households. The actual or perceived regressivity of carbon or fuel taxes can have a strong influence on the political feasibility of the instrument. For example, the coalition of advocates for low-income people and opponents of energy taxes arguably contributed to the failure of President Clinton's 1993 "Btu Tax" proposal (see the text box above), which was introduced as part of a deficit reduction package. Particular carbon tax design elements could reduce its regressivity. For example, carbon tax revenues could be used to reduce other taxes (e.g., income) or be redistributed to lower-income households through a variety of funding mechanisms (see the section " Alternative Uses for Carbon Tax Revenues " below). Horizontal equity examines whether potential tax-payers with similar characteristics would receive equivalent tax treatment. Questions of horizontal equity may arise if particular industries or economic sectors that predominately emit non-CO 2 GHG emissions (e.g., methane) were exempted from the carbon tax regime, while industries or sectors of comparable size were included based on their CO 2 emissions. Some people consider taxes unfair when they involve government interference in private transactions, including freedom to use one's resources as one chooses. This is sometimes considered a violation of "individual equity." To minimize infringement of individual equity, some would argue that taxes should be levied on, and commensurate with, the benefit an individual receives from the taxed activity, or "benefit taxation." (Proponents contend that not to violate individual equity would require that the tax be voluntary.) Some might counter that a carbon tax is a kind of "benefit taxation," levied on the benefit the carbon source receives by being allowed to discharge the pollution to the atmosphere. Are the burdens of taxation and benefits from governmental spending fairly distributed across generations? This is a particular concern in the context of the federal deficit and GHG-induced climate change, both of which would likely shift costs from the current generation to subsequent generations. At first glance, a carbon tax could potentially support generational equity by helping to slow or reduce GHG-induced climate change and by potentially reducing the deficit (depending on the fate of tax revenues). However, an assessment of generational equity is complex. Some may argue that a carbon pricing mechanism would reduce the wealth of the current generation, consequently reducing the productive capacities of future generations. Moreover, some may argue that, instead of a carbon price approach, increased investment in technology would yield greater benefits for future generations. Others may counter that increased investments today may result in increased consumption, providing minimal benefits for future generations and foregoing the opportunity to address climate change impacts. Such an outcome would disproportionately burden future generations. Some tax options may be elegant in terms of economic theory but, in practice, present considerable logistical challenges. This section identifies some of the key administrative issues that might arise when implementing a carbon tax. In previous debates over carbon taxes, which largely focused on discouraging GHG emissions, many proponents asserted that carbon taxes would be administratively simple compared to the principal emissions control alternatives—notably, a cap-and-trade program or emissions performance standards. As with other comparisons, the relative advantage of a carbon tax would depend on the designs of the instrument alternatives under scrutiny. Any new kind of tax would require new administrative systems, but a carbon tax system could potentially take advantage of existing frameworks. A well-developed administrative structure for collecting taxes already exists in the United States. In addition, approximately 13,000 facilities report annual GHG emissions to EPA. Therefore, EPA already collects carbon tax emissions data covering about 90% of all U.S. GHG emissions. However, a tax program would presumably be administered by the Department of the Treasury. Transferring data should not be technically difficult, but broader cooperation across agencies would likely be necessary to share respective expertise and to promote compliance. Policymakers might consider the degree to which a carbon tax is consistent with other policies that support other objectives: pollution control, energy affordability, and national security. Superficially, carbon taxes would seem to be consistent with other GHG emission control standards, but would conflict with incentives to make fossil fuels more affordable. In terms of linking a U.S. GHG emission reduction scheme with international efforts, a carbon tax may be at a disadvantage, because the most prominent international activity, namely the European Union's Emission Trading Scheme, currently involves a cap-and-trade approach. Some carbon pricing policies may yield unexpected and unwelcome results. For carbon taxes, one such "perverse effect" would be the potential to increase the cost of business activity in the United States. Over time, this could result in reduced revenue from both the carbon tax and other taxes. This consideration has led some other countries to exempt energy-intensive manufacturers in specific or strategic sectors from energy or carbon taxes. In addition, a carbon tax could lead to emissions "leakage," if businesses moved operations overseas to avoid the tax. This outcome would depend on a number of factors, however, including relative fuel mixes, efficiencies of power production and transportation, border taxes, etc. Tax policies that are transparent may be more likely viewed as fair, as taxes being paid are understood by those responsible for paying the tax. In recent years, many have grown more skeptical of complex financial structures. Potential complexity and opaqueness of a cap-and-trade program was one factor that led some advocates of GHG control policies to prefer carbon taxes as a policy instrument. While a carbon tax could be designed to be simple and transparent, Congress could also choose to establish a carbon tax framework that rivals the complexity of a cap-and-trade program. For instance, policymakers could provide subsidies or exemptions to the fossil fuel industry or certain consumers (e.g., agricultural users) or enact incentives for producing, processing, and exporting fossil fuels. In addition, policymakers could allow for tax credits for carbon sequestration projects, similar to carbon offsets in a cap-and-trade regime. As with carbon offsets in a cap-and-trade program, this would require a further level of administrative responsibilities, and potentially weaken the program. Ironically, transparency, particularly in regards to costs, could be a political liability for a carbon tax. Although both a carbon tax and a cap-and-trade program would impose higher energy costs, the costs from a cap-and-trade program would be more difficult to estimate, because the market would determine the price of emission allowances (and thus the overall costs of the program). Certain stakeholders are likely to exercise strong opposition to a carbon tax. These include energy-intensive manufacturers, farmers, and regional energy interests—especially those whose asset values may fall with expected impacts on profitability of owned or leased coal and oil resources. One may look to numerous reviews of the histories of both the Clinton Btu tax proposal and more recent cap-and-trade bills for lengthier views regarding political feasibility. The possible contribution of a carbon tax to deficit reduction would depend on the magnitude and scope of the carbon tax, various market factors (discussed above), and assumptions about the size of the deficit. In February 2013, CBO released budget projections for fiscal years 2013 to 2023. Under current law, CBO estimated the 10-year budget deficit at $6.8 trillion, or 3.4% of GDP. However, using an alternative fiscal scenario, CBO projected a larger deficit—$9.1 trillion, or 4.5% of GDP. Enacting the carbon tax options discussed in the previous section could reduce future budget deficits. As illustrated in Figure 4 , a $20/mtCO 2 price on carbon (increasing by 5.6% annually) would have a considerable impact on budget deficits using CBO's February 2013 baseline projection. The 10-year budget deficit could be reduced from $6.8 trillion to $5.6 trillion, or from 3.4% to 2.8% of GDP. Overall, a $20/mtCO 2 price on carbon would reduce the 10-year budget deficit by more than 17%. Under CBO's alternative fiscal scenario, the same carbon tax would have a smaller impact on budget deficits. The deficit would be reduced from $9.1 trillion to $7.9 trillion, or from 4.5% to 3.9% of GDP. Overall, a $20/mtCO 2 price on carbon would reduce the 10-year budget deficit by about 13%. The analysis above assumes that 100% of carbon tax revenue would be applied toward deficit reduction. The following section explores possible alternative uses for carbon tax revenues. Carbon tax revenues may be used to achieve a variety of policy goals. However, one revenue use necessarily forgoes the opportunity to apply that level of revenue to support other objectives, like deficit reduction. Therefore, in deciding how to allocate carbon tax revenues, policymakers would encounter trade-offs among objectives. Such trade-offs include 1. minimizing economy-wide costs resulting from a carbon tax; 2. alleviating the costs borne by subgroups in the U.S. population, regions, economic sectors, and generations; and 3. supporting specific policy objectives, such as deficit reduction, climate change mitigation, energy efficiency, technological advances, domestic employment, or energy diversity. A comprehensive discussion of alternative uses of carbon tax revenues and the involved trade-offs is beyond the scope of this report. Three possible options, which have received some attention in recent years, are discussed below. If Congress were to consider a carbon tax system, a key debate would likely involve the degree to which carbon tax revenues would be returned to households to alleviate the expected financial burden imposed by the carbon tax. A 2007 study estimated that households and businesses that are end users would experience the vast majority (87%) of the private costs under a carbon pricing regime (the remaining 13% was attributed to coal, oil, and gas producers and fossil electricity generators). Moreover, businesses—to the extent they were able—would likely pass through to household consumers some of their increased energy/electricity costs in the form of higher prices for their goods and services. Costs that are not passed through to consumers in the form of higher prices are borne by either labor, through reduced wages, or owners of capital, through reduced returns on investment. Depending on how and to whom carbon tax revenues are distributed, lower-income households could face a disproportionate increase in tax burden. As illustrated in Table 4 , a carbon tax "in isolation" (i.e., without revenue redistribution of some kind) could have a disproportionately greater impact on lower-income households than higher-income households—a regressive outcome. As Table 4 illustrates, a carbon tax in isolation would reduce after-tax income for taxpayers in the lowest income deciles by 3.4%, while taxpayers in the highest income deciles would see their income fall by 0.8%. The remaining rows in Table 4 show how the household impacts would change if carbon tax revenues were rebated to households using different rebate mechanisms. An equal lump-sum rebate of carbon tax revenues would be progressive, increasing incomes for those in the lowest income deciles relative to higher-income brackets. A payroll tax rebate for workers, in this case, would reduce but not eliminate the regressivity of the carbon tax. Lower-income households without individuals in the workplace would not receive a rebate under this approach. Adding a rebate for Social Security recipients to the payroll tax rebate would address the lower-income households with individuals not in the workplace, and further enhance the progressivity of this policy option. In this scenario, both a lump-sum carbon tax rebate and a carbon tax rebate that includes Social Security recipients increase the after-tax income of lower-income households while decreasing the after-tax income of higher-income households. Using carbon tax revenues to reduce payroll taxes would increase the after-tax income of middle-income households, while lower-income households would see their after-tax income fall. Among the policies surveyed in Table 4 , using carbon tax revenues to finance lump-sum rebates to households provides the most benefit to the lowest-income. While enhancing the progressivity of the overall tax system may be attractive from an equity perspective, lump-sum rebates to households offer limited potential for gains in overall economic efficiency. If carbon tax revenues are instead used to offset other distortionary taxes in the economy (i.e., payroll, income), the costs associated with a carbon tax may be reduced or eliminated. Studies that examine the distribution of a carbon tax rely on a number of modeling assumptions. Metcalf (2007), for example, assumes that the costs of the carbon tax are related to energy expenditure patterns across income groups. An alternative approach is to look at the distribution of the carbon tax, assuming that the carbon tax reduces returns to factors of production: labor, capital, and fossil fuel resources. Under this approach, the regressivity of a carbon tax is reduced. If the burden of the carbon tax falls more heavily on owners of capital, as opposed to labor, the carbon tax affects higher income households that tend to derive more of their income from capital. Further, lower income households that receive a larger share of their income from transfer payments (e.g., social security), would be less affected by a carbon tax. While the "baseline" distribution of a carbon tax (i.e., the distribution of a carbon tax absent revenue recycling) differs under various modeling assumptions, the general conclusions regarding different policy choices for uses of carbon tax revenues often remain the same. Lump-sum redistribution of carbon tax revenues tends to be more progressive, while policies that reduce payroll taxes tend to be less regressive than those that reduce taxes on income or capital. Some are concerned about potential economy-wide costs that a carbon tax would impose. Economy-wide costs, or macroeconomic costs, are often measured in terms of changes in projected gross domestic product (GDP) or another societal-scale metric, such as efficiency cost or welfare changes. A tax on carbon would likely lead to increased energy costs, which could reduce GDP growth. However, most measures of economic costs imposed by a carbon tax do not consider the climate change benefits or ancillary benefits that a carbon price would provide. The ultimate economic effects would depend on a number of factors, including the magnitude, design, and use of revenues of the carbon tax. Economic studies indicate that using carbon tax revenues to offset reductions in distortionary taxes—labor, income, and investment—would be the most economically efficient use of the revenues and yield the greatest benefit to the economy overall. Studies also conclude that using tax revenues to lower the federal deficit would yield an economy-wide benefit, because of the reduced need to impose distortionary taxes in the future. But this benefit would be delayed and its realization assumes policymakers would, sometime in the future, address the deficit by raising taxes. Using carbon tax revenues to offset other distortionary taxes is sometimes described as revenue recycling, a fiscal strategy that may yield a "double-dividend": 1. reduced GHG emissions, achieved through the new carbon price, and 2. reduced market distortions, achieved through lower taxes on desirable behavior. According to a 2011 study, economic literature generally finds that revenue recycling may reduce the economy-wide costs imposed by a carbon tax intended to reduce GHG emissions, but may not eliminate them entirely. However, the same 2011 study and a 2012 study both provide scenarios in which a carbon tax and revenue recycling would produce a net increase in Gross Domestic Product. In other words, these studies found that, in certain situations, that the economic improvements gained by reducing existing distortionary taxes would outweigh the costs imposed by the new carbon tax. In both studies, the potential benefits of reduced GHG emissions were not part of the calculation, largely because these estimates carry considerable uncertainty. For example, the 2012 study projected a net reduction in GDP and employment—a measure of economy-wide costs—when carbon tax revenues were used to (1) reduce the deficit, (2) provide lump-sum transfers to households, or (3) reduce payroll taxes. However, when carbon tax revenues were used to reduce marginal tax rates on capital income (e.g., the corporate tax), employment and GDP increased relative to the baseline. While using carbon tax revenues to reduce tax rates on capital may enhance economic efficiency, such policies would not offset the increased burden imposed by a carbon tax on low-income households. Carbon-intensive, trade-exposed industries would likely face disproportionate impacts within a U.S. carbon tax system. This issue received considerable attention during the debate over H.R. 2454 in 2009 (the 111 th Congress) and would likely receive similar attention if Congress were to consider establishing a carbon tax system. An industry's carbon intensity is a function of both direct CO 2 emissions from its manufacturing process (e.g., CO 2 from cement or steel production) and indirect CO 2 emissions from the inputs to the manufacturing process (e.g., electricity, natural gas). In general, trade-exposed industries are those that face considerable international competition. A carbon tax would present a particular challenge for these industries. Compared to other domestic industries, they would be less able to pass along the tax in the form of higher prices, because they may lose global market share (and jobs) to competitors in countries lacking comparable carbon policies. To address these impacts, policymakers could distribute a portion of the carbon tax revenues to these industries. As one point of reference, under H.R. 2454 (111 th Congress) such industries would have received approximately 15% of the emission allowance value—analogous to 15% of carbon tax revenue—through 2025, steadily decreasing to zero thereafter. At the time, some questioned whether this allotment was sufficient. Regardless, the data and administrative resources necessary to implement such a program would be substantial. Alternatively, policymakers could supplement a carbon tax scheme with a border adjustment mechanism that would essentially apply a tariff to carbon-intensive, imported goods. Such a mechanism was included in H.R. 2454 (111 th Congress). Under that proposal, EPA would have required importers of energy-intensive products from countries with insufficient carbon policies to submit a prescribed amount of "international reserve allowances," for their products to gain entry into the United States. Implementation of this approach would present substantial administrative challenges, particularly in terms of data from other nations. In addition, either the revenue distribution or border adjustment approach would likely raise concerns of trade complications. These issues are beyond the scope of this report. For further information, see CRS Report R40914, Climate Change: EU and Proposed U.S. Approaches to Carbon Leakage and WTO Implications . Carbon taxes, or fees on emissions of some or all GHG emissions, have been proposed for many years by economists and some Members of Congress. A new carbon price would help reduce GHG emissions contributing to climate change and ocean acidification, and tax revenues could support a range of policy objectives, including deficit reduction. Carbon tax revenues would depend strongly on the scope and rate of the tax and multiple market factors, which instill uncertainty in revenue projections. A $20/mtCO 2 carbon tax on U.S. CO 2 emissions would generate approximately $90 billion in its first year. If applied toward deficit reduction, carbon tax revenue (of this magnitude) could have some impact on projected budget deficits, but impacts vary considerably depending on which budgetary baseline is assumed. Regardless, if policymakers established a carbon tax, they would likely face pressure from multiple stakeholders seeking a portion of the carbon tax revenues. Households would be expected to bear a large portion of the burden imposed by a carbon tax. Lower-income households, in particular, would face a disproportionate impact if revenues were not recycled back to them in some fashion. In addition, specific industries may experience disproportionate impacts. Carbon tax revenues that are used to offset the burden imposed on various sectors or specific population groups would not be available to support other objectives, like deficit reduction. Appendix A. Potential Applications of a Carbon Tax Table A-1 below identifies sources of GHG emissions that account for 0.5% or more of total U.S. GHG emissions. The sources are listed in descending order by their percentage contribution. Carbon dioxide emissions from fossil fuel combustion, which accounts for almost 79% of total U.S. GHG emissions, are broken down by fossil fuel type: petroleum, coal, and natural gas. The right side of the table identifies potential points in the economy at which a carbon tax could be applied. The table lists the number of entities that would be involved with different tax applications. For some emission sources the number of "entities" may be relatively large. However, in some of these cases, the number of companies that operate these entities is considerably smaller. For example, natural gas wells involve a large universe of entities (over 500,000), but the 500 largest natural gas producers accounted for approximately 94% of total U.S. production in 2007. The right-hand column of the table provides an estimate of the percentage of total U.S. GHG emissions that would be subject to a carbon price with a given tax application. For example, a carbon tax applied at natural gas wells (based on a well's gross production) could attach a price to all CO 2 emissions that would result from domestic natural gas combustion. In addition, this application could attach a price to non-combustion related emissions, such as CH 4 emissions that occur during production and transportation. The potential for additional coverage explains why the percentage in the right-hand column may be larger than the percentage in the left-side column ("Percentage of Total U.S. GHG Emissions"). Appendix B. Illustration of Natural Gas Sector Appendix C. Carbon Pricing Proposals in the 111 th and 112 th Congresses Members introduced two carbon tax bills in the 112 th Congress: H.R. 3242 (Stark), introduced October 24, 2011: Would have established a carbon tax on domestic and imported fossil fuels, as well as the carbon content of biomass, municipal solid waste, and any organic material used as fuel. The bill states that it would reduce the federal budget deficit by $480 billion over 10 years, with remaining revenues paid as dividends to individuals. H.R. 6338 (McDermott), introduced August 2, 2012: Would have required carbon emitters to purchase non-transferrable emissions permits from the U.S. Treasury. The Treasury would have used emissions targets to determine the price of these permits. Revenues would have been used both for deficit reduction and to provide dividends to individuals. In the 111 th Congress, policymakers introduced at least nine stand-alone, market-based proposals that sought to reduce GHG emissions. These bills included carbon tax, cap-and-trade, and hybrid approaches. Of the bills that specified a distribution formula for carbon tax revenue or emission allowance value, only three (and one draft bill) would have allotted allowance value or tax revenue that would explicitly support deficit reduction (listed in order of proposed date): H.R. 2454 (Waxman-Markey), introduced May 15, 2009: 0.2% of emission allowance value in 2016-2026, zero in subsequent years. S. 1733 (Kerry-Boxer), introduced September 30, 2009: 10.3% of emission allowance value in 2016, increasing to 30% in 2030. S. 2877 (Cantwell), introduced December 11, 2009: 25% of emission allowance value (subject to the appropriations process) to a fund, which could be used to support a myriad of policy objectives, including deficit reduction. Kerry-Lieberman draft legislation, released May 12, 2010: 6.8% of emission allowance value in 2016 and 2030. | In the context of budget deficit and fiscal policy debates, policymakers have considered a number of options for raising additional federal revenues, including a carbon tax. A carbon tax could apply directly to carbon dioxide (CO2) and other greenhouse gas (GHG) emissions, or to the inputs (e.g., fossil fuels) that lead to the emissions. Unlike a tax on the energy content of each fuel (e.g., Btu tax), a carbon tax would vary with a fuel's carbon content, as there is a direct correlation between a fuel's carbon content and its CO2 emissions. Carbon taxes have been proposed for many years by economists and some Members of Congress, including in the 113th Congress. However, based on concerns regarding the potential negative economic impacts of a carbon tax, some Members have introduced concurrent resolutions opposing a carbon tax. If Congress were to establish a carbon tax, policymakers would face several implementation decisions, including the point and rate of taxation. Although the point of taxation does not necessarily reveal who ultimately bears the cost of the tax, this decision involves trade-offs, such as comprehensiveness versus administrative complexity. Several economic approaches could inform the debate over the tax rate. Congress could set a tax rate designed to accrue a specific amount of revenues. Some would recommend setting the tax rate based on estimated benefits associated with avoiding climate change impacts. Alternatively, Congress could set a tax rate based on the carbon prices estimated to meet a specific GHG emissions target. Carbon tax revenues would vary greatly depending on the design features of the tax, as well as market factors that are difficult to predict. A study from the Congressional Budget Office (CBO) estimated that a tax rate of $20 per metric ton of CO2 would generate approximately $88 billion in 2012, rising to $144 billion by 2020. The impact such an amount would have on budget deficits depends on which budget deficit projection is used. When deciding how to allocate revenues, policymakers would encounter key trade-offs, such as minimizing the costs of the carbon tax to "society" overall versus alleviating the costs borne by subgroups in the U.S. population or specific domestic industries. Economic studies indicate that using carbon tax revenues to offset reductions in existing taxes—labor, income, and investment—could yield the greatest benefit to the economy overall. However, the approaches that yield the largest overall benefit often impose disproportionate costs on lower-income households. In addition, carbon-intensive, trade-exposed industries may face a disproportionate impact within a unilateral carbon tax system. Policymakers could alleviate this burden through carbon tax revenue distribution or through a border adjustment mechanism. Both approaches may entail challenges in implementation. Moreover, other stakeholders may advocate tax revenues be used to further other goals, including energy efficiency efforts or technology development. However, one revenue use necessarily forgoes the opportunity to apply that level of revenue to support other objectives. |
This report describes the individual mandate as established under the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). It also discusses the ACA reporting requirements designed, in part, to assist individuals in providing evidence of having met the mandate. The ACA requires most individuals to have health insurance coverage or potentially to pay a penalty for noncompliance. Individuals are required to maintain minimum essential coverage for themselves and their dependents. Some individuals are exempt from the mandate and the penalty, and others may receive financial assistance to help them pay for the cost of health insurance coverage and the costs associated with using health care services. Calendar year 2014 was the first year in which individuals were expected to comply with the individual mandate requirement. Because the penalties are assessed through the federal tax filing process, calendar year 2015 is the first year in which the penalty is assessed (for calendar year 2014). In general, individuals who are not exempt from the mandate must maintain minimum essential coverage to avoid the penalty. Minimum essential coverage is defined broadly in statute and is defined further in regulations; the definition includes most types of government-sponsored coverage (e.g., Medicare) as well as most types of private insurance (e.g., employer-sponsored insurance, or ESI). Table A-1 in Appendix A lists types of coverage that are and are not considered minimum essential coverage, as identified in statute, regulations, and guidance. With some exceptions, individuals are required to maintain minimum essential coverage for themselves and their dependents. Those who do not meet 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 an individual'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 shown in Table 1 , both the percentage and the flat dollar amount increase between 2014 and 2016, and the dollar amount is adjusted for inflation thereafter. When calculating the flat dollar amount assessed on a taxpayer and his or her dependents, the flat dollar amount is reduced by one-half for dependents under the age of 18 and the total family penalty is capped at 300% of the annual flat dollar amount. For example, in 2015 the flat dollar amount for a taxpayer and his or her dependents is limited to three times $325, or $975. The total monthly penalty for a taxpayer and his or her dependents cannot be more than the cost of the national average premium for bronze-level health plans offered through health insurance exchanges (for the relevant family size). In other words, the total monthly penalty is capped. In 2015, the average premium is $207 per individual per month. If a taxpayer is liable to pay a penalty for more than one individual, the monthly individual amount ($207) is multiplied by the number of individuals subject to a penalty, up to a maximum of five individuals. So, in 2015 the maximum cap is $1,035 per month for any taxpayers who are liable for penalties for five or more individuals. See Appendix B for penalty examples for 2014, 2015, and 2016. Any penalty that taxpayers are required to pay for themselves or their dependents must be included in their federal income tax return for the taxable year. Those individuals who file joint returns are jointly liable for the penalty. Taxpayers who are required to pay a penalty but fail to do so will receive a notice from the Internal Revenue Service (IRS) stating that they owe the penalty. If they still do not pay the penalty, the IRS can attempt to collect the funds by reducing the amount of their tax refund for that year or future years. However, individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty for such failure. The Secretary of the Treasury cannot file notice of lien or file a levy on any property for a taxpayer who does not pay the penalty. Certain individuals (and their dependents) are exempt from the individual mandate or its associated penalty. Table 2 describes the various exemptions. Most of the exemptions are outlined in statute and in regulations issued by the IRS. The ACA also gives the Secretary of Health and Human Services (HHS) the authority to determine the circumstances under which an individual may receive a hardship exemption. The following section, " Hardship Exemption " further details the circumstances identified by the HHS Secretary. Any individual whom the HHS Secretary determines has suffered a hardship with respect to the capability to obtain health insurance coverage will receive a hardship exemption. In regulations, HHS has identified a number of circumstances that allow individuals to receive a hardship exemption, including those in which an individual experiences financial, domestic, or other circumstances that prevent him or her from obtaining coverage or the expense of purchasing coverage would cause him or her to experience serious deprivation of food, shelter, clothing, or other necessities; is unable to afford coverage based on projected household income; has income below the filing threshold (and therefore is eligible for the filing threshold exemption), except that he or she claimed a dependent with a filing requirement and had household income exceeding the filing threshold as a result; is ineligible for Medicaid based on a state's decision not to carry out the ACA expansion; is identified as eligible for affordable self-only ESI, but the aggregate cost of the ESI for all the employed members of the individual's family exceeds a certain percentage of household income; and is an Indian eligible for services through an Indian health care provider but is not eligible for an exemption based on being a member of an Indian tribe, or is eligible for services through the Indian Health Service. Individuals can be exempt from the mandate and the penalty based on their characteristics, financial status, or affiliations (e.g., religious affiliations). Some exempt individuals do not have to take any actions to claim the exemption, such as those who live abroad for more than 330 days in a 12-month period and those who are bona fide residents of a U.S. possession. Other individuals must either obtain a certification of exemption from a health insurance exchange or claim the exemption through the tax filing process. Regulations provide that most exemptions be applicable retrospectively (with an exception for a specific hardship definition) and be recertified annually; only the religious and Indian tribe exemptions are eligible for prospective or retrospective applicability and continuous certification. Table 3 outlines the basic features of nine exemption categories. The individual mandate went into effect in 2014. When individuals filed their federal tax returns for that year, they had to report whether they maintained minimum essential coverage for each month in 2014 and whether they were exempt from the mandate for all or part of the year. As of the date of this report, the Department of the Treasury has not released information from 2014 tax filings related to the individual mandate. Information such as the number of individuals who were subject to the penalty in 2014, the amount of any penalties owed, and the number of individuals who were exempt from the mandate is not currently available. Although the ACA requires most individuals to maintain minimum essential coverage, it provides financial assistance to some individuals to help them meet the requirement. Under the ACA Medicaid expansion, some states have expanded their Medicaid programs to include all non-elderly, nonpregnant individuals with income below 133% of the federal poverty level (FPL), which has increased Medicaid enrollment significantly. As of 2014, some individuals who do not qualify for Medicaid coverage, but who meet other ACA requirements, are able to receive subsidies to help pay for the premiums and cost-sharing requirements of health plans offered through an exchange. The ACA requires that certain information be provided to the IRS and to individuals, in part to ensure that both parties have knowledge and proof that an individual is meeting the individual mandate. Every entity (including employers, insurers, and government programs) that provides minimum essential coverage to any individual must present a return to the IRS and a statement to the covered individual. The person required to provide the return and statement is referred to as the reporting entity . In general, insurers are the reporting entities for all fully insured health insurance arrangements and plan sponsors are the reporting entities for all self-insured arrangements. A government agency or unit is the reporting entity for any coverage under a government-sponsored program, including any coverage that is provided through an insurer (e.g., a Medicare Advantage plan). An insurer does not have to provide a return or a statement for any coverage it offers through an individual health insurance exchange, as the exchange is the reporting entity for such coverage; however, insurers that offer small group coverage through a small business health options program (SHOP) exchange are the reporting entities for such coverage. The return provided to the IRS must include the following: the name, address, and employer identification number (EIN) of the reporting entity required to file the return; the name, address, and taxpayer identification number (TIN) of the responsible individual and each other individual covered under the policy or program; the months for which, for at least one day, each individual was covered under the policy or program; for coverage provided through the group plan of an employer— the name, address, and EIN of the employer sponsoring the plan; whether the coverage is a qualified health plan (QHP) offered through a SHOP exchange and the SHOP's unique identifier; and any other information as specified in forms, instructions, or published guidance issued by the Department of the Treasury. The reporting entity also must provide a statement to each responsible individual covered under the policy or program. The statement must include the contact information for the person designated as the reporting entity's contact person; the policy number of the coverage, if any; and the information included in the return to the IRS for the responsible individual and any individuals listed on the return. Reporting entities were required to begin submitting returns in 2014; however, in July 2013 the Department of the Treasury published a notice that delayed the reporting requirement until 2015. Reporting entities that do not file timely and accurate returns and those that do not provide statements to individuals could be subject to penalties. Appendix A. Minimum Essential Coverage Appendix B. Penalty Examples The following are illustrative penalty examples for single individuals and for families of four (specifically, a married couple with two children under the age of 18). In all of the examples, the individual or individuals are subject to the individual mandate penalty for an entire calendar year. The 2014 and 2015 examples use actual tax filing thresholds and penalty caps for the respective year. The 2014 filing thresholds are $10,150 for a single individual under the age of 65 with no dependents (single filing status) and $20,300 for a married couple filing jointly. The 2014 penalty cap is $204 per month per individual, up to a maximum of five individuals. The 2015 filing thresholds are $10,300 for a single individual under the age of 65 with no dependents (single filing status) and $20,600 for a married couple filing jointly. The 2015 penalty cap is $207 per month per individual, up to a maximum of five individuals. Neither the tax filing thresholds nor the penalty caps for 2016 have been determined. Because the filing thresholds are linked to an inflation adjustment based on the Consumer Price Index for All Urban Consumers (CPI-U), they likely will be higher when implemented in 2016. The examples for 2016 use estimated filing thresholds. The Congressional Research Service does not have the information needed to estimate the 2016 penalty caps; therefore, estimated penalty caps are not used in the 2016 examples. Because the 2016 filing thresholds are estimated and the penalty caps are not used, the numbers for 2016 are meant for illustrative purposes only. These examples are best used to show the relative scope of the penalties and the relationship between the various components of the formulas for calculating the penalty. Penalty Examples: Single Individual Based on the information above, the following are illustrative individual-mandate penalties for a single individual with no dependents who is subject to the penalty for an entire calendar year . In 2014, an individual with income above $10,150 (the tax filing threshold) but at or below $19,650 will pay the $95 flat amount; an individual with income above $19,650 but below $254,950 will pay 1% of applicable income (the difference between the individual's income and $10,150); the penalty cap will apply to an individual with income at or above $254,950, so the individual will pay $2,448. In 2015, an individual with income above $10,300 (the tax filing threshold) but at or below $26,550 will pay the $325 flat amount; an individual with income above $26,550 and below $134,500 will pay 2% of applicable income (the difference between the individual's income and $10,300); the penalty cap will apply to an individual with income at or above $134,500, so the individual will pay $2,484. In 2016, an individual with income above the filing threshold (estimated to be $10,450 in 2016) but at or below an estimated $38,250 will pay the $695 flat amount; an individual with income above an estimated $38,250 and below the amount that will trigger the penalty cap will pay 2.5% of applicable income (the difference between the individual's income and the filing threshold); an individual with income at or above the amount that will trigger the penalty cap will pay the capped amount. Penalty Examples: Family of Four Based on the information above, the following are illustrative individual mandate penalties for a family of four (married couple with two children under the age of 18) who are all subject to the penalty for an entire calendar year . In 2014, those with income above $20,300 (the tax filing threshold) but at or below $48,800 will pay the $285 flat dollar amount; those with income above $48,800 but below $999,500 will pay 1% of applicable income (the difference between the family's household income and the filing threshold); the penalty cap will apply to a family of four with income at or above $999,500, so the family will pay $9,792. In 2015, those with income above $20,600 (the tax filing threshold) but at or below $69,350 will pay the $975 flat dollar amount; those with income above $69,350 and $517,400 will pay 2% of applicable income (the difference between the family's household income and the filing threshold); the penalty cap will apply to a family of four with income at or above $517,400, so the family will pay $9,936. In 2016, those with income above the filing threshold (estimated to be $20,900 in 2016) but at or below an estimated $104,300 will pay the $2,085 flat dollar amount; those with income above an estimated $104,300 and below the amount that will trigger the penalty cap will pay 2.5% of applicable income (the difference between the family's household income and the filing threshold); a family of four with income at or above the amount that will trigger the penalty cap will pay the capped amount. | Since 2014, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) has required most individuals to maintain health insurance coverage or potentially to pay a penalty for noncompliance. Specifically, most individuals are required to maintain minimum essential coverage for themselves and their dependents. Minimum essential coverage is a term defined in the ACA and its implementing regulations and includes most private and public coverage (e.g., employer-sponsored coverage, individual coverage, Medicare, and Medicaid, among others). Some individuals are exempt from the mandate and the penalty, and others may receive financial assistance to help them pay for the cost of health insurance coverage and the costs associated with using health care services. Individuals who do not maintain minimum essential coverage and are not exempt from the mandate have to pay a penalty for each month of noncompliance with the mandate. The penalty is the greater of a flat dollar amount or a percentage of applicable income. In 2014, the annual penalty was the greater of $95 or 1% of applicable income; the penalty increased to the greater of $325 or 2% of applicable income in 2015. The penalty will increase again in 2016 and will be adjusted for inflation thereafter. The penalty is assessed through the federal tax filing process. The Internal Revenue Service (IRS) can attempt to collect any owed penalties by reducing the amount of an individual's tax refund; however, individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty for such failure. The Secretary of the Treasury cannot file notice of lien or file a levy on any property for a taxpayer who does not pay the penalty. Certain individuals are exempt from the individual mandate and the penalty. For example, individuals with qualifying religious exemptions and those whose household income is below the filing threshold for federal income taxes are not subject to the penalty. The ACA allows the Secretary of Health and Human Services (HHS) to grant hardship exemptions from the penalty to anyone determined to have suffered a hardship with respect to the capability to obtain coverage. The Secretary of HHS has identified a number of different circumstances that would allow individuals to receive a hardship exemption, including an individual not being eligible for Medicaid based on a state's decision not to carry out the ACA expansion and financial or domestic circumstances that prevent an individual from obtaining coverage (e.g., eviction or recent experience of domestic violence). The ACA includes several reporting requirements designed, in part, to assist individuals in providing evidence of having met the mandate. Every entity (including employers, insurers, and government programs) that provides minimum essential coverage to any individual must present a return to the IRS and a statement to the covered individual that includes information about the individual's health insurance coverage. |
A health insurance exchange has been established in every state, as required by the Patient Protection and Affordable Care Act (ACA). Each exchange has two parts, a marketplace where individuals can shop for and enroll in health insurance coverage, and a small business health options program (SHOP) exchange for small employers. Some individuals are eligible to receive financial assistance for their coverage obtained through an exchange, and some small employers can obtain tax credits toward coverage purchased through a SHOP. Exchanges are not intended to supplant the private market outside of exchanges, and the ACA does not require that individuals and small businesses obtain coverage through an exchange. A state can choose to establish its own state-based exchange (SBE). If a state opts not to, or if the Department of Health and Human Services (HHS) determines that the state is not in a position to administer its own exchange, then HHS will establish and administer the exchange in the state as a federally facilitated exchange (FFE). Fourteen states and DC established SBEs in 2014, while the remaining 36 states have FFEs. There are varying levels of state involvement in FFEs. In some cases, a state has partnered with HHS to establish and administer the exchange, and in other cases HHS is administering the individual exchange while the state administers the SHOP exchange. In many states with FFEs, the exchange is wholly operated and administered by HHS. To fund the establishment of exchanges, the ACA authorizes the HHS Secretary to award grants to states through 2014. Each exchange is expected to generate its own funds to sustain its operations beginning January 1, 2015. This report provides a state-by-state breakdown of the grants awarded to date. It then briefly describes the requirement for exchanges to be self-sustaining, and concludes with a discussion of the sources and amounts of funding that HHS has used and plans to use to support FFE operations. Section 1311 of the ACA appropriated indefinite (i.e., unspecified) amounts for planning and establishment grants for health insurance exchanges. For each fiscal year, the HHS Secretary is to determine the total amount that will be made available to each state for exchange grants. Any state that intends to do exchange establishment work can apply for and receive a Section 1311 grant; for instance, a state that is not establishing an SBE may receive a grant provided the state uses the funds for activities related to exchange establishment and implementation. States have had multiple opportunities to apply for Section 1311 grants. One deadline remains for submitting an application this year (i.e., November 14). No grants will be awarded after December 31, 2014. HHS has awarded three different types of exchange grants, which are described below. Figure 1 shows the total amount of funding each state has received from the grants as well as the type of exchange (SBE or FFE) each state has in 2014. Table 1 shows the amount each state has received from the various types of grants. Exchange planning grants were given to 49 states and DC. These grants of about $1 million each were used by states to conduct the research and planning needed to determine how their exchanges would be administered and operated. Three states returned all (Florida and Louisiana) or a portion (New Hampshire) of their exchange planning grants. There are two levels of exchange establishment grants. Level one establishment grants provide up to one year of funding to states that have made some progress under their exchange planning grants. States may seek additional years of level one funding in order to meet the criteria necessary to apply for level two funds. Level two establishment grants are designed to provide funding through December 31, 2014, to states that are farther along in the establishment of an exchange. States applying for level two establishment grants must meet specific eligibility criteria regarding the structure and governance of the exchange they are developing. HHS has announced several rounds of exchange establishment grant awards, the most recent of which was on October 14, 2014. To date, 37 states and DC have received a total of approximately $4.7 billion in exchange establishment grant funding. Within that group, 14 states—California, Colorado, Connecticut, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New York, Oregon, Rhode Island, Vermont, and Washington—and DC have received both level one and level two funds. On February 16, 2011, HHS announced that it was awarding seven grants to help a group of "early innovator" states design and implement the information technology (IT) infrastructure needed to operate health insurance exchanges. The goal is for these states to develop exchange IT models that can be adopted and implemented by other states. Six states and a consortium of New England states received a total of $249 million in early innovator grant funding. Three states—Kansas, Oklahoma, and Wisconsin—have since returned their early innovator grants. Beginning January 1, 2015, the ACA requires that each exchange is self-sustaining. The ACA provides that an exchange may charge an assessment or user fee to participating issuers, but also allows an exchange to find other ways to generate funds to sustain its operations. A description of how each SBE intends to generate funding is currently beyond the scope of this report; however, HHS has described how it intends to generate funding for the 36 FFEs it administers. Beginning in 2014, HHS will charge a monthly user fee to all issuers that sell plans through an FFE. The fee for an issuer is equal to the product of the billable members enrolled in the plan through an FFE and a monthly user fee rate. For benefit years 2014 and 2015, the monthly user fee rate is 3.5% of the plan's monthly premium. CMS is incurring significant administrative costs supporting exchange operations. CMS operates a number of IT systems that control various FFE functions including eligibility and appeals, certification and oversight of qualified health plans, and payment and financial management. It also operates the data services hub, which routes information about exchange applicants to and from trusted data sources at other federal agencies (e.g., Internal Revenue Service) in order to verify eligibility. In addition, CMS provides consumer assistance through a call center and website for the FFEs, and it funds navigators who offer in-person support. Finally, CMS provides technical assistance to states operating SBEs. Table 2 summarizes the sources and amounts of administrative funding for exchange operations to date. This information was included in CMS's FY2015 budget submission. During the period FY2010 through FY2012, a total of $456 million was used to support exchange operations. Of that amount, $331 million came from annual discretionary appropriations that cover the routine costs of running federal agencies, including salaries and expenses: $307 million from CMS's Program Management account, and an additional $24 million from the HHS Departmental Management account. The remaining $125 million came from the Health Insurance Reform and Implementation Fund (HIRIF), a $1 billion fund within HHS that was established and funded to help pay for the administrative costs of ACA implementation. CMS's administrative costs to support exchange operations totaled $1,545 million in FY2013. In the FY2013 budget, CMS requested an increase of $1,001 million for its Program Management account for ACA implementation and other activities. However, Congress did not provide any additional discretionary funds for ACA implementation in FY2013. CMS instead used funds from other sources to help pay for ongoing administrative costs associated with exchange operations. Those funds included (1) discretionary funds transferred from other HHS accounts under the Secretary's transfer authority; (2) expired discretionary funds from the Nonrecurring Expenses Fund (NEF); (3) mandatory funds from the HIRIF; and (4) mandatory funds from the Prevention and Public Health Fund (see Table 2 ). CMS estimated that its FY2014 administrative costs for exchange operations would total $1,390 million. The agency requested an increase of $1,397 million for its Program Management account in the FY2014 budget for ACA implementation and other activities. But, as in FY2013, Congress chose not to give CMS any additional funding. Once again, the agency relied on transferred departmental funds as well as NEF and HIRIF funding to help support exchange operations in FY2014. In addition, CMS projected that it would collect an estimated $200 million in FFE user fees in FY2014 (see Table 2 ). The President's FY2015 budget includes a total of $1,788 for exchange operations. Of that amount, $629 million is from CMS's Program Management account, and the remaining $1,159 million is projected to come from FFE user fees. The FY2015 budget does not identify any other sources of funding to support exchange operations (see Table 2 ). CMS has requested an increase of $227 million for its Program Management account in FY2015 for ACA implementation and other activities. The Center for Consumer Information and Insurance Oversight (CCIIO) at CMS is responsible for implementing ACA's private health insurance reforms and administering the grant programs discussed above. Detailed information on the grants, including funding opportunity announcements, guidance, news releases, and amounts awarded, is available on CCIIO's website. | Pursuant to the Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended), a health insurance exchange has been established in each state and the District of Columbia (DC). Exchanges are marketplaces where individuals and small businesses can "shop" for health insurance coverage. The ACA instructed each state to establish its own state-based exchange (SBE). If a state elected not to create an exchange or if the Secretary of Health and Human Services (HHS) determined a state was not prepared to operate an exchange, the law directed HHS to establish a federally facilitated exchange (FFE) in the state. Fourteen states and DC established SBEs in 2014, while the remaining 36 states have FFEs. In some states that have FFEs, the states carry out certain functions of the exchange; in other states, the exchange is wholly operated and administered by HHS. The ACA provided an indefinite appropriation for HHS grants to states to support the planning and establishment of exchanges. For each fiscal year, the HHS Secretary is to determine the total amount that will be made available to each state for exchange grants. No grant may be awarded after January 1, 2015. There are three different types of exchange grants. First, planning grants were awarded to 49 states and DC. These grants of about $1 million each were intended to provide resources to states to help them plan their health insurance exchanges. Second, there have been multiple rounds of exchange establishment grants. There are two levels of exchange establishment grants: level one establishment grants are awarded to states that have made some progress using their planning funds, and level two establishment grants are designed to provide funding to states that are farther along in the establishment of an exchange. Finally, HHS awarded seven early innovator grants to states (including one award to a consortium of New England states) to support the design and implementation of the information technology systems needed to operate the exchanges. To date, HHS has awarded a total of more than $4.8 billion to states and DC in planning, establishment, and early innovator grants. Under the ACA, each exchange is expected to be self-sustaining beginning January 1, 2015. The law authorizes exchanges to generate funding to sustain their operations, including by assessing fees on participating health insurance issuers. To raise funds for each of the FFEs, beginning in 2014, HHS is assessing a monthly fee on each health insurance issuer that offers plans through an FFE. The Centers for Medicare & Medicaid Services (CMS) is incurring significant administrative costs to support FFE operations. According to CMS, a total of $456 million was used to support exchange operations over the period FY2010-FY2012. CMS spent $1,545 million on exchange operations in FY2013 and an estimated $1,390 million in FY2014. The agency has relied on a mix of annual discretionary appropriations and funding from other sources for these expenditures. Those sources include expired discretionary funds from the Nonrecurring Expenses Fund, mandatory funding from the Health Insurance Reform Implementation Fund and the Prevention and Public Health Fund, and FFE user fees. CMS has budgeted $1.8 billion for exchange operations in FY2015. Most of that funding is projected to come from FFE user fees. |
Congress has long recognized the need to protect the legal interests of servicemembers whose service to the nation may compromise their ability to meet certain commercial and financial obligations. During the Civil War, Congress enacted an absolute moratorium on civil actions brought against soldiers and sailors. During World War I, Congress passed the Soldiers' and Sailors' Civil Relief Act of 1918, which did not create a moratorium on legal actions against servicemembers, but instead directed trial courts to apply principles of equity to determine the appropriate action to take whenever a servicemember's rights were involved in a controversy. During World War II, Congress essentially reenacted the expired 1918 statute as the Soldiers' and Sailors' Civil Relief Act of 1940, and then amended it substantially in 1942 to take into account the new economic and legal landscape that had developed between the wars. During consideration of the amendments in the 87 th Congress, Representative Overton Brooks stated, This bill springs from the desire of the people of the United States to make sure as far as possible that men in service are not placed at a civil disadvantage during their absence. It springs from the inability of men who are in service to properly manage their normal business affairs while away. It likewise arises from the differences in pay which a soldier received and what the same man normally earns in civil life. Congress enacted amendments on several occasions during subsequent conflicts, including 2002 when the benefits of the SSCRA were extended to certain members of the National Guard. In 2003, Congress enacted the Servicemembers Civil Relief Act (SCRA) as a modernization and restatement of the SSCRA and its protections. The SCRA is an exercise of Congress's power to raise and support armies (U.S. Const. Art. I, sec. 8, cl. 12) and to declare war (Art. I, sec. 8, cl. 11). The purpose of the act is to provide for, strengthen, and expedite the national defense by protecting servicemembers, enabling them to "devote their entire energy to the defense needs of the Nation" by providing for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect their legal rights during military service. Forgiving of all debts or the extinguishment of contractual obligations on behalf of servicemembers who have been called up for active duty is not required, nor is absolute immunity from civil lawsuits provided. Instead, the act provides for the suspension of claims and protection from default judgments. In this way, it seeks to balance the interests of servicemembers and their creditors, spreading the burden of national military service to a broader portion of the citizenry. In Engstrom v. National Bank of Eagle Lake , the United States Court of Appeals for the Fifth Circuit acknowledged the balancing required when it stated "[a]lthough the act is to be liberally construed it is not to be used as a sword against persons with legitimate claims." Many of the SCRA provisions are especially beneficial for Reservists activated to respond to a national crisis, but many provisions may be useful for career military personnel. One of the measures that affects many who are called to active duty is the limit on the interest rate that may be charged on debts incurred prior to a person's entry into active duty military service. Other measures protect military families from being evicted from rental or mortgaged property; from cancellation of life insurance; from taxation in multiple jurisdictions; from foreclosure of property to pay taxes that are due; and from losing certain rights to public land. In order to receive protections afforded under the SCRA, servicemembers are generally required to provide notice of their desire to invoke the protection. For example, with respect to the interest rate limitation, the servicemember is required to provide written notification to the creditor with a copy of his/her orders establishing a period of active duty service. The importance of servicemembers knowing and understanding their rights is evidenced by the requirement in the act that all servicemembers be provided written notice of their rights by the Secretary of each of the armed services. In the event that a servicemember feels that he/she is not receiving the statutory protections, the servicemember may request assistance from military legal assistance officers, civilian lawyers, and in some circumstances the United States Department of Justice (DOJ). The DOJ Civil Rights Division will investigate specific complaints and, if necessary, institute legal proceedings to protect the rights of servicemembers. The DOJ Civil Rights Division filed its first lawsuit under the SCRA on December 10, 2008, alleging a towing company in Norfolk, VA, participated in unlawful enforcements of storage liens. Prior to the recent legislation expressly creating a private cause of action, most courts that have considered the issue found that a private cause of action exists under the SCRA. An opinion from the United States District Court for the Western District of Michigan, Hurley v. Deutsche Bank Trust Company , disagreed with decisions from U.S. district courts in Illinois, Louisiana, Oregon, and Texas, and found that a private cause of action did not exist under the act. Upon reconsideration, the court vacated its earlier opinion and held that a private cause of action did exist under various sections of the SCRA. With the enactment of P.L. 111-275 , the Veterans' Benefits Act of 2010, the act now includes explicit language authorizing the U.S. Attorney General to commence civil actions, as well as a private cause of action available to servicemembers and their dependents to enforce protections under the SCRA. In Moll v. Ford Consumer Finance Company, Inc. , the United States District Court for the Northern District of Illinois held that a private cause of action existed under the provision limiting the amount of interest that may be charged on debt incurred prior to service. Moll, a reservist in the United States Air Force, was ordered to active duty in support of the Persian Gulf War in 1991. Upon activation, he contacted Ford and requested that the interest rate on his car loan be reduced from a variable rate of 10.25% to 6% as provided for under the SCRA and provided all documentation requested by Ford. Ford failed to adjust the interest rate and continued to charge 10.25% on the loan. Moll filed an action alleging Ford violated the SCRA and received unlawful interest subject to penalties under the Illinois Interest Act. Ford moved to dismiss the action arguing that Moll failed to state a claim, contending that a private cause of action did not exist under the SCRA, and that because the loan was secured by a mortgage, the loan was exempt from the Illinois Interest Act. The court acknowledged that a private cause of action was not explicit in the act and turned to a four-part test, created by the United States Supreme Court in Cort v. Ash, to determine if a private cause of action existed even though it was not expressly provided for in the statute. The Cort factors are (1) does the statute create a federal right in favor of the plaintiff; (2) is there any indication of legislative intent, explicit or implicit, to create or deny a private remedy; (3) is it consistent with the underlying purposes of the legislative scheme to imply such a remedy; and (4) is the cause of action one traditionally relegated to state law, so that it would be inappropriate to infer a cause of action based solely on federal law. However, the court further stated the Supreme Court has "retreated from this four-factor approach and has focused primarily on the legislative intent of the statute – the second factor." Thus, the court, focusing on the legislative intent of the act, the second Cort factor, stated that the interest limitation was "designed to give relief to military persons called into service." The court determined that the act confers a benefit on a servicemember that is not otherwise available to private citizens and therefore a private cause of action must be intended "because otherwise the relief would [be] of no value at all." Finally, the court addressed the remaining Cort factors and found that the act created a federal right in favor of Moll; the interest rate limitation is consistent with the purpose of the act to provide servicemembers with relief in meeting their financial obligations; and that it is not an area of law traditionally relegated to state law, rather it is grounded in Congress's right to raise and maintain armed forces of the United States. Finding a private cause of action with respect to the interest rate limitation section of the act, the court denied Ford's motion to dismiss. The United States District Court for the Northern District of Texas, in Marin v. Armstrong , found an inferred private cause of action in two separate sections of the SCRA. In Marin , the servicemember claimed that as a result of illness from military service he was unable to fulfill his obligations on debt he owed for the purchase of a car. He alleged that he informed TranSouth, the holder of the loan, of his inability to make payments on the obligation and requested that they toll his obligation until his health allowed him to make payments. Marin further alleged that TranSouth not only failed to toll his obligation, but that it continued to violate the SCRA by harassing him, sending collection letters, and taking adverse credit action against him. TranSouth moved to dismiss the action on the basis that the SCRA did not provide for a private cause of action, rather it provided only defensive relief for servicemembers, and that even if it did, Marin was not entitled to relief because the act does not relieve him of his duty to make payments on the obligation. The court agreed that Marin did not have an automatic right to toll his obligation under the installment contract, but that after receiving notice of his inability to meet his obligation, TranSouth was required to seek a judicial remedy in a court of competent jurisdiction and failed to do so. The court, citing the rationale of Moll , stated that "Congress must have intended a private cause of action to exist" to enforce these two sections of the act. The court questioned TranSouth's assertion that the act be viewed as a defensive measure, stating that if that were the case, a creditor could "simply ignore" provisions of the act and the servicemember would be unable to bring a cause of action. The court acknowledged that a criminal penalty did exist for violations of the act, but that such penalty provided no relief to the servicemember and that a "result that fails to make the servicemember whole defies the purpose of the statute." The court further stated that "without a private cause of action there would be no way for a servicemember to ensure that his rights were protected under the section. Creditors and insurers could simply ignore the provisions of the section without repercussion." In Cathey v. First Republic Bank, the United States District Court for the Western District of Louisiana found an implied private cause of action under the provisions prohibiting a creditor from changing the terms of credit when the act has been invoked by a servicemember and limiting the amount of interest that may be charged on debt incurred prior to service. Cathey, a lieutenant colonel in the United States Army Reserve, alleged that First Republic Bank failed to lower the interest rate on two separate loans after he was ordered to active duty and that the bank modified the terms of the credit agreement after he invoked protections under the act. The loans in question were signed by Cathey and his wife, individually and jointly, to finance the construction of two gasoline/convenience stores. As required by the act, Cathey provided a copy of his military orders to the bank prior to entering active duty. However, the bank continued to charge an interest rate in excess of the 6%. Upon his return from active duty, he demanded a cash refund of the overpaid interest from the bank and alleged that they would only refund the interest with additional concessions on the loans. The bank refused to refund the overpaid interest despite repeated demands by the Catheys, individually and through the armed services, and proceeded to seize and sell both stores. First Republic Bank argued that the Catheys were not entitled to the interest rate reduction because the loans were signed by each of the Catheys, as well as their corporation, and as such are not covered by the SCRA. The court dismissed this argument and stated: "while it is the serviceman who is provided interest rate protection under the [SCRA] and not his co-makers, the result is the same. Interest on that obligation may not be charged in an amount in excess of the statutory rate of 6% per annum." The defendants also claimed that a private cause of action did not exist and that, in effect, the SCRA is a right without a remedy. The court disagreed with this claim and instead agreed with and adopted the reasoning of Moll . The court, quoting the plaintiff, stated: "[It] would lead to an absurd conclusion to say that Congress enacted a fairly elaborate legislative scheme to protect service members in a variety of ways and then throw their claims out of federal court when they sued to enforce their rights and collect damages when violation of their rights cause them damages." The court declined to determine the proper remedy for the plaintiffs, as the issue was not before the court, and limited its finding to the existence of a private cause of action under the SCRA. In Linscott v. Vector Aerospace , the United States District Court for the District of Oregon found an implied private cause of action for a violation of the prohibition against foreclosure or enforcement of liens during any period of military service. Linscott, a major in the Air Force Reserve, alleged that Vector Aerospace, a Canadian company doing business in the United States, violated the SCRA by wrongfully asserting a lien on his property while he was on active duty. Linscott alleged that a helicopter engine overhaul preformed by Vector was defective and refused to pay for the work until it was completed correctly. Vector retook possession of the engine and promised a quick turnaround so that a temporary engine would not be needed. However, once Vector had possession of the engine, it claimed that the work was completed satisfactorily and refused to return the property until the outstanding bills were paid. Linscott provided a copy of his orders to Vector and notified the company that they were in violation of the act by asserting a lien on his property, but Vector stated that it was entitled to a lien under Canada's Repairers Lien Act and that the SCRA did not apply in Canada. The court disagreed and found the act applicable to Vector based on its assertion of a lien on the helicopter engine while doing business in the United States. The court then turned its focus to the question of whether a private cause of action existed under the section prohibiting foreclosure or enforcement of a lien while the servicemember is on active duty. The defendant argued that the section did not provide a private cause of action. Linscott argued that in other cases, courts had found an inferred private cause of action in other sections of the act, and that the court should find a private cause of action in the section in question. The court cited the reasoning under Moll , Marin , and Cathey as being applicable to the current dispute. The court reasoned that under the Cort analysis, "the most important inquiry ... is whether Congress intended to create the private remedy sought by the plaintiffs," and that the "legislative intent factor clearly favors plaintiffs. There is no indication that in enacting and renewing the Act, Congress intended to create rights without remedies." The court concluded, after completing the Cort four-part analysis, that a private cause of action existed for a violation of the prohibition against foreclosure or enforcement of a lien. In Batie v. Subway Real Estate Corp. , a servicemember alleged that Subway Corporation violated the SCRA by evicting him from two commercial spaces while he was deployed to Afghanistan. After obtaining declaratory judgments in the state of Texas courts, Subway evicted the servicemember from the spaces under lease. Batie filed suit in the federal district court seeking relief from the declaratory judgments and for compensatory and punitive damages for the alleged violations of the SCRA. The U.S. district court declined to overturn the state declaratory judgments, stating "Congress envisioned that state courts—not federal district courts—would decide claims involving SCRA's tenant protections during eviction proceedings." The court interpreted the act to mean that jurisdiction is not exclusive in federal court and that the act does not compel federal adjudication of all cases implicating the statute's provisions. Denying the claim for compensatory and punitive damages, the court referred to the failure of the servicemember to cite any provisions in the SCRA authorizing damages. Further, the court found that, even if the servicemember maintains the SCRA as a basis for damages, "there is no provision in SCRA that authorizes a private cause of action to remedy violations of the statute." The servicemember's claims were dismissed by the court. However, Batie filed a Motion for Reconsideration citing cases in which courts have interpreted certain sections of the SCRA to create a private cause of action. In light of the precedent cited by Batie's motion, the court vacated its earlier decision and reinstated the complaint for further adjudication. In contrast, the United States District Court for the Western District of Michigan, in Hurley v. Deutsche Bank Trust Company, stated that "the SCRA affords certain rights to servicemembers, but a private cause of action is not among them." Hurley asserted multiple violations of the SCRA and a separate claim of conversion under state law against Deutsche Bank related to the foreclosure, eviction, and subsequent sale of his primary residence while he was deployed to Iraq. The defendants asserted that the SCRA sections cited by Hurley did not expressly create a private cause of action, nor could one be inferred because the penalty provisions provide an adequate means of enforcement. Additionally, the defendant argued that the SCRA merely preserves private causes of action that exist independent of the act. The court found that none of the sections cited by Hurley expressly provided for a private cause of action, and turned to the question whether the SCRA created an implied private cause of action. Relying on Cort, the court utilized the four-part test for determining whether the statute created an implied private cause of action. The court held that the "plain language of the SCRA, coupled with instructive case law, persuades the Court that the SCRA does not imply a private cause of action for damages for foreclosure, redemption, eviction, or sale to a [bona fide purchaser]." The court dismissed Hurley's claim under the SCRA, but allowed the claim of conversion under Michigan state law to proceed. Shortly after the decision dismissing his claim under the SCRA, Hurley filed a Motion for Reconsideration, citing the decision by the U.S. District Court for the Northern District of Texas to vacate its decision in Batie , thereby allowing a private cause of action under the SCRA to proceed. In denying the motion, the court stated that Batie , as an out-of-circuit case, was only instructive and that it was not required to adhere to it. In order to appeal the decision of the district court, Hurley filed a Motion for Certification of Order and Memorandum Opinion and Order for Interlocutory Appeal Pursuant to 28 U.S.C. § 1292(b). In considering the motion, the court reexamined its prior ruling "in light of several cases holding that a private cause of action exists under various sections of the SCRA" and concluded that it had been wrong. Discussing the decisions in Batie, Moll, Marin, and Linscott , the court subsequently held that a private cause of action existed under various sections of the SCRA, and proceeded to vacate its earlier opinion concluding that a private cause of action did not exist, as well as an earlier opinion and order denying reconsideration of that decision. The court granted summary judgment on some of the plaintiff's claims, but left the determination of punitive damages for future litigation in the case. While the majority of U.S. district courts ruled on the question found an implicit private cause of action under the SCRA, the protracted litigation in Hurley illustrates the challenges some servicemembers endured to establish a right to sue under the act. The issue has not yet been considered by a U.S. court of appeals and therefore judicial precedent has not been established for the lower courts to follow. However, in light of the legislation discussed below, it appears unlikely that a court will find it necessary to establish such a precedent. In the 111 th Congress, H.R. 2696 , the Servicemembers' Rights Protection Act, was introduced containing language addressing enforcement of provisions of the SCRA. During a hearing before the House Committee on Veterans' Affairs, Subcommittee on Economic Opportunities, Representative Brad Miller testified, citing Batie as an example of confusion in the courts, in favor of explicitly establishing a private cause of action in the SCRA. Although H.R. 2696 was not enacted, the provisions of the bill were incorporated into H.R. 3949 , the Veterans' Small Business Assistance and Servicemembers Protection Act of 2009. The report accompanying H.R. 3949 included the rationale of the House Committee on Veterans' Affairs for including language creating a private cause of action for servicemembers and their dependents aggrieved by violations of the act. Citing the split among U.S. district courts with respect to whether a private cause of action exists under the SCRA (discussed above) and the likelihood of continued ambiguity without further guidance, the committee stated, "Congress seeks to provide guidance to the courts by clarifying the purpose and intent of the Act, and unambiguously state that a private cause of action does exist." Ultimately, the provisions from H.R. 3949 were incorporated into H.R. 3219 , the Veterans' Benefits Act of 2010. On October 13, 2010, P.L. 111-275 , the Veterans' Benefits Act of 2010, was enacted. In addition to clarifying protections under the SCRA, including those related to residential and motor vehicle leases, the act explicitly creates a Title VIII addressing civil liability. Under Title VIII of the SCRA, the U.S. Attorney General is authorized to commence a civil action to enforce provisions of the act. Servicemembers and their dependents have the right to join an action commenced by the U.S. Attorney General, but they may also commence their own civil action (i.e., a private cause of action) to enforce protections afforded them under the SCRA. Finally, Title VIII provides that neither the U.S. Attorney General's authority or the servicemember's right of a private cause of action preclude or limit any other remedies available under the law, including consequential or punitive damages for violations of the SCRA. The U.S. Attorney General is authorized to commence a civil action in U.S. district court for violations of the SCRA by a person who (1) engages in a pattern or practice of violating the act, or (2) engages in a violation that raises an issue of significant public importance. The act authorizes courts to grant any appropriate equitable or declaratory relief, including monetary damages to any person aggrieved by the violation of the act. Courts may also, in order to vindicate the public interest, assess a civil penalty up to $55,000 for a first violation and up to $110,000 for any subsequent violations. Finally, individuals alleging violations of the SCRA, for which the Attorney General has commenced an action, are authorized to intervene in the previously commenced case as a plaintiff. Individuals intervening in a case may obtain the same relief as if they had filed the case on their own, as discussed below. In addition to the right to join a previously commenced case, covered individuals are now permitted to commence a civil action for an alleged violation of the SCRA in their own right. The court is authorized to grant appropriate equitable or declaratory relief, including monetary damages, as well as award costs and reasonable attorney fees to a prevailing servicemember or dependent. Prior to enactment of P.L. 111-275 , individuals and/or entities that violated specified sections of the SCRA may have been subject to penalties. With the exception of the provision related to interest rate limitation in Title II, only the provisions in Title III (addressing rent, installment contracts, mortgages, liens, assignments, and leases) included a penalty provision. However, with enactment of Title VIII, it is explicitly clear that any violation of the SCRA could result in a civil penalty, including, but not limited to, consequential and punitive damages. Additionally, provisions found in Title III include language classifying a violation as a misdemeanor. For example, provisions applicable to evictions state that a "person who knowingly takes part in an eviction or distress ... or attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both." | Congress has long recognized the need to protect the legal interests of servicemembers whose service to the nation may compromise their ability to meet specified commercial and financial obligations. The purpose of the Servicemembers Civil Relief Act (SCRA) is to provide for, strengthen, and expedite the national defense by protecting servicemembers, enabling them to "devote their entire energy to the defense needs of the Nation." The SCRA protects servicemembers by temporarily suspending certain judicial and administrative proceedings and transactions that may adversely affect their legal rights during military service. Prior to enactment of P.L. 111-275, the SCRA did not explicitly provide for a private cause of action. A private cause of action allows an individual, in a personal capacity, to sue in order to enforce a right or to correct a wrong. In the absence of an explicit right of a private cause of action, the right to enforce afforded rights presumably rests with the government. Most courts that have considered the issue found that a private cause of action exists under the SCRA. An opinion from the United States District Court for the Western District of Michigan, Hurley v. Deutsche Bank Trust Company, disagreed with decisions from U.S. district courts in Illinois, Louisiana, Oregon, and Texas, and found that a private cause of action did not exist under the act. However, upon reconsideration the court vacated its earlier opinion and held that a private cause of action did exist under various sections of the SCRA. On October 13, 2010, P.L. 111-275, the Veterans' Benefits Act of 2010, was enacted. In addition to clarifying protections under the SCRA, including those related to residential and motor vehicle leases, the act explicitly creates a Title VIII addressing civil liability. Under Title VIII of the SCRA, the U.S. Attorney General is authorized to commence a civil action against any person who engages in a pattern or practice of violating the act or engages in a violation of the act that raises an issue of significant public importance. Servicemembers and their dependents have the right to join a case commenced by the U.S. Attorney General, but they may also commence their own civil action (i.e., a private cause of action) to enforce protections afforded them under the SCRA. Finally, Title VIII provides that neither the U.S. Attorney General's authority or the servicemember's right of a private cause of action preclude or limit any other remedies available under the law, including consequential or punitive damages for violations of the SCRA. |
On March 23, 2010, President Obama signed into law a comprehensive health reform law, the Patient Protection and Affordable Care Act (ACA). The following week, on March 30, 2010, the President signed the Health Care and Education Reconciliation Act of 2010 (HCERA), which amended numerous health care and revenue provisions in ACA. Among its many provisions, ACA restructures the private health insurance market, sets minimum standards for health coverage, and, beginning in 2014, will require most U.S. residents to obtain health insurance coverage or pay a penalty. The law provides for the establishment by 2014 of state-based health insurance exchanges for the purchase of private health insurance. Qualifying individuals and families will be able to receive federal subsidies to reduce the cost of purchasing coverage through the exchanges. In addition to expanding private health insurance coverage, ACA requires state Medicaid programs to expand coverage to all eligible nonelderly, non-pregnant individuals under age 65 with incomes up to 133% of the federal poverty level (FPL). Under ACA, the federal government will initially cover 100% of the expansion costs, phasing down to 90% of the costs by 2020. Medicaid law allows the Secretary of Health and Human Services (HHS) to withhold existing federal Medicaid matching funds if states refuse to comply with the expansion. However, in National Federation of Independent Business v. Sebelius , the U.S. Supreme Court found that the Medicaid expansion violated the Constitution by threatening states with the loss of their existing federal Medicaid matching funds. The Court precluded the HHS Secretary from penalizing states that choose not to participate in the Medicaid expansion (see text box). ACA also amends the Medicare program in an effort to reduce the rate of its projected growth; imposes an excise tax on insurance plans found to have high premiums; and makes many other changes to the tax code, Medicare, Medicaid, and the State Children's Health Insurance Program (CHIP). In addition to changes to private insurance and these federal health programs, ACA includes numerous provisions intended to increase the primary care and public health workforce, promote preventive services, and strengthen quality measurement, among other things. ACA is projected to have a significant impact on federal direct spending and revenues. The law includes direct spending to subsidize the purchase of health insurance coverage through the exchanges, as well as increased outlays for the expansion of state Medicaid programs. ACA also includes numerous mandatory appropriations that provide billions of dollars to fund temporary programs to increase access and funding for targeted groups, provide funding to states to plan and establish exchanges, and support many other research and demonstration programs and activities. The costs of expanding public and private health insurance coverage and other spending are offset by revenues from new taxes and fees, and by savings from payment and health care delivery system reforms designed to slow the growth in spending on Medicare and other federal health care programs. Implementing ACA also is likely to affect discretionary spending, which is provided in and controlled by annual appropriations acts. The law established numerous new discretionary grant programs and provided for each an authorization of appropriations. It also reauthorized funding for many existing discretionary grant programs. While the authorizations of appropriations for most of these existing programs expired prior to ACA's enactment, typically they continued to receive an annual appropriation. Funding for all these discretionary programs, both new and existing, is subject to action by congressional appropriators. This report—one in a series of CRS products summarizing ACA that were issued after the law's enactment—describes the law's workforce, public health, quality, and related provisions. ACA is composed of 10 titles (see Table 1 ). The provisions summarized in this report are for the most part found in Title II (Medicaid, maternal and child health); Title III (Medicare, quality of care); Title IV (prevention and wellness); Title V (health workforce); Title VI (comparative effectiveness research, elder justice); Title VII (drugs and biologics); and Title IX (revenues). Title X, which was added as a manager's amendment to the underlying bill, amended (and in some cases repealed) numerous existing provisions in Titles I through IX and added several new provisions. As already noted, ACA was further amended by the companion reconciliation legislation, HCERA. Table A-1 in Appendix A at the end of the report, shows which of the ACA sections discussed in this report were amended by Title X and/or HCERA. The summaries of the ACA provisions are grouped and discussed under the following section headings: (1) Health Centers and Clinics; (2) Health Workforce; (3) Prevention and Wellness; (4) Maternal and Child Health; (5) Teen Pregnancy Prevention and Adoption Support; (6) Quality; (7) Nursing Homes and Other Long-Term Care Facilities and Providers; (8) Comparative Effectiveness Research; (9) Health Data Collection; (10) Health Information Technology; (11) Emergency Care; (12) Pain Care Management; (13) Elder Justice; (14) Biomedical Research and Medical Products; (15) Biosimilars; (16) Nutrition Labeling; (17) 340B Drug Pricing; and (18) Medical Malpractice and Liability Reform. Each section of the report begins with a brief overview of the ACA provisions to be summarized and includes some discussion of relevant policies in place at the time of ACA's enactment as well as the intent, and, where available, projected impact, of the law. ACA specifies numerous dates for new or expiring legal authorities, for the initiation or completion of key administrative and regulatory activities, and for the establishment or termination of commissions and other statutory bodies. Table A-1 in Appendix A provides a detailed timeline of all such dates. Unless otherwise stated, all references in this report to "the Secretary" refer to the Secretary of Health and Human Services (HHS). A list of all the acronyms used in the report is provided in Appendix B . PHSA Sec. 330 authorizes the health centers program, administered by the Health Resources and Services Administration (HRSA), which provides grants to community health centers, migrant health centers, health centers for the homeless, and health centers for residents of public housing. Health centers are a key component of the nation's health care safety net and are required to furnish comprehensive and affordable primary care to the community residents they serve. Health centers also often provide case management, health education, and other supportive services to meet the needs of their patients. Health centers must be located in (or serve) medically underserved communities or populations. Approximately half of all health centers serve rural populations. In order to ensure that services are accessible to the entire community, health centers must treat all patients without regard to their ability to pay. Centers offer sliding-scale fee arrangements based on patients' financial circumstances. Prior to the ACA, there were more than 1,100 health centers operating over 7,500 service delivery sites in every U.S. state and territory. According to HRSA, in FY2008 these facilities served more than 17 million unique patients and responded to over 67 million patient visits. A substantial body of evidence shows that health centers increase access to primary health care services. This helps improve the health of the community by lowering infant mortality, reducing racial and ethnic disparities in health and increasing access to health care, and lowering spending by averting more expensive emergency room visits. At the time of enactment some thought that health centers could provide access to care to those who would become newly insured under the ACA. ACA provides a total of $11 billion in supplemental funding for community health centers over the five-year period FY2011 through FY2015. The law creates a multi-billion Community Health Center Fund, from which the Secretary is required to transfer $9.5 billion for center operations and patient services. A separate appropriation provides the remaining $1.5 billion, which is for health center construction and renovation. These ACA funds add to the $2 billion in FY2009 supplementary funds that were provided for the health centers program in the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ). The ARRA funds included $1.5 billion for health center construction and renovation, and $500 million for center operations and patient services. In addition to the supplemental appropriations, ACA increases the amounts authorized to be appropriated for health centers under the regular annual appropriations process and permanently authorizes the health centers program. The program had been authorized through the end of FY2012. ACA also appropriates funds for a grant program to establish school-based health centers (SBHCs) and authorizes grants for the operation of such centers. SBHCs are not explicitly authorized in the PHSA, but have been established pursuant to the general authority to establish community health centers. Another ACA provision establishes a grant program to fund the operation of nurse-managed health clinics to provide primary health care to vulnerable and underserved populations. Funding for this program is subject to future action in annual appropriations bills. Two additional ACA provisions are summarized at the end of this section. Neither specifically mentions health centers or clinics, though both address access to care among the medically underserved. The first authorizes state grants to health care providers who treat the medically underserved, and the second creates a state demonstration program to provide the uninsured with access to health care. This section amends PHSA Sec. 330 by authorizing to be appropriated for the health center program the following amounts: $2,988,821,592 for FY2010; $3,862,107,440 for FY2011; $4,990,553,440 for FY2012; $6,448,713,307 for FY2013; $7,332,924,155 for FY2014; and $8,332,924,155 for FY2015. For FY2016 and subsequent fiscal years, the amount authorized to be appropriated for that year is to be based on a specified formula that takes into account the preceding year's appropriation, the per patient costs, and increases in the number of patients served by the health centers program. Nothing in this section prevents a community health center (CHC) from contracting with specified entities for the delivery of primary health care services that are available at such entities to individuals who would otherwise be eligible for free or reduced-cost care if that individual were able to obtain that care at the CHC. Such services may be limited in scope to the primary health care services available at the facility. In order to receive funds under such a contract, the clinic/hospital may not discriminate on the basis of an individual's ability to pay and must establish a sliding fee scale for low-income patients. This section, as amended by HCERA Sec. 2303, establishes a Community Health Center Fund and appropriates a total of $11 billion over the five-year period FY2011 through FY2015 to the fund. The following amounts are to be transferred from the fund to increase funding, over the FY2008 level, for health center operations and patient services: $1 billion for FY2011; $1.2 billion for FY2012; $1.5 billion for FY2013; $2.2 billion for FY2014; and $3.6 billion for FY2015. Funds are to remain available until expended. The section also appropriates $1.5 billion for health center construction and renovation for the period FY2011 through FY2015, to remain available until expended. Subsection 4101(a) requires the Secretary to create a grant program for the establishment of SBHCs. To receive a grant, an SBHC or a sponsoring facility of an SBHC must agree to use grant funds for certain specified purposes including facility construction, expansion, and equipment. SBHCs are prohibited from using funds for personnel or to provide health services. The Secretary is required to give preference to SBHCs that serve a large population of children eligible for the Medicaid and CHIP programs. The section appropriates, out of Treasury funds not otherwise appropriated, $50 million for each of FY2010 through FY2013, to remain available until expended. Subsection 4101(b), as amended by ACA Sec. 10402(a), creates a new PHSA Sec. 399Z-1 , School-Based Health Centers , requiring the Secretary to award grants for the operating costs of SBHCs. To receive a grant, an SBHC must meet certain specified criteria, unless granted a waiver for a specified time period, match 20% of the grant amount from non-federal sources unless granted a waiver by the Secretary, agree to use grant funds for certain specified purposes (including equipment, training, and personnel salaries), and agree to use grant funds to supplement and not supplant funds received from other sources. SBHCs are required to provide only age-appropriate services and are prohibited from providing abortion services and from providing services to minors without parental or guardian consent. Entities that are in violation of state reporting and parental notification laws, and entities receiving funding under PHSA Sec. 330 that would overlap with the SBHC grant period are prohibited from receiving funds under this section. The Secretary is authorized to give preference to applicants who demonstrate ability to serve communities with specified barriers to access. In addition, the Secretary is authorized to consider whether an applicant received a grant under this section to establish an SBHC. The section authorizes to be appropriated SSAN for each of FY2010 through FY2014. This section creates a new PHSA Sec. 330A-1 , Nurse-Managed Health Clinics , requiring the Secretary to establish a grant program to fund the operation of Nurse-Managed Health Clinics (NMHCs) that provide comprehensive primary health care and wellness services to vulnerable or underserved populations. To be eligible to receive a grant, an NMHC must submit an application to the Secretary containing assurances that (1) nurses are a major provider of services at the NMHC, (2) the NMHC will provide care to all patients regardless of income or insurance status, and (3) the NMHC will establish a community advisory committee where the majority of members are individuals served by the NMHC. When determining grant amounts, the Secretary is required to take into account the financial need of the NMHC, including other funding sources available to the NMHC, and other factors determined appropriate by the Secretary. The section authorizes to be appropriated $50 million for FY2010, and SSAN for each of FY2011 through FY2014. This section, as added by ACA Sec. 10501(k), authorizes states to award grants to health care providers who treat a high percentage of the medically underserved or other special populations. Funds allocated to the Medicare, Medicaid, and Tricare programs may not be used to award grants or administer the grant program. This section requires the Secretary, within six months of enactment, to establish a three-year demonstration project in up to 10 states to provide access to comprehensive health care services to the uninsured at reduced fees. Each state may receive up to $2 million. There are authorized to be appropriated SSAN to carry out the demonstration. Health workforce policy is an important component of health care reform. Transforming the nation's health care delivery system—from one focused on fragmented specialty care for acute illness to one that places more emphasis on primary care, disease prevention, and the coordination and management of care for chronic illness across settings—will require significant changes in health workforce education and training. Health policy experts are concerned about the current size, specialty mix, and geographic distribution of the healthcare workforce. Certain geographic areas, such as inner cities and rural areas, experience significant healthcare provider shortages. HRSA, which administers most of the federal health workforce programs, estimated that, prior to ACA, an additional 7,000 physicians would be needed in federally designated health professional shortage areas (HPSAs). Existing health care provider shortages are projected to increase based on growing patient demand for services. HRSA estimates that by 2020 there will shortages in a number of physician specialties and nearly 67,000 too few primary care physicians. Additionally, a federal advisory group on the nursing workforce estimates that as of 2000 there was a 6% shortage of nurses and that this shortage is expected to grow to 20% in 2020. Enactment of ACA is likely to further exacerbate health workforce shortages as the newly insured seek health care services. The federal government has a long-standing role in the education and training of the health workforce. PHSA Title VII supports health professions workforce development—including the education and training of physicians, dentists, physician assistants, and public health workers—through grants, scholarships, and loan repayment. Title VII includes a number of programs to support physician training in primary care, including training in rural or otherwise underserved areas, and student loan repayment programs to encourage medical students to enter primary care. Some researchers have found that Title VII programs increase the number of primary providers and the primary care competency of the physician workforce as a whole. Title VII also includes programs to encourage racial and ethnic diversity in the health care workforce. In the early 1970s, annual funding for Title VII programs reached over $2.5 billion (in 2009 dollars); in recent years, it has been about $200 million. ACA reauthorizes and expands numerous existing PHSA health workforce programs. The law also creates several new PHSA workforce programs to increase training experiences in primary care, in rural areas, and in community-based settings. Research has found that location and experience during residency training is an important factor in determining future practice. ACA includes programs that provide training opportunities and fellowships to increase the supply of other types of providers with identified shortages such as pediatric subspecialists, public health workers, and geriatricians. Finally, ACA modifies Medicare graduate medical education (GME) payment policy. Medicare subsidizes medical residency training through GME payments to teaching hospitals. ACA's changes to GME payments, along with a new health center grant program and a number of other provisions, are intended to promote primary care training in nonhospital settings. The summaries of the ACA health workforce provisions that follow are grouped as follows: (1) National Health Service Corps; (2) physician workforce; (3) dental workforce; (4) nursing workforce; (5) geriatric and long-term care workforce; (6) public health workforce; (7) U.S. Public Health Service Commissioned Corps; (8) workforce diversity training; (9) allied health workforce; (10) mental and behavioral health workforce; (11) health workforce evaluation and assessment; and (12) Medicare GME payments. Each of these sections begins with some additional background and discussion of the impact of ACA's provisions. PHSA Title III authorizes the National Health Service Corp (NHSC) program, which provides scholarships and student loan repayments for medical students, nurse practitioners, physician assistants, and others who agree to a period of service as a primary care provider in full-time clinical practice in a federally designated HPSA—a geographic area, population group, medical facility, or other public facility that the Secretary has designated as having an inadequate supply of qualified health care providers (such as physicians, dentists, mental health providers or other health care providers). NHSC clinicians may fulfill their service commitments in health centers, rural health clinics, public or nonprofit medical facilities, or within other community-based systems of care. The NHSC serves as a major source of providers for health centers. HRSA estimates that more than half of NHSC clinicians fulfill their service commitment in a health center. However, there is far more demand for NHSC clinicians than supply. There are also many more clinicians interested in scholarships or loan repayment opportunities than can be met under the program's budget. ACA provides a total of $1.5 billion in supplemental funding for the NHSC over the five-year period FY2011 through FY2015. This funding adds to the $300 million in FY2009 supplementary funds that were provided for the NHSC in the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 , ARRA). In addition, ACA increases the amounts authorized to be appropriated for the NHSC under the regular annual appropriations process and permanently authorizes the NHSC program. The program had been authorized through the end of FY2012. ACA modifies the NHSC program by permitting NHSC clinicians to fulfill their service commitments through part-time work. It is believed that this strategy may encourage more younger providers, particularly newly graduated physicians interested in work-life balance, to participate in the program. In addition, female physicians, on average, work fewer hours than do their male counterparts. Thus, part-time service opportunities may also encourage female physicians to participate in the NHSC. ACA also includes provisions to encourage medical residency training in community-based sites, called teaching health centers (discussed below under "Physician Workforce"). These sites include health centers and rural health clinics, two settings that frequently use NHSC providers. As a corollary to this provision, ACA amends the NHSC program to permit its providers to count time spent teaching toward fulfillment of their NHSC service commitment. Finally, ACA requires the Secretary to redefine how HPSAs are designated. The HPSA designation—which is currently based on a service area's physician-to-population ratio—determines where NHSC clinicians are placed. Over time, the HPSA designation has been used for other purposes such as to establish preference for federal grants programs administered by HHS. GAO has raised concerns that the methodology used to designate HPSAs does not effectively identify shortage areas and is not updated often enough. HHS has been working since 1998 to develop alternative methodology to designate HPSAs. ACA sets a timeline for developing and finalizing a new HPSA designation methodology. ACA also amends the Internal Revenue Code (IRC) to clarify that amounts received from state-operated loan repayment programs that aim to bring health professionals to shortage areas are not taxable income. Prior to the ACA, amounts received from the NHSC were excluded from taxable income, but amounts received under state programs were not, which reduced the value of the state loan repayment program awards and made participation less attractive to health professionals. This section amends PHSA Sec. 338H(a) , authorizing the following amounts for NHSC scholarships and loan repayments: $320,461,632 for FY2010; $414,095,394 for FY2011; $535,087,442 for FY2012; $691,431,432 for FY2013; $893,456,433 for FY2014; and $1,154,510,336 for FY2015. For FY2016 and subsequent fiscal years, the amount authorized to be appropriated is based on the amount appropriated for the preceding fiscal year, adjusted by the product of the change in the costs of health professions education and the change in the number of individuals residing in HPSAs. This section, as amended by HCERA Sec. 2303, establishes a Community Health Center Fund and appropriates a total of $11 billion over the five-year period FY2011 through FY2015 to the fund. In addition to the transfers for community health centers (described above), the following amounts are to be transferred from the fund to increase funding, over the FY2008 level, for the NHSC: $290 million for FY2011; $295 million for FY2012; $300 million for FY2013; $305 million for FY2014; and $310 million for FY2015. Funds are to remain available until expended. This section amends PHSA Sec. 331(i) , allowing the Secretary to waive the requirement that NHSC service be provided in full-time clinical practice so that the service obligation may be fulfilled on a half-time basis (i.e., a minimum of 20 hours per week in clinical practice). Individuals fulfilling their service obligation in this manner are required to agree to double the period of obligated service that would otherwise be required, or, if receiving loan repayment, accept a minimum of two years of obligated service and 50% of the amount that would otherwise be provided. The section also amends PHSA Sec. 337 by deleting language that prohibits the reappointment of members to the NHSC National Advisory Council. It amends PHSA Sec. 338B , increasing the maximum annual NHSC loan repayment amount from $35,000 to $50,000, adjusted annually for inflation beginning in FY2012. Finally, the section further amends PHSA Sec. 338C(a) by striking the requirement added by ACA Sec. 5508(b) and instead permitting the Secretary to treat teaching as clinical practice for up to 20% of the period of obligated NHSC service. However, for NHSC clinicians participating in the teaching health centers GME program under new PHSA Sec. 340H (established by Sec. 5508(c) of ACA), up to 50% of time spent teaching may be counted towards the NHSC service obligation. This section requires the Secretary, through a negotiated rulemaking process, to establish a comprehensive methodology and criteria for designating medically underserved populations and HPSAs. The Secretary is required to consider the availability, timeliness, and appropriateness of the data necessary to make the designation and the impact of the methodology and criteria on various populations, institutions, and stakeholders. In doing so, the Secretary must (1) appoint a rulemaking committee and receive timely reports from the committee; (2) publish an interim final rule, subject to public comment and subsequent revision, by July 1, 2010; and (3) publish a final rule by July 1, 2011. This section amends IRC Sec. 108(f) to exclude from an individual's gross income for tax purposes any amount received under any state loan repayment or loan forgiveness programs that are intended to increase the availability of health care services in HPSAs or other underserved areas as determined by a state. The tax exclusion applies to amounts received by individuals in taxable years beginning after December 31, 2008. ACA reauthorizes and expands the Title VII primary care education and training programs and adds new programs to encourage pediatric subspecialists. Research has shown that there are shortages of pediatric subspecialists and suggests that pediatricians may not subspecialize for financial reasons. The salary difference between a general pediatrician and the pediatric subspecialist is small; in contrast, the salary difference between a primary care physician caring for adults and a specialist can be significant. As noted earlier, ACA establishes a new grant program to promote community-based residency training. Despite evidence that such programs may be an effective way of increasing the primary care workforce caring for the underserved, some have suggested that these community-based settings may not have the staffing or other resources to provide training. This grant program, which provides funding for faculty and other resources, may facilitate the health centers establishing residency programs. ACA also includes a new program to provide training to medical students interested in rural practice. A number of medical schools have implemented specialized rural training during medical school and evidence suggests that such programs can encourage medical students to practice in rural areas. This section amends PHSA Sec. 723(a) requiring medical students who receive loan funds to practice in primary care for 10 years or until the loan is repaid, whichever comes first. For a medical student who fails to comply with such requirements, the loan accrues interest at a rate of 2% per year higher than the initial rate. In addition, the Secretary is prohibited from requiring parental financial information when determining a loan applicant's financial need. Instead, the school loan officer has discretion in determining whether to seek this information. The section also adds a sense of Congress that funds repaid under the loan program should not be transferred to the Treasury or used for any purpose other than to carry out this provision. This section strikes the existing provisions in PHSA Sec. 747 and replaces them with new language authorizing the Secretary to award five-year grants or contracts to accredited public or nonprofit hospitals, schools of medicine or osteopathic medicine, academically affiliated physician assistant training programs, or other public or private nonprofit entities for the purpose of supporting primary care training programs. Funds are to be used to plan, develop, or operate accredited training programs in family medicine, general internal medicine, or general pediatrics and to provide financial assistance in the form of traineeships and fellowships, among other things. The Secretary is also authorized to award five-year grants or contracts to schools of medicine or osteopathic medicine for the purpose of capacity building in primary care. Funds are to be used to establish, improve, or integrate academic units or programs in the various primary care fields. Priority is to be given to entities proposing innovative approaches to clinical teaching in primary care and who have a record of training primary care practitioners, among other things. The section authorizes to be appropriated $125 million for FY2010, and SSAN for each of FY2011 through FY2014, and requires that 15% of the amount appropriated in each fiscal year be allocated to physician assistant training programs that prepare students for practice in primary care. For purposes of carrying out programs that integrate academic administrative units in the various fields of primary care, the section authorizes to be appropriated $750,000 for each of FY2010 through FY2014. This section amends PHSA Title VII, Part E by adding a new subpart 3, Recruitment and Retention Programs , and, within that new subpart, creates a new PHSA Sec. 775 , Investment in Tomorrow's Pediatric Health Care Workforce . The new section requires the Secretary to establish and implement a pediatric specialty loan repayment program under which eligible individuals agree to work full-time for not less than two years in a pediatric medical specialty, in pediatric surgery, or in child and adolescent mental and behavioral health care (which could include substance abuse prevention and treatment). Eligible individuals, including practicing or in-training pediatric medical specialists, pediatric surgical specialists, and child and adolescent mental and behavioral professionals, would have to work for a provider serving in a HPSA or medically underserved area, or among a medically underserved population that has a shortage of the specified pediatric specialty and a sufficient pediatric population, as determined by the Secretary, to support the specified pediatric specialty. In addition, individuals must be U.S. citizens or permanent legal residents and, for those currently enrolled in a graduate program, the program must be accredited and students must have an acceptable level of academic standing. The program will pay up to $35,000 for each year of service, for a maximum of three years. There are authorized to be appropriated (1) $30 million for each of FY2010 through FY2014 for loan repayments for pediatric medical specialists and pediatric surgical specialists; and (2) $20 million for each of FY2010 through FY2013 for loan repayments for child and adolescent mental and behavioral health professionals. Subsection 5508(a) adds at the end of PHSA Title VII, Part C a new PHSA Sec. 749A , Teaching Health Centers Development Grants , authorizing the Secretary to award grants to teaching health centers (THC) to establish newly accredited or expanded primary care residency training programs. The section defines a THC as a community-based, ambulatory patient care center that operates a primary care residency program, including the following entities: FQHCs, community mental health centers, Rural Health Clinics (RHCs), Indian health centers, and entities receiving funds under PHSA Title X (family planning program). It requires that grants be awarded for not more than three years with a maximum award of $500,000. Grant funds must be used for activities associated with establishing or expanding a primary care residency training program including curriculum development; faculty and trainee recruitment, training, and retention; accreditation; and other specified purposes. The Secretary is required to give preference to applications that document an existing affiliation agreement with an Area Health Education Center (AHEC) that sponsors projects to increase and improve health personnel services in medically underserved communities. In addition, there are authorized to be appropriated $25 million for FY2010, $50 million for FY2011 and for FY2012, and SSAN for each fiscal year thereafter. No more than $5 million annually may be used for technical assistance program grants. Subsection 5508(c) amends PHSA Title III, Part D by adding a new Subpart XI, Support of Graduate Medical Education in Qualified Teaching Health Centers , and, within this subpart, creates a new PHSA Sec. 340H, Program of Payments to Teaching Health Centers that Operate Graduate Medical Education Programs . The new section requires the Secretary to make payments for direct and indirect costs to qualified THCs for the expansion of existing or the establishment of new approved graduate medical residency training programs. It specifies how the direct and indirect graduate medical education payments to THCs and the annual updates for payments are calculated. It also requires the Secretary to limit the funding of full-time equivalent residents to ensure that these payments do not exceed the annual appropriation under this section. The section specifies that THC graduate medical education payments are in addition to any indirect or direct payments made to teaching hospitals and do not count against the limit on the number of full-time equivalent residents paid for by Medicare or by Children's Hospital Graduate Medical Education Programs. The section also requires the Secretary to determine any changes to the resident reporting requirements to determine whether hospitals have received overpayments. It specifies annual reporting requirements and authorizes the Secretary to audit THCs. The section requires the Secretary to reduce the amount of payments made to a THC by 25% if a THC fails to report certain information, and specifies a THC's opportunity to remediate the failure to report. The section also requires the Secretary to promulgate regulations to carry out this section, and appropriates SSAN, not to exceed $230 million, for the period of FY2011 through FY2015. This section adds a new PHSA Sec. 749B , Rural Physician Training Grants , requiring the Secretary, acting through HRSA, to award grants to medical schools to recruit and provide focused training and experiences to students likely to practice medicine in underserved rural communities. Priority is to be given to medical schools with a demonstrated record of training students to practice in such communities, that have established rural community institutional partnerships, or who submit a long-term plan for tracking program graduates. Entities receiving grants would be required to use funds to establish, improve or expand a rural-focused training program that meets certain specified requirements. The section requires the Secretary to define, by regulation, the term "underserved rural community" for the purpose of this section within 60 days of enactment. Grantees would have to use the funds to supplement and not supplant federal and non-federal funds received from other sources, and maintain expenditures of non-federal amounts at levels not less than those expended in the fiscal year prior to the entity's receipt of the grant. The section authorizes to be appropriated $4 million for each of FY2010 through FY2013. This section authorizes to be appropriated and appropriates $100 million for FY2010, to remain available through FY2011, for debt service on, or construction or renovation of, a hospital affiliated with a state's sole public medical and dental school. The section specifies that the Secretary may only make appropriated amounts available upon receipt of an application from a state governor that meets certain specified requirements. ACA also addresses training in dentistry. Researchers have expressed concerns about the availability of dental services, especially for disadvantaged populations. GAO found that children enrolled in Medicaid lack access to dental care because dentists do not accept Medicaid, or because there are few providers in a geographic area. In a 2005 report examining dental training, HRSA recommended that federal programs that support the dental workforce, particularly those that provide support for dental faculty and address student indebtedness, be expanded. Increasing specialization may exacerbate concerns about the adequacy of the general dental workforce. Dental school debt has increased by 55% from 1996 to 2006, controlling for inflation. Due in part to increased amounts of student debt, more dental school graduates are choosing dental specialties because they can often earn more than general dentists. ACA implements a number of changes to encourage training in primary care dentistry. Some of these changes are in response to the 2005 HRSA report as they support efforts to expand dental faculty, and provide loan repayment for dental students and faculty. In addition, these programs seek to expand the dental workforce available for the underserved through programs that support alternative dental care providers. This section redesignates PHSA Sec. 748 , as amended by ACA Sec. 5103, as PHSA Sec. 749 and inserts a new PHSA Sec. 748, authorizing the Secretary to make grants or enter into contracts with specified entities to support training, provide financial assistance, and fund projects for dental students, dental residents, dental hygienists, practicing dentists, or dental faculty in the fields of general dentistry, pediatric dentistry, or public health dentistry. The section also establishes a faculty loan repayment program under which individuals agree to serve full-time as faculty members in one of the specified dental fields, and the program agrees to pay specified percentages of the principal and interest on their outstanding student loans based on the number of years served as a full-time faculty member. Entities eligible for the programs under this section include dental and dental hygiene schools and approved residency or advanced educational programs in the specified fields. Eligible entities also may partner with schools of public health so that dental residents or dental hygiene students may receive master's-level training in public health. When making training awards, the Secretary is required to give priority to certain qualified applicants. When making awards for both the training and faculty loan repayment programs, the Secretary is required to give preference to applicants based on their record of providing care in underserved areas or to populations experiencing health disparities, entities that have established a formal relationships with certain specified types of providers, or to entities that in the two fiscal years prior to receiving the award had an increased rate of placing their graduates in settings that serve health disparity populations. The section authorizes an appropriation of $30 million for FY2010, and SSAN for each of FY2011 through FY2015 and permits entities to carry over funds across fiscal years. This section adds a new PHSA Sec. 340G-1 that authorizes the Secretary to establish a demonstration program to train or employ alternative dental health care providers in order to increase access to dental health care services in rural and other underserved communities. Alternative dental health care providers include community dental health coordinators, advance practice dental hygienists, independent dental hygienists, primary care physicians, dental therapists, dental health aides, and any other health professionals the Secretary determines appropriate. Entities eligible for this grant program include qualified institutions of higher education; public-private partnerships; FQHCs; health facilities operated by the Indian Health Service (IHS), an Indian Tribe, a Tribal Organization or an Urban Indian Organization, as specified; state or county public health clinics; public hospitals or health systems; or other entities as specified. The Secretary is authorized to award 15 grants of not less than $4 million over a five-year period. The section also specifies the funding disbursement formula for grants and requires that demonstration projects begin within two years after enactment and conclude not later than seven years after enactment. Additionally, this section requires the Secretary to contract with the Institute of Medicine (IOM) to conduct a study of the demonstration program regarding access to dental health care. Nothing in the section prohibits an IHS-approved dental health aide training program from being eligible for a grant under this section. There are authorized to be appropriated SSAN to carry out this section. The National Advisory Council on Nurse Education and Practice (NACNEP) reports that there will be 10,000 too few nurses in 2020 to meet the nation's health care needs. Furthermore, this group expressed concerns that the existing and future nursing workforce may not be adequate, or sufficiently skilled, because the health care work environment has become increasingly complex. Nursing workforce development programs authorized under PHSA Title VIII fund grants and scholarships for graduate and undergraduate nursing education in specified areas of nursing including cultural competency, workforce diversity, nurse faculty members, advanced education nurses, and geriatric nursing. ACA expands these programs and addresses a number of the concerns raised by NACNEP and other experts. In particular, ACA seeks to increase the skill level of the nursing workforce by authorizing programs to train advanced practice nurses and family nurse practitioners. This section amends PHSA Sec. 836 by increasing the annual maximum amount of loan funds a recipient can receive during FY2010 and FY2011 from $2,500 to $3,300; increasing the final two-year amounts from $4,000 to $5,200 per year; and increasing the total loan amount from $13,000 to $17,000. The section provides, for loans made after FY2011, for a cost-of-attendance increase for the yearly and aggregate amounts. It also amends applicable dates to require that financial need be a criterion for receiving a loan after 2000. Additionally, it provides for partial loan cancellation for loan recipients working as full-time nurses in public or nonprofit settings who received loan funds before September 29, 1995. This section amends PHSA Sec. 811 to establish separate authorizations for the support of nurse practitioner and nurse midwifery programs. It also inserts new language establishing expanded grant eligibility criteria for nurse midwifery programs. The section deletes the prohibition on obligating more than 10% of the traineeships for individuals in doctoral programs. This section amends PHSA Sec. 831 by renaming the grant program, Nurse Education, Practice, and Quality Grants , and deleting from the program's listed priority areas support for internship and residency programs to encourage mentoring and the development of specialties within nursing. The section restates certain specified grant priority activities, and redefines nursing schools to have the same meaning as the term in Sec. 801(2). The section authorizes to be appropriated SSAN for each of FY2010 through FY2014. (See also ACA Sec. 5312, below.) Also, the section adds a new PHSA Sec. 831A , Nurse Retention Grants , authorizing the Secretary to provide funding to eligible entities for nurse retention and promotion ("career ladder") programs, and for the enhancement of patient care that is directly related to nursing activities. The Secretary is required to give preference to entities that have not received a grant under this subsection, to entities that have not received a grant under the earlier nursing "career ladder" grant program, and to entities that address other high-priority areas as determined by the Secretary. The section authorizes to be appropriated SSAN to carry out grant programs in this section for each of FY2010 through FY2012. (See also ACA Sec. 5312, below.) This section amends PHSA Sec. 846 by expanding eligibility for the nursing student loan repayment and scholarship program to individuals who agree to serve as nurse faculty at an accredited school of nursing for two years or more. The section also contains several technical and conforming amendments for PHSA Title VIII, including redesignating Sec. 841 (Funding) as Sec. 871 , and Sec. 855 (Geriatric Education and Training, discussed below) as Sec. 865 . This section amends PHSA Sec. 846A by renaming the nurse faculty loan program School of Nursing Student Loan Fund . It adds the requirement that loan fund agreements must be made with accredited schools of nursing. Priority is given to support for doctoral nursing students. The section also increases the annual loan limit from $30,000 to $35,500 for FY2010 and FY2011 and provides for cost-of-attendance adjustments in subsequent years. ACA authorizes to be appropriated SSAN for each of FY2010 through FY2014. Additionally, the section creates a new PHSA Sec. 847 authorizing the Secretary, acting through HRSA, to enter into an agreement with eligible individuals for the repayment of qualified education loans for the purpose of increasing the number of qualified nursing faculty. Award recipients are required to serve as a faculty member at an accredited school of nursing for at least four of the six years after (1) the individual receives a qualifying degree; or (2) the date the individual entered the agreement. Priority is given to support for doctoral nursing students. The section also sets the annual loan limit at $10,000 for individuals with a master's or equivalent degree in nursing ($20,000 for those with a doctorate or equivalent degree in nursing), and an aggregate loan limit of $40,000 for individuals with a master's or equivalent degree in nursing ($80,000 for those with a doctorate or equivalent degree in nursing) for FY2010 and FY2011. Thereafter, the annual and aggregate loan limits would be adjusted to provide for a cost-of-attendance increase. The section authorizes to be appropriated SSAN for each of FY2010 through FY2014. This section amends PHSA Sec. 871 (as redesignated by Sec. 5310 of ACA) by authorizing to be appropriated $338 million in FY2010 for Title VIII Parts B, C, and D (i.e., Secs. 811, 821, and 831, and new Sec. 831A), and SSAN for each of FY2011 through FY2016. This section requires the Secretary to establish a graduate nurse education demonstration program in Medicare. Under the demonstration program, up to five eligible hospitals will receive Medicare reimbursement for clinical training costs attributed to providing advanced practice nurses with qualified training. An advanced practice nurse includes a clinical nurse specialist, a nurse practitioner, a certified registered nurse anesthetist, and a certified nurse midwife as defined by Medicare statute. Advance practice nurses will receive training in the clinical skills necessary to provide primary care, preventive care, transitional care, chronic care management, and other nursing services appropriate for the Medicare-eligible population. At least half of all clinical training will occur in non-hospital community-based care settings. However, the Secretary is authorized to waive this requirement for eligible hospitals located in rural or medically underserved areas. For any year, Medicare's payment amount may not exceed the amount of training costs attributed to an increase in the number of advance practice nurses enrolled in a qualified program during the year compared to the average number who graduated from that program in each year from January 1, 2006, to December 31, 2010 (as determined by the Secretary). To carry out this section, there are appropriated, out of any funds in the Treasury not otherwise appropriated, $50 million for each of FY2012 through FY2015, with amounts remaining available until expended. This section, as added by ACA Sec. 10501(e), requires the Secretary to establish a demonstration program to provide recently qualified nurse practitioners with 12 months of training for careers as primary care providers in FQHCs and NMHCs (see Sec. 5208 of ACA). Eligible FQHCs and NMHCs will receive three-year grants to create a training model that may be replicated nationwide. Grant amounts may not exceed $600,000 per year. To be eligible for acceptance into a training program, a nurse practitioner has to demonstrate a commitment to a career as a primary care provider in an FQHC or NMHC. Preference will be given to bilingual candidates. The Secretary is authorized to award grants to one or more FQHCs or NMHCs with expertise in establishing nurse practitioner residency training programs to provide technical assistance to other grantees. There are authorized to be appropriated SSAN for each of FY2011 through FY2014 to carry out the demonstration program. The IOM, among others, has raised concerns about whether the geriatric workforce is sufficiently skilled to provide care to an aging population. The IOM also has raised concerns about the training of direct care workers, noting that these workers are the primary source of care for older adults, but have little training in geriatric medicine. PHSA Titles VII and VIII include programs to augment the geriatric workforce by training physicians, dentists, mental health professionals, and nurses in geriatric care. ACA creates new, and amends existing, programs for geriatric training. These new programs draw from the IOM recommendations in that they establish programs to increase training for the direct care workforce, provide training in geriatrics for the health care workforce, and provide incentives for other types of providers to enter the field of geriatrics. This section adds a new PHSA Sec. 747A that requires the Secretary to establish a grant program to provide new training opportunities for direct care workers employed in specified long-term care settings. Entities eligible for grants include accredited institutions of higher education that have established a partnership with a long-term care setting as specified. Eligible entities are required to use grant funds to provide tuition and fee assistance for eligible individuals, defined as individuals who are enrolled and making satisfactory progress in courses provided by an eligible entity. Individuals receiving assistance under this section are required to work in the field of geriatrics, disability services, long-term services and supports, or chronic care management for a minimum of two years. There are authorized to be appropriated $10 million for the period FY2011 through FY2013. Subsection 5305(a) amends PHSA Sec. 753 by adding two new subsections. The first subsection requires the Secretary to award grants or contracts for geriatric workforce development fellowship and training programs to qualified entities that operate a Geriatric Education Center (GEC). The awards must be used to (1) offer short-term intensive courses on geriatrics, chronic care management, and long-term care; and (2) offer family caregiver and direct care provider training, or develop and incorporate into all training courses best practices material on mental disorders among the elderly, medication safety issues for the elderly, and managing dementia. Each award is $150,000 with no more than 24 GECs authorized to receive an award. There are authorized to be appropriated $10.8 million for the period FY2011 through FY2014. The second subsection creates incentive grants or contracts for certain qualified health professionals entering the field of geriatrics, long-term care, and chronic care management. Health professionals receiving this award are required to teach or practice in one of the above fields for a minimum of five years. There are authorized to be appropriated $10 million for this program for the period FY2011 through FY2013. Subsection 5305(b) further amends PHSA Sec. 753 by expanding eligibility for geriatric academic career awards to qualified faculty at any accredited health professions school, as determined by the Secretary. Entities receiving an award must meet specified targets and use award funds to supplement and not supplant funds otherwise available to the GEC. This subsection amends PHSA Sec. 855 to include new language establishing traineeships for individuals preparing for advanced degrees in geriatric nursing or other nursing areas that specialize in elder care. It authorizes to be appropriated SSAN for each of FY2010 through FY2014. [Note: ACA Sec. 5310 redesignated PHSA Sec. 855 as Sec. 865 .] Subsection 5507(a) amends Title XX of the Social Security Act (SSA) by adding a new Sec. 2008 , Demonstration Projects to Address Health Professions Workforce Needs , establishing two separate demonstration projects. The first project requires the Secretary, in consultation with the Secretary of Labor, to award grants that provide individuals receiving assistance under the State Temporary Assistance for Needy Families (TANF) program and other low-income individuals with the opportunity to obtain education and training for occupations in the health care field that pay well and are expected to either experience labor shortages or be in high demand. Funds may be used to provide individuals with financial aid, child care, case management, and other supportive services, and are not be considered income for the purposes of determining eligibility for benefits under any means-tested program. The second project requires the Secretary to award grants to states to conduct demonstrations for the purpose of developing core training competencies and certification programs for personal or home care aides. The section appropriates $85 million to carry out both demonstration projects for each of FY2010 through FY2014. The Secretary is required to use $5 million of the amount appropriated for each of FY2010 through FY2012 to carry out the second demonstration project. After FY2012, no appropriated funds may be used to carry out this project. Subsection 5507(b) amends SSA Sec. 501(c), which appropriated $5 million for FY2009 for the Secretary (through grants, contracts, or otherwise) to provide funding for special projects of regional and national significance for the development and support of family-to-family health information centers. ACA appropriates $5 million for each of FY2009 through FY2012 to provide for the development and support of these centers. This section establishes a Personal Care Attendants Workforce Advisory Panel, no later than 90 days after enactment, for the purpose of examining and advising the Secretary and Congress on workforce issues related to such workers. The PHSA authorizes the Secretary to conduct programs for public health workforce development by providing grants or contracts to schools, state and local health agencies, and others to operate public health training, re-training, and placement programs. Programs include grants for Public Health Training Centers; tuition, fees, and stipends for traineeships in public health and in health administration; and residency programs in preventive medicine and dental public health. ACA reauthorizes these programs and creates some new ones, including a U.S. Public Health Sciences Track for graduate training in public health disciplines. This section creates a new PHSA Sec. 776 requiring the Secretary, depending on appropriations, to establish a loan repayment program for public health or health professionals who agree to work in a federal, state, local, or tribal public health agency or a related training fellowship after graduation. Among other contractual obligations, recipients are required to serve for at least three years, or as determined by the Secretary. Annual repayment is capped at $35,000 per individual, or one-third of total debt, whichever is less. The section authorizes the appropriation of $195 million for FY2010, and SSAN for each of FY2011 through FY2015. This section amends PHSA Sec. 765 to add public health workforce loan repayment programs to the list of allowable activities for public health workforce development grants. It also creates a new PHSA Sec. 777 authorizing the Secretary to make grants to eligible educational entities to award scholarships for the training of mid-career professionals in public health and allied health. There are no stated scholarship amounts or service obligations. The section authorizes the appropriation of $60 million for FY2010, and SSAN for each of FY2011 through FY2015. This section, as amended by ACA Sec. 10501(c), creates a new PHSA Sec. 399V , requiring the CDC Director to award grants to eligible entities to promote healthy behaviors and outcomes for populations in medically underserved communities through the use of community health workers (CHWs). The Secretary is required, among other things, to establish guidelines for the training and supervision of CHWs. The section authorizes to be appropriated SSAN for each of FY2010 through FY2014. This section adds a new PHSA Sec. 778 , authorizing the Secretary to expand existing CDC public health training fellowships in epidemiology, laboratory science, and informatics; the Epidemic Intelligence Service (EIS); and other training programs that meet similar objectives. Participants may be placed in state and local health agencies, and states can receive federal assistance for loan repayment programs for such participants. The section authorizes, for each of FY2010 through FY2013, the appropriation of $24.5 million for EIS fellowships, and $5 million each for epidemiology, laboratory, and informatics fellowships. This section adds a new PHSA Title II, Part D , "United States Public Health Sciences Track," consisting of four new PHSA sections. New PHSA Sec. 271 establishes a science track at academic sites selected by the Secretary, to award degrees that emphasize team-based service, public health, epidemiology, and emergency preparedness and response. The track is to be organized so as to graduate, annually, specified minimum numbers of students of medicine, dentistry, nursing (including advanced nursing), public health, behavioral and mental health, physician assistance, and pharmacy. New PHSA Sec. 272 delegates administration of the science track to the U.S. Surgeon General (SG), according to specified requirements. New PHSA Sec. 273 establishes requirements for selection of students for the science track, and their service obligations, under the administration of the SG. The SG may provide students with funding for tuition and a stipend for up to four years, subject to specified contractual obligations, among them a requirement to serve in the United States Public Health Service (USPHS) Commissioned Corps for a specified time period. Among other things, the SG is required to develop criteria for the appointment of promising science track faculty, students, and graduates to elite federal disaster preparedness teams to train and respond to public health emergencies. New PHSA Sec. 274 requires the Secretary, beginning in FY2010, to transfer from the Public Health and Social Services Emergency Fund SSAN to carry out this new Part. This subsection replaces the previous PHSA Sec. 768 with new language, requiring the Secretary to award grants or contracts for preventive medicine residency training. Eligible entities are accredited schools of medicine, osteopathic medicine, or public health; accredited public or private hospitals; state, local, or tribal health departments; or consortia of the above. This subsection reauthorizes public health workforce programs in PHSA Secs. 765-769 (as amended by ACA) by amending PHSA Sec. 770(a) , authorizing to be appropriated $43 million for FY2011, and SSAN for each of FY2012 through FY2015. The USPHS Commissioned Corps is a branch of the U.S. uniformed services, but is not one of the armed services. The Corps is based in HHS under the authority of the U.S. Surgeon General (SG). USPHS commissioned officers are physicians, nurses, pharmacists, engineers, and other public health professionals who serve in federal agencies, or as detailees to state or international agencies, to support a variety of public health activities. Corps officers serve in regular or reserve status. Due to a statutory cap on the number of Regular Corps officers, many officers were placed when on active-duty status in the Reserve Corps instead. ACA eliminates the cap and places active-duty reserve officers into regular status. Also, ACA establishes a Ready Reserve Corps of officers who are subject to intermittent involuntary deployment to bolster the available workforce for both routine and emergency public health missions, such as serious natural disasters and infectious disease outbreaks. It is expected that Ready Reserve Corps officers will be drawn mainly from professionals who work in the private sector, not in the federal workforce, between deployments. Sec. 202 of P.L. 102-394 , FY1993 appropriations for Labor/HHS/Education, capped the number of commissioned officers in the USPHS Regular Corps (versus the Reserve Corps) at 2,800 and prohibited the use of appropriations from that act, or any subsequent appropriations act, to fund additional positions. This section amends Sec. 202 of P.L. 102-394 to eliminate the cap. This section replaces PHSA Sec. 203 with new language designating active-duty officers in the USPHS Reserve Corps as members of the Regular Corps, effective upon enactment. The section also establishes a Ready Reserve Corps of officers who are subject to involuntary call to active duty (including for training) by the SG, in order to bolster public health workforce capacity. The section authorizes the appropriation, for each of FY2010 through FY2014, of $5 million for recruitment and training, and $12.5 million for the Ready Reserve Corps. The IOM has raised concerns about the racial and ethnic diversity of the health care workforce. A more diverse healthcare workforce—including a more diverse group of providers in training—is important because (1) minority groups disproportionately live in areas with provider shortages, (2) patients who receive care from members of their own racial and ethnic background tend to have better outcomes, and (3) members of racial and ethnic minority groups are more likely to enter primary care and practice in shortage areas. In addition, research has found that all students benefit from a more diverse student body. Specifically, non-minority students who attend more diverse medical schools feel more prepared to provide care to a diverse racial and ethnic population. PHSA Title VII authorizes programs to increase the diversity of the health care workforce and to create interdisciplinary community-based training. ACA reauthorizes and amends a number of these programs and creates a new program to increase the diversity of the nursing workforce. ACA also expands the role of the AHEC program—centers that sponsor projects to increase and improve health personnel services in medically underserved communities—by requiring coordination with ACA-established teaching health centers and primary care extension programs. This section amends PHSA Sec. 741 , requiring the Secretary to support the development and evaluation of research, demonstration projects, and model curricula for use in health professions schools and continuing education programs for providing training in cultural competency, prevention, public health proficiency, reducing health disparities, and aptitude for working with individuals with disabilities. The Secretary is required to collaborate with specified entities and other organizations as deemed appropriate, and to coordinate with curricula and research and demonstration projects developed under PHSA Sec. 807 (see next paragraph). The Secretary also is required to evaluate the adoption and implementation of the curricula, to facilitate their inclusion into quality measurement systems as appropriate, and to make them available through the Internet. There are authorized to be appropriated SSAN for each of FY2010 through FY2015. In addition, the section amends PHSA Sec. 807 —a grant program for cultural and linguistic competence training for nurses—to create a program for the nursing workforce that is parallel to the one authorized under Sec. 741 (as amended) and to require coordination with that program. To carry out Sec. 807, there are authorized to be appropriated SSAN for each of FY2010 through FY2015. This section amends PHSA Sec. 736 by modifying the Centers of Excellence (COE) funding formula to add an additional set of specifications for allocating funds among the various types of COEs when the appropriation is $40 million or more. It authorizes to be appropriated for the COE program $50 million for each of FY2010 through FY2015, and SSAN for each subsequent fiscal year. This section amends PHSA Sec. 738(a) by increasing the annual limit on the loan repayment amount to $30,000. In addition, the section amends PHSA Sec. 740 by authorizing the following appropriations: (1) for Sec. 737 scholarships, $51 million for FY2010, and SSAN for each of FY2011 through FY2014; (2) for Sec. 738 loan repayments and fellowships, $5 million for each of FY2010 through FY2014; and (3) for Sec. 739 educational assistance, $60 million for FY2010, and SSAN for each of FY2011 through FY2014. This section amends PHSA Sec. 738(a) by adding schools offering physician assistant education programs to the list of specified health professions schools. This section amends PHSA Sec. 751 , Area Health Education Centers , replacing the existing provisions with new language. The new section expands the current AHEC program and requires the Secretary to award (1) infrastructure development grants to medical and nursing schools to plan, develop, and operate AHEC programs; and (2) point-of-service maintenance and enhancement grants to maintain and improve the effectiveness of existing AHEC programs. As with the current AHEC program, the new section requires a non-federal match, sets the minimum award at $250,000, and places certain time limits on the award period. It authorizes to be appropriated $125 million for each of FY2010 through FY2014. It is the sense of Congress that every state have an AHEC program. In addition, the section replaces the existing section with a new PHSA Sec. 752 , Continuing Educational Support for Health Professionals Serving in Underserved Communities , requiring the Secretary to award grants to health professions schools, academic health centers, and state or local governments, among others, to fund innovative activities to enhance education through distance learning, continuing education, collaborative conferences, and telehealth, with a focus on primary care. It authorizes to be appropriated $5 million for each of FY2010 through FY2014, and SSAN for each subsequent fiscal year. This section amends PHSA Sec. 821 by expanding the allowable uses of diversity grants to include stipends for diploma or associate degree nurses to enter a bridge or degree completion program, student scholarships or stipends for accelerated nursing degree programs, and advanced education preparation. In lieu of the existing consultation requirements, it requires the Secretary to take into account the recommendations of the NACNEP and consult with nursing associations including the National Coalition of Ethnic Minority Nurse Associations and other appropriate organizations. ACA amends eligibility for an existing education loan forgiveness program to include allied health professionals. Allied health providers, such as audiologists, nutritionists, dieticians, and occupational, physical or rehabilitation therapists, share in the responsibility for delivering health care services. This section amends Sec. 428K of the Higher Education Act of 1965 to include, among those eligible for a loan forgiveness program, an individual who is employed full-time as an allied health professional in a federal, state, local and tribal public health agency. Additional qualified employment locations include acute care and ambulatory care facilities, and settings located in HPSAs, medically underserved areas or among medically underserved populations, as recognized by the Secretary. The section defines the term "allied health professional," as described in PHSA Sec. 799B(5), as an individual who has graduated and received an allied health professions degree or certificate from an institution of higher education and is employed with a federal, state, local, or tribal public health agency, or other qualified employment location. ACA creates a new PHSA Title VII grant program for training mental and behavioral health providers. According to the President Bush's New Freedom Commission on Mental Health, there is a shortage of behavioral health care providers, and this shortage is notably severe in rural areas. Due to the lack of specialty behavioral health providers in rural areas, primary care providers who practice in nonmetropolitan areas play a large role in behavioral health care. This section amends PHSA Title VII, Part D by deleting Sec. 757 (authorizing appropriations for Part D through FY2002), redesignating Sec. 756 (as amended by ACA Sec. 5103) as Sec. 757, and adding a new PHSA Sec. 756, Mental and Behavioral Health Education and Training Grants . The new section authorizes the Secretary to award grants to (1) eligible institutions of higher education to support the recruitment and education of students in social work programs, interdisciplinary psychology training programs, and internships or other field placement programs related to child and adolescent mental health; and (2) state-licensed mental health organizations to train paraprofessional child and adolescent mental health workers. The section requires at least four of the grant recipients to be historically black colleges or universities, or other minority-serving institutions. For grants for education and training in social work, priority must be given to applicants that are accredited by the Council on Social Work Education, have a graduation rate of at least 80% for social work students, and are able to recruit from and place social workers into areas with a high-need and high-demand population. For grants in graduate psychology, priority must be given to institutions that focus on the needs of specified vulnerable groups. For grants to train professional and paraprofessional child and adolescent mental health workers, priority must be given to applicants that, among other things, (1) have demonstrated the ability to collect data on the number of child and adolescent mental health workers trained and the populations they serve upon completion of the training; (2) are familiar with evidence-based methods; (3) have programs designed to increase the number of child and adolescent mental health workers serving high-priority populations; and (4) provide services through a community mental health program described in PHSA Sec. 1913(b)(1). For FY2010 through FY2013, the section authorizes to be appropriated $8 million for training in social work, $12 million for training in graduate psychology, $10 million for training in professional child and adolescent mental health, and $5 million for training in paraprofessional child and adolescent mental health. ACA establishes a National Health Care Workforce Commission to undertake comprehensive workforce planning. At the time of the ACA's enactment experts believed that existing groups— such as the Advisory Council on Graduate Medical Education, the Advisory Committee on Training in Primary Care Medicine and Dentistry, the Advisory Committee on Interdisciplinary, Community-based Linkages, and the NACNEP—were not coordinated and that comprehensive workforce planning was needed to better synchronize federal workforce investments. Some have argued that the lack of a comprehensive workforce policy has contributed to concerns about the size, geographic, and specialty distribution of the current health professions workforce. In addition, GAO has noted that data challenges hamper efforts to evaluate programs funded under PHSA Title VII, and such data may be necessary inputs for comprehensive workforce planning. ACA establishes a grant program to enable states to undertake state-level health workforce planning and includes provisions intended to increase the data collected and analyzed under ACA Title V (Health Workforce) programs. It also creates a National Center for Health Care Workforce Analysis (NCHWA) to centralize data collection and analysis, and establishes a federal task force on Alaska health care delivery. This section, as amended by Sec. 10501(a) of ACA, establishes a National Health Care Workforce Commission (Commission) to serve as a national resource focused on evaluating and meeting the need for health care workers. Composed of 15 members appointed by the U.S. Comptroller General, the Commission is required to recognize partnerships that develop and offer effective health care career pathways; disseminate information on promising practices; and communicate important policies and practices regarding recruitment, retention, and training of the health care workforce. The Commission is required to review health care workforce supply and demand and make recommendations on national priorities and policies as well as review and make recommendations on one or more additional specified high priority topics and, beginning in 2011, submit annual reports on both activities to Congress and the Administration. The Commission is required to (1) review implementation progress reports and report on the state health care workforce development grants program (established by Sec. 5102 of ACA); (2) study effective mechanisms for financing education and training for careers in health care; (3) make recommendations about improving health care workers' safety, health, and protections in the workplace; and (4) assess reports from the NCHWA (established under PHSA Sec. 761(b), as amended by Sec. 5103 of ACA). There are authorized to be appropriated SSAN to carry out this section. This section establishes a competitive health care workforce development grants program for the purpose of enabling state partnerships to plan and implement activities leading to coherent and comprehensive health care workforce development strategies at the state and local levels. HRSA is responsible for (1) administering the program, in consultation with the Commission (established by Sec. 5101 of ACA); (2) providing technical assistance to grantees; and (3) reporting performance information to the Commission. For planning grants, the section authorizes to be appropriated $8 million for FY2010, and SSAN for each subsequent fiscal year. For implementation grants, it authorizes to be appropriated $150 million for FY2010, and SSAN for each subsequent fiscal year. This section amends PHSA Sec. 761 by requiring the Secretary to (1) establish a National Center for Health Care Workforce Analysis (NCHWA); (2) establish State and Regional Centers for Health Workforce Analysis; and (3) increase grant amounts for longitudinal evaluations of specified individuals who have received education, training, or financial assistance from programs under PHSA Title VII. The section authorizes the following appropriations for each of FY2010 through FY2014: (1) $7.5 million for the NCHWA; (2) $4.5 million for State and Regional Centers; and (3) SSAN for grants for longitudinal evaluations. No later than 180 days after enactment, all responsibilities of HRSA's existing National Center for Health Workforce Analysis must be transferred to the new NCHWA. The section amends PHSA Sec. 791 by adding new language requiring the Secretary to give preference in awarding grants or contracts under Secs. 747 and 750 to any qualified applicant that utilizes a longitudinal evaluation and reports data from such system to a national workforce database. It also amends Secs. 748, 756, and 762 to include additional duties regarding performance measures and guidelines for longitudinal evaluations for the Advisory Committee on Training in Primary Care Medicine and Dentistry; the Advisory Committee on Interdisciplinary, Community-based Linkages; and the Advisory Council on Graduate Medical Education. This section, as added by ACA Sec. 10501(b), establishes the Interagency Access to Health Care in Alaska Task Force to develop a strategy to improve delivery of care to beneficiaries of federal health care systems in Alaska. Composed of nine federal officials appointed by specified Secretaries, the task force is required, within 180 days of enactment, to submit a report to Congress with recommendations, policies, and initiatives. The task force will be terminated upon submission of the report. This section requires the Secretary to submit to Congress an annual report on the activities carried out under the amendments made by Title V (Health Care Workforce) of ACA, and the effectiveness of such activities. In addition, the Secretary may require, as a condition of receiving funds under these amendments, that recipients of such awards report on the activities carried out with the awards, and the effectiveness of such activities. Medicare subsidizes the costs of medical residency training by making two types of payments to teaching hospitals. First, direct graduate medical education (DGME) payments help cover the costs of the residency training program, including resident salaries and benefits, supervisory physician salaries, and administrative overhead expenses. DGME payments are calculated based on the product of three factors: a hospital-specific per resident amount, a weighted count of full-time equivalent (FTE) residents supported by the hospital, and the hospital's Medicare patient share. Second, indirect medical education (IME) payments, which vary with the intensity of a hospital's residency program, are intended to compensate hospitals for the higher costs of patient care in teaching hospitals. Those costs may be the result of such factors as having sicker patients and the fact that inexperienced residents may order more tests. The IME adjustment is a percentage add-on to a hospital's Medicare payments for inpatient care and is based, in part, on the hospital's resident-to-bed ratio. Medicare includes the time that residents spend in both patient care and non-patient care activities, including didactic activities, when calculating DGME payments. When calculating IME payments, however, only the time spent in patient care activities is included. In 2008, Medicare DGME and IME payments totaling an estimated $9 billion were paid to more than 1,100 teaching hospitals to educate and train about 90,000 residents, equivalent to approximately $100,000 per resident. While health policy analysts view Medicare GME payments as a potentially important instrument for influencing health workforce policy, to date they have largely not been used to shape the physician workforce. With certain exceptions, Medicare caps the number of residents used to calculate GME payments for individual teaching hospitals at the level reported at the end of 1996. The cap was implemented because of concerns that there would be an oversupply of physicians. Now with experts concerned that physician supply may be insufficient to meet demand, a number of physician and hospital groups have called for additional Medicare-supported residency slots. ACA increases the number of residents that Medicare supports through provisions that would redistribute unused residency slots and preserve residency positions from closed hospitals, but does not remove the limit on Medicare-supported residency slots. Although Medicare does not set targets for the type or mix of resident physicians that a hospital trains, under ACA the redistributed slots must largely be used for training in primary care or general surgery. Medicare allows teaching hospitals to receive DGME and IME payments for the time residents rotate in nonhospital settings provided (1) they are performing patient care, and (2) the hospital pays all or substantially all (i.e., 90%) of the costs of the training at the nonhospital site, costs which include the resident stipends and fringe benefits and those associated with supervising physicians. Time spent in non-patient care activities in the nonhospital setting is not counted when calculating either type of payment. A hospital that jointly operates a residency program with another hospital cannot include the time spent by residents working at a nonhospital site if it incurs all or substantially all of the costs for only a portion of the residents in that program at the non-hospital site. Additional regulatory requirements discourage rotations in nonhospital settings. Moreover, hospitals have a financial incentive to retain the often lower-cost clinical labor that residents provide. While experts see value in having residents gain experience in nonhospital settings such as community health centers and nursing facilities, residency programs today are largely based in inpatient, acute-care teaching hospitals. Some have argued that this may make residents less likely and less prepared to be a community-based provider. Research has found that residents who train in health centers are more likely to provide care to the underserved, including by working at a health center. This section establishes criteria to be used to reduce the otherwise applicable resident limit for a hospital that has unused residency positions, as defined, and directs the Secretary to redistribute 65% of those unused positions and assign them to other qualifying hospitals. Hospitals that meet certain specified criteria are exempt from the redistribution of any of their unfilled positions. No more than 75 FTE additional residents can be made available to a qualifying hospital. A hospital that qualifies for an increase in residency positions is required to maintain its base level of primary care residents and ensure that not less than 75% of the additional positions are in primary care or general surgery residency. When determining the increase in a hospital's resident limit, the Secretary is required to take into account such factors as the likely speed with which the hospital would fill the positions, and whether the hospital has an accredited rural training track. Residency positions are allocated, according to a specified formula, among the following qualifying facilities: (1) hospitals located in states with low resident-to-population ratios; (2) hospitals located in states with a high percentage of the population living in a HPSA; and (3) rural hospitals. DGME and IME payments for the redistributed residency positions will be made on the same basis as the payments for existing residency positions. This section requires that all time spent by a resident in patient care activities be counted towards the DGME payment, regardless of the setting, provided the hospital incurs the costs of the stipends and the fringe benefits of the resident during the time spent in that setting. If more than one hospital incurs those costs, then each hospital counts a proportional share of the time that the resident spends training in that setting. Further, all the time spent by a resident in patient care activities in a nonhospital setting counts towards the IME payment, provided the hospital continues to incur those same costs. Again, if more than one hospital incurs the costs, then each hospital counts a proportional share of the time that the resident spends training in that setting. This section, as amended by Sec. 10501(j) of ACA, requires that resident time spent in certain non-patient care activities—including attending conferences and seminars, but not research unless it is associated with the treatment or diagnosis of a patient—in a nonhospital setting that is primarily engaged in furnishing patient care be counted towards the DGME payment. In addition, Medicare must count all the vacation, sick leave, and other approved leave spent by the resident as long as the leave time does not extend the training program's duration. Similarly, when calculating IME payments, resident time spent in hospital settings (as defined) on certain non-patient care activities—including attending conferences and seminars, but not research unless it is associated with the treatment or diagnosis of a patient—counts towards the IME payment. This section directs the Secretary, by rulemaking, to establish a process to redistribute medical residency slots from a hospital with an approved residency program that closes on or after a date that is two years before enactment to increase the otherwise applicable residency limit for other hospitals. Such residency slots would be redistributed based on a specified priority order, with first priority given to hospitals located in the same or contiguous core-based statistical area as the hospital that closed. ACA substantially expands federal disease prevention and health promotion efforts through several approaches. Subsequent subsections of this section discuss how the law: (1) expands coverage of clinical preventive services under Medicare, Medicaid, and private health insurance; (2) encourages the development and expansion of wellness programs by employers and insurers; (3) calls for a national strategy for disease prevention and health promotion; and (4) expands federal research, grantmaking, and other public health activities aimed at the prevention of disease risk factors such as obesity and tobacco use, providing a permanent annual appropriation to support this expansion. These provisions are found primarily in ACA Title IV, "Prevention of Chronic Disease and Improving Public Health," and in Title X, Subtitle D. ACA expands requirements for coverage of clinical preventive services under Medicare, Medicaid, and private insurance. Although the approach is different for each of these, two key elements are incorporated in all three: (1) linking coverage requirements to recommendations of the U.S. Preventive Services Task Force (USPSTF) and, in some cases, additional advisory bodies; and (2) eliminating most or all cost-sharing for use of clinical preventive services. Medicare Part B covered a number of clinical preventive services prior to ACA, including a one-time initial preventive physical examination (IPPE), certain cancer screenings and immunizations, and other services. Cost-sharing was waived for some, but not all, preventive services. ACA now requires that Part B also cover an annual wellness visit and health assessment, and waive any cost-sharing for almost all previously covered preventive services. In addition, ACA allows the Secretary to modify coverage of preventive services to comport with USPSTF recommendations, including by withholding payment for services that the USPSTF recommends against using. Finally, ACA provides that FQHCs may be reimbursed for providing Medicare-covered preventive services. The Congressional Budget Office (CBO) and the Centers for Medicare and Medicaid Services (CMS) Actuary projected that, in aggregate, these expansions of covered benefits will incur a net cost for the Medicare program (although the provision that authorizes the withholding of payments for ineffective services was projected to be cost-saving). These provisions are summarized below in the section " Prevention Under Medicare ." State Medicaid programs must cover a suite of preventive services under the Early and Periodic Screening, Diagnostic, and Treatment Services program (EPSDT) for beneficiaries under 21 years of age. Neither preexisting law nor ACA explicitly require state plans to cover preventive services for adults, although coverage may be required if a service meets another applicable requirement, such as a physician's service. However, ACA requires state Medicaid plans to cover tobacco cessation counseling and drug therapy for pregnant women. In addition, ACA provides for enhanced federal Medicaid matching funds for states that opt to cover without cost-sharing a complete package of preventive services for eligible adults recommended by the USPSTF, as well as recommended immunizations. The CBO and the CMS Actuary projected a net cost to the Medicaid program for the state option to cover adult preventive services, and net savings for the provision that provides coverage of tobacco cessation services for pregnant women. These and additional provisions are summarized below in the section " Prevention Under Medicaid ." Prior to ACA, federal law did not require private insurers to cover preventive services. Under ACA, group health plans and health insurance issuers in the group and individual markets must now cover specified evidence-based clinical preventive services, including immunizations, without any cost-sharing. Preexisting health plans are "grandfathered" and are exempt from this requirement. In addition, beginning in 2014, qualified health plans that participate in insurance exchanges must cover a package of preventive services that are defined by the Secretary. These provisions are summarized below in the section " Prevention in Private Health Insurance ." An ACA provision clarifies requirements for coverage of breast cancer screening services under Medicaid and private insurance. The provision says that "for the purposes of this Act, and for the purposes of any other provisions of law , the current recommendations of the [USPSTF] regarding breast cancer screening, mammography, and prevention shall be considered the most current other than those issued in or around November 2009." (Emphasis added.) In November 2009, the USPSTF updated its recommendation regarding the use of mammography for breast cancer screening. Previously, the panel recommended that routine screening for women begin at age 40; it now recommends that routine screening begin at age 50 and continue through age 74. The ACA provision negates the November 2009 recommendations and directly affects the expansions of benefits covered under Medicaid and private insurance. Although the Secretary has more discretion with respect to the application of this provision under Medicare, Secretary Sebelius signaled when the revised USPSTF recommendations were announced that she did not intend to change federal coverage policies in response, and Medicare policy continues to provide coverage for annual screening mammography for women beginning at age 40. Employers and insurers, faced with rising health care costs, have adopted various strategies to reduce these costs including incentivizing healthy behaviors through wellness programs. Such programs offered by employers may be subject to a number of federal laws, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which amended the Employee Retirement Income Security Act (ERISA), the PHSA, and the IRC to improve portability and continuity of health coverage. Prior to ACA, HIPAA created certain nondiscrimination requirements, which prohibit a group health plan or a group health insurance issuer from basing coverage eligibility rules on health-related factors including health status (physical or mental), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability. In addition, a group health plan or health insurance issuer may not require that an individual pay a higher premium or contribution than another "similarly situated" participant, based on these health-related factors. 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 issued prior to ACA 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. ACA essentially codifies the HIPAA wellness program regulations, but for applicable rewards, it raises the cap on the allowed value of the reward to 30% of the cost of employee coverage, and gives discretion to the Secretaries of HHS, Labor, and the Treasury to increase the reward value up to 50%. ACA also establishes reporting requirements for certain plans and insurers that implement wellness and health promotion activities; establishes grant programs to assist employers in establishing and evaluating workplace wellness programs; requires the Secretary to evaluate wellness initiatives for the federal workforce; and bars wellness programs from collecting information about the lawful possession of firearms. These ACA provisions are summarized below in the section " Wellness Programs ." ACA establishes a framework for federal community-based (i.e., public health) prevention activities, including a coordinating council, a national strategy, and a national education and outreach campaign. In addition, ACA supports a new approach to federal grantmaking, based on preventing risky behaviors such as physical inactivity and tobacco use. A key element of this approach is the Prevention and Public Health Fund (PPHF). ACA provided a total appropriation of $5 billion to this new fund for the period from FY2010 through FY2014, and a permanent annual appropriation of $2 billion for each year thereafter, with the stated purpose "to provide for expanded and sustained national investment in prevention and public health programs to improve health and help restrain the rate of growth in private and public sector health care costs." The PPHF and several new grantmaking authorities in ACA (such as the Community Transformation Grants) mark a shift in focus in federal prevention activities, away from disease-specific or "categorical" programs (e.g., those for heart disease, cancer, etc.) and toward preventable or modifiable risk-factors for disease, such as poor nutrition, sedentary behavior, and tobacco use. Regular appropriations to CDC have generally been provided for disease-specific activities. However, the agency asserts that this approach is limiting, and has asked Congress for authority to give state grantees greater flexibility in their use of appropriated funds, saying "The existing resources dedicated to preventing and reducing chronic diseases, conditions and risk factors do not reflect with (sic) the burden of chronic diseases and the risk factors that cause them. Limited resources could be more effectively and efficiently managed if CDC and states were provided with flexibility to use resources to enhance collaborations among key chronic disease and risk factor prevention programs." In order to assure the effective application of funding to risk-based rather than disease-based programs, ACA requires reviews, evaluations, and reports for specific prevention programs, as well as a comprehensive review by GAO, at least every five years, of every federal disease prevention and health promotion initiative, program, and agency. In addition, many of the community-based prevention activities authorized in ACA must comport with recommendations of the Task Force on Community Preventive Services (TFCPS). The TFCPS, administered by CDC, conducts evidence reviews to determine the effectiveness of community (i.e., population-based) interventions, using a process similar to that of the USPSTF, discussed earlier. ACA codifies authority for the TFCPS. Applicable ACA provisions are summarized below in the section " Community-Based Prevention Programs ." Among other things, this section creates a new PHSA Sec. 2713 requiring a group health plan or a health insurance issuer in the group or individual health insurance market, for plan years beginning six months after the date of enactment of ACA, to cover the following preventive services, without cost-sharing requirements: (1) items or services recommended (i.e., with a grade of A or B) by the USPSTF; (2) immunizations recommended by the ACIP; (3) for infants, children and adolescents, preventive care and screenings provided for in comprehensive guidelines supported by HRSA; and (4) for women, such additional preventive care and screenings not described by the USPSTF as provided in comprehensive guidelines supported by HRSA. A plan or issuer may either cover or decline to cover additional services not recommended by the USPSTF. For the purposes of this section, the current USPSTF recommendations regarding breast cancer screening, mammography, and prevention are considered the most current other than those issued in or around November 2009. The Secretary is permitted to develop guidelines to allow a group health plan and a health insurance issuer offering group or individual health insurance coverage to utilize value-based insurance design. This section defines the elements of an "essential health benefits package," those benefits that must be provided by plans offered by qualified health plans that participate in insurance exchanges. Plans must cover, among other required benefits, preventive and wellness services, which are not defined in the law. Plans may not apply the deductible to any preventive services specified in PHSA Sec. 2713, as established in Sec. 1001 of ACA (above). The Secretary is required to determine the specific elements of such coverage, which must be provided for plan years beginning on or after January 1, 2014. In addition to the provisions summarized below, see the following sections later in this report, which also address certain aspects of Medicare coverage and prevention: " Sec. 4202. Community Wellness Pilot; Medicare Wellness Evaluation "; and " Sec. 4204. Immunizations ." This section, as amended by ACA Sec. 10402(b), amends SSA Sec. 1861 to require that Medicare Part B cover, beginning in 2011, personalized prevention plan services, including a comprehensive health risk assessment. The personalized plan could include several specified elements, among them: review and update of medical and family history; a 5- to 10-year screening schedule and referral for services recommended by the USPSTF and ACIP; a list of identified risk factors and conditions and a strategy to address them; lists of all medications currently prescribed and all providers regularly involved in the patient's care; review or referral for testing and treatment of chronic conditions; and cognitive impairment assessment. All beneficiaries enrolled in Part B are eligible for personalized prevention plan services once every year, without any cost-sharing. During the first year of enrollment, beneficiaries may receive only the initial preventive physical examination (IPPE). Beneficiaries may receive personalized prevention plan services each year thereafter provided that they have not received either an IPPE or personalized prevention plan services within the preceding 12 months. The Secretary is required to develop appropriate guidance, and to conduct outreach and related activities, with respect to personalized prevention plan services and health risk assessments. This section, as amended by ACA Sec. 10406, amends SSA Sec. 1861 to define preventive services covered by Medicare as a specified list of currently covered services, including colorectal cancer screening services even if diagnostic or treatment services are furnished in connection with the screening. The list also includes the IPPE, as well as the personalized prevention plan services that are covered pursuant to ACA Sec. 4103. Coverage remains subject to all criteria that previously applied to each covered preventive service. In addition, this section amends SSA Sec. 1833 to waive beneficiary coinsurance requirements for most preventive services, requiring Medicare to cover 100% of the costs. Services for which no coinsurance is required are the IPPE, personalized prevention plan services, any additional preventive service covered under the Secretary's administrative authority, and any currently covered preventive service (including medical nutrition therapy, and excluding electrocardiograms) if it is recommended (i.e., with a grade of A or B) by the USPSTF. The section generally waives the deductible for the same types of preventive services noted above for which coinsurance is waived. It does not, however, waive the deductible for any additional preventive service covered under the Secretary's administrative authority. Amendments made by this section became effective on January 1, 2011. This section authorizes the Secretary to modify the coverage of any currently covered preventive service (including services included in the IPPE, but not the IPPE itself), to the extent that the modification is consistent with USPSTF recommendations. The section also allows the Secretary to withhold payment for any covered preventive service graded D (i.e., not recommended) by the USPSTF. The enhanced authorities do not apply to services furnished for the purposes of diagnosis or treatment (rather than as preventive services furnished to asymptomatic patients). The provision states that these authorities were effective January 1, 2010. For practical purposes, these provisions were effective upon enactment. This section amends SSA Sec. 1861(aa)(3)(A) to provide that FQHCs may receive reimbursement for Medicare covered preventive services, as defined in ACA Sec. 4104, furnished on or after January 1, 2011. This section amends SSA Sec. 1905(a)(13) to, among other things, expand the current Medicaid state option to provide other diagnostic, screening, preventive, and rehabilitation services to include (1) any clinical preventive services recommended (i.e., with a grade of A or B) by the USPSTF; and (2) immunizations recommended for adults by the ACIP, and the cost of their administration. Effective in 2013, states that elect to cover these additional services and prohibit cost-sharing for them receive an increased federal medical assistance percentage (FMAP), which varies depending on whether the beneficiary is "newly eligible." The law makes the regular FMAP (which generally ranges between 50% and 76% in any given fiscal year, depending on the state) explicitly available for adult preventive services and immunizations. For newly eligible individuals who receive adult preventive services (including immunizations) for which cost-sharing is prohibited, states receive a one percentage point increase in their FMAP, in addition to the increased FMAP applicable to services provided to newly eligible mandatory individuals. For most formerly eligible individuals who receive adult preventive services (including immunizations) for which cost-sharing is prohibited, states receive the regular FMAP plus an additional one percentage point. This section requires states, effective October 1, 2010, to provide Medicaid coverage to pregnant women for counseling and drug therapy for tobacco cessation. Such services include diagnostic, therapeutic, and counseling services, prescription and non-prescription tobacco cessation products approved by the FDA, and other services that the Secretary recognizes to be effective. These services exclude coverage for drugs or biologics that are not otherwise covered under Medicaid. Cost-sharing for these services is prohibited, as is true for other pregnancy-related services under Medicaid. Beginning January 1, 2013, states receive a one percentage point increase in their regular FMAP for these smoking cessation services for pregnant women if they elect to cover the new optional adult preventive care benefit (described above, ACA Sec. 4106). States may continue to exclude coverage of smoking cessation services for Medicaid beneficiaries other than pregnant women. However, beginning on January 1, 2014, ACA requires state Medicaid programs that offer prescription drug coverage to cover smoking cessation drugs (including FDA-approved over-the-counter products) for most beneficiaries. This section requires the Secretary to award grants to states to provide incentives for Medicaid beneficiaries to participate in healthy lifestyle programs. Such programs must be comprehensive and targeted to the needs of Medicaid beneficiaries; must address criteria developed by the Secretary according to evidence-based guidelines from the USPSTF, TFCPS, and the National Registry of Evidence-based Programs and Practices; and must have demonstrated effectiveness for managing cholesterol and/or blood pressure, losing weight, quitting smoking, and/or preventing or managing diabetes. This section appropriates $100 million for the program for the five-year period beginning on January 1, 2011. The Secretary may waive specified administrative requirements, and must ensure that participating states make the program widely available. Incentives received by a beneficiary cannot be taken into account for the purpose of determining eligibility for, or the amount of, benefits under any federally funded program. Among its provisions, this section creates a new PHSA Sec. 2717 . This new section requires the Secretary to develop reporting requirements for group health plans and health insurance issuers with respect to plan or coverage benefits and health care provider reimbursement structures that, among other things, implement "wellness and health promotion activities." Health plans and insurance issuers are required annually to submit to the Secretary and to enrollees a report on whether the benefits under the plan or coverage satisfy these and other elements. The new section also requires the Secretary to promulgate regulations providing criteria for determining whether a reimbursement structure meets these elements. Under this new section, wellness and health promotion activities may include personalized wellness and prevention services "that are coordinated, maintained or delivered by a health care provider, a wellness and prevention plan manager, or a health, wellness or prevention services organization that conducts health risk assessments or offers ongoing face-to-face, telephonic or web-based intervention efforts for each of the program's participants." These activities could include wellness and prevention efforts such as smoking cessation, weight management, and healthy lifestyle support. Also, the new PHSA Sec. 2717, as established by Sec. 1001 and amended by Sec. 10101(e) of ACA, contains provisions relating to gun rights. Among them, a wellness or health promotion activity (as referenced above) cannot require disclosure or collection of any information relating to the presence or storage of a lawfully possessed firearm or ammunition in the residence or on the property of an individual; or to the lawful use, possession, or storage of a firearm or ammunition by an individual. New PHSA Sec. 2705 , created by ACA Sec. 1201, amends HIPAA's nondiscrimination requirements. Among other things, this new section largely codifies an amended version of the HIPAA wellness program regulations. Wellness programs that do not require an individual to satisfy a standard related to a health factor as a condition for obtaining a reward (or that do not offer a reward) do not violate HIPAA, so long as participation in the programs is made available to all similarly situated individuals. Wellness programs that impose conditions for obtaining a reward, based on an individual meeting a certain standard relating to a health factor, must meet additional requirements. Among them, the reward must be capped at 30% of the cost of the employee-only coverage under the plan (instead of 20% under regulations issued prior to ACA), but the Secretaries of HHS, Labor, and the Treasury may increase the reward up to 50%. The HHS Secretary, in consultation with the Secretaries of the Treasury and Labor, must establish a 10-state pilot program in which participating states are required to apply the wellness program provisions to health insurers in the individual market. Also, although ACA Sec. 1201 only modifies the PHSA, ACA Sec. 1562, as amended by Sec. 10107, also makes these provisions applicable to group health plans and health insurance issuers regulated under ERISA and the IRC. This section, as amended by Sec. 10404, adds a new Part U in PHSA Title III, "Employer-Based Wellness Program," including several new sections. A new PHSA Sec. 399MM requires the CDC Director to provide employers with technical assistance and other resources to evaluate workplace wellness programs. The Director also is required to build evaluation capacity among workplace staff and to provide resources, technical assistance, and consultation. A new PHSA Sec. 399MM-1 requires the Director to conduct a national survey of employer-based health policies and programs, and to report to Congress with findings and recommendations. In addition, a new PHSA Sec. 399MM-2 requires the Secretary to evaluate all programs funded through the CDC before conducting such an evaluation of privately funded programs, unless an entity with a privately funded wellness program requests such an evaluation. Finally, a new PHSA Sec. 399MM-3 prohibits the use of any recommendations, data, or assessments carried out under this Part to mandate requirements for workplace wellness programs. This section requires the Secretary, in order to determine whether existing federal health and wellness initiatives are effective in achieving their stated goals, to conduct an evaluation and report to Congress regarding changes in the health status of the American public, and specifically the federal workforce. The evaluation must include absenteeism, productivity, workplace injury, and medical costs incurred by employees; and health conditions, including workplace fitness, healthy food and beverages, and incentives in the Federal Employees Health Benefits Program. This section requires the Secretary to award grants to eligible employers to provide employees with access to comprehensive workplace wellness programs. Eligible employers employ fewer than 100 employees who work 25 or more hours per week, and do not provide a wellness program as of the date of enactment. The Secretary must develop program criteria consistent with evidence-based research and best practices, considering the Guide to Clinical Preventive Services, the Guide to Community Preventive Services, and the National Registry for Effective Programs. Programs must be made available to all employees and must include specified components, including education, efforts to encourage participation, initiatives to change unhealthy behaviors, and supportive work environments. There are authorized to be appropriated $200 million in total, to be available until expended, for FY2011 through FY2015. ACA creates a new PHSA Sec. 229 , establishing in the Office of the Secretary an Office on Women's Health, for the establishment of goals and objectives, expert consultation, and other specified duties. Among them, the Secretary is required to establish a National Women's Health Information Center and an HHS Coordinating Committee on Women's Health. The Secretary may provide funding and make interagency agreements as necessary to carry out these duties, and must conduct evaluations of such activities and provide periodic reports to Congress. There are authorized to be appropriated SSAN for FY2010 through FY2014. The section transfers to this new office all functions of the existing Office on Women's Health of the Public Health Service. In addition, the section establishes new offices of women's health, with specified duties, in CDC (new PHSA Sec. 310A ), AHRQ (redesignated PHSA Sec. 925 ), HRSA (new SSA Sec. 713 ), and FDA (new FFDCA Sec. 1011 ). For each, there are authorized to be appropriated SSAN for FY2010 through FY2014. The section also amends current authority for offices of women's health in the NIH and SAMHSA, to establish that the director of each office would report to the senior official of the respective agency. Sec. 3511 of ACA authorizes the appropriation of SSAN for the NIH and SAMHSA offices. This section does not alter existing regulatory authority; terminate, reorganize, or transfer authority away from women's health offices in existence as of enactment, unless approved by Congress; or change existing administrative activities at HHS regarding women's health. This section, as amended by Sec. 10401, requires the President to establish a National Prevention, Health Promotion and Public Health Council, composed of secretaries, chairmen, and directors of federal departments, boards and agencies (as specified), and to appoint the U.S. Surgeon General as chairperson. The Council is required to provide federal coordination and leadership with respect to prevention, wellness, and health promotion practices; to develop a national prevention, health promotion, and public health strategy; and to report annually to the President and Congress on activities under the strategy and progress toward identified goals, among other specified activities. The President also must establish an Advisory Group on Prevention, Health Promotion, and Integrative and Public Health, composed of 25 nonfederal members, to advise the Council and report to the Surgeon General on lifestyle-based chronic disease prevention and management, integrative health care practices, and health promotion. The stated purpose of this section is to establish a Prevention and Public Health Fund "to provide for expanded and sustained national investment in prevention and public health programs to improve health and help restrain the rate of growth in private and public sector health care costs." The section authorizes the appropriation of, and appropriates to the fund from the Treasury, the following amounts: $500 million for FY2010; $750 million for FY2011; $1.00 billion for FY2012; $1.25 billion for FY2013; $1.50 billion for FY2014; and $2.00 billion for each fiscal year thereafter. The Secretary is required to transfer amounts from the fund to HHS accounts to increase funding, over the FY2008 level, for programs authorized by the PHSA for prevention, wellness, and public health activities, including prevention research and health screenings. The House and Senate Committees on Appropriations have the authority to transfer monies in the fund to eligible activities under this section. Subsection 4003(a) reauthorizes and extends the authority for the U.S. Preventive Services Task Force (USPSTF). It strikes and replaces PHSA Sec. 915(a) , the previous authority for the USPSTF, with language requiring the AHRQ Director to convene and administer a Preventive Services Task Force, composed of individuals with appropriate expertise. This task force is required to review scientific evidence related to the effectiveness, appropriateness, and cost-effectiveness of clinical preventive services in order to develop recommendations for the health care community, and to update previous clinical preventive recommendations, for publication in the Guide to Clinical Preventive Services . The task force has specified duties, including development of topic areas for review, review and revision of existing recommendations at least once every five years, and improved integration with federal government health objectives and related targets for health improvement, among others. All members of the task force convened under this subsection, and any recommendations made by such members, are to be independent and, to the extent practicable, not subject to political pressure. There are authorized to be appropriated SSAN for each fiscal year to carry out task force activities. Subsection 4003(b) provides explicit authority for the existing Task Force on Community Preventive Services (TFCPS). It creates a new PHSA Sec. 399U requiring the CDC Director to convene and administer a Community Preventive Services Task Force ("Community Task Force"), composed of individuals with appropriate expertise, to review the scientific evidence related to the effectiveness, appropriateness, and cost-effectiveness of community preventive interventions for the purpose of developing recommendations for publication in the Guide to Community Preventive Services . The Community Task Force has specified duties similar to those of the Preventive Services Task Force above, except applied to policies, programs, processes, or activities designed to affect or otherwise affecting health at the population level. There are authorized to be appropriated SSAN for each fiscal year to carry out these activities. Each task force must coordinate its activities with the other and with the ACIP. In addition, neither task force is subject to requirements of the Federal Advisory Committee Act (FACA). This section requires the Secretary to carry out seven communications activities regarding health promotion and disease prevention, generally oriented toward common and serious chronic health problems, including poor nutrition, tobacco use, and obesity. First, the Secretary, in consultation with the IOM, must plan and implement a national public-private partnership for a prevention and health promotion outreach and education campaign. Second, through the CDC Director, the Secretary must develop and implement a science-based media campaign, according to several specified conditions. Third, in consultation with private-sector experts, the Secretary must develop a website containing information for health providers and consumers regarding specified chronic diseases and conditions. Fourth, through the CDC Director, the Secretary must develop a program to disseminate information about health promotion to health care providers who participate in federal health care programs. Fifth, through the CDC Director, the Secretary must develop a Web-based tool that individuals can use to develop personalized prevention plans. Sixth, the Secretary must establish an Internet portal for accessing risk-assessment tools developed and maintained by private and academic entities. Finally, the Secretary must provide guidance and relevant information to states and health care providers regarding preventive and obesity-related services that are available to Medicaid enrollees, including obesity screening and counseling for children and adults. In addition, each state must design a public awareness campaign to educate Medicaid enrollees regarding the availability and coverage of such services. The section states that funding for these activities takes priority over funding provided through CDC grants for similar purposes, and that no more than $500 million could be spent on the activities required under this section. There are authorized to be appropriated SSAN for each fiscal year to carry out these activities. This section creates a new PHSA Title III, Part T , and "Oral Healthcare Prevention Activities." It includes a new Sec. 399LL that requires the Secretary, through the CDC, to establish a five-year national public education campaign on oral health, including prevention of oral diseases such as dental carries, periodontal disease, and oral cancer. In addition, a new PHSA Sec. 399LL-1 requires the Secretary, through the CDC, to award grants to demonstrate the effectiveness of research-based dental caries disease management activities. A new PHSA Sec. 399LL-2 authorizes the appropriation of SSAN to carry out this new PHSA Part. Additionally, the section amends PHSA Sec. 317M to mandate a school-based dental sealant program that was previously discretionary, and to require the Secretary to award program grants to each of the 50 states and territories, and to Indians, Indian tribes, tribal organizations, and urban Indian organizations. The section also adds a new PHSA subsection 317M(d) (redesignating existing subsections), requiring the Secretary, through the CDC, to enter into cooperative agreements with states, territories, and tribal entities to establish oral health leadership and programs to improve oral health. There are authorized to be appropriated SSAN for FY2010 through FY2014 for this activity. Finally, the section requires the Secretary to update, improve, and implement oral health components in several specified national health surveys and surveillance systems, including the National Oral Health Surveillance System (NOHSS), administered by CDC. For NOHSS, there are authorized to be appropriated SSAN for each of FY2010 through FY2014 to increase participation from the current 16 states to all 50 states, the territories, and the District of Columbia. Also, the Secretary is required to ensure that NOHSS measures early childhood caries. This section, as amended by ACA Sec. 10403, requires the Secretary, through the CDC Director, to award competitive grants for the implementation, evaluation, and dissemination of evidence-based community preventive health activities, in order to reduce chronic disease rates, address health disparities, and develop a stronger evidence base of effective prevention programming. Eligible entities are state or local government agency, a national network of community-based organizations, a state or local non-profit organization, or an Indian tribe. Grantees are required to develop community transformation plans that include the policy, environmental, programmatic, and infrastructure changes needed to promote healthy living and reduce health disparities; and to conduct health promotion activities and evaluations and disseminate findings. The CDC Director is required to provide appropriate training and technical assistance. There are authorized to be appropriated SSAN for FY2010 through FY2014 to carry out this program. Subsection 4202(a) requires the Secretary, through the CDC, to award grants to state or local health departments or Indian tribes for pilot programs to provide community prevention interventions, screenings, and clinical referrals for individuals between 55 and 64 years of age. Grantees are to use funds to deliver interventions to improve nutrition, increase physical activity, reduce tobacco use and substance abuse, improve mental health, and promote healthy lifestyles among the target population; to identify risk factors for cardiovascular disease, stroke, and diabetes; and to ensure that individuals with these risk factors receive follow-up services to reduce such risk. Grantees must refer insured individuals with risk factors to participating providers, and must work with community partners to assist uninsured individuals in finding public coverage options or other sources of care. The Secretary must conduct annual program evaluations by examining changes in the prevalence of uncontrolled chronic disease risk factors among new Medicare enrollees (or individuals nearing enrollment) who reside in states or localities receiving grants under this section as compared with national and historical data. There are authorized to be appropriated SSAN for FY2010 through FY2014 to carry out this subsection. Subsection 4202(b) requires the Secretary to conduct an evaluation of community-based prevention and wellness programs, and, based on findings, develop a plan to promote healthy lifestyles and chronic disease self-management among Medicare beneficiaries. To fund the evaluation, the Secretary is required to transfer to CMS $50 million in total from the Medicare Part A and Part B trust funds, in whatever proportion the Secretary determines. This section adds a new Sec. 510 of the Rehabilitation Act requiring the Architectural and Transportation Barriers Compliance Board, in consultation with FDA, to issue regulatory standards for minimal technical criteria for medical diagnostic equipment (as specified) used in medical settings. The standards must ensure that individuals with disabilities can use, enter, and exit such equipment independently, to the maximum extent possible. The board is required periodically to review the standards and amend them as necessary. This section amends PHSA Sec. 317 to provide explicit authority to the Secretary to negotiate and enter into contracts with manufacturers for the purchase of vaccines for adults, and for states to purchase such vaccines at the prices negotiated by the Secretary. The section also amends PHSA subsection 317(j) to permanently reauthorize the program of immunization grants to states. In addition, the section adds a new PHSA subsection 317(m) , which requires the Secretary, through the CDC, to conduct a demonstration program of grants to states to improve immunization coverage of children, adolescents, and adults. States must use grant funds to implement recommendations of the TFCPS, or other evidence-based interventions, and must report to the Secretary regarding progress in improving immunization rates in high-risk populations. The Secretary must report to Congress within four years regarding the effectiveness of the program and recommendations regarding whether it should be extended or expanded. There are authorized to be appropriated SSAN for FY2010 through FY2014 to carry out this subsection. Finally, the section requires a GAO study of the impact of vaccine coverage under Medicare Part D on access to those vaccines by beneficiaries who are 65 years of age or older. It appropriates $1 million for FY2010 for this study. (The GAO study is listed in the text box at the beginning of this section of the report.) Nothing in the section or any other provision of ACA is to be construed to decrease children's access to immunizations. This section creates a new PHSA subsection 330(s) , requiring the Secretary to establish a pilot program in not more than 10 community health centers (CHCs) to test the impact of providing at-risk individuals who use the centers with individualized wellness plans, designed to reduce risk factors for preventable conditions as identified by a comprehensive assessment. A wellness plan could include one or more of the following: (1) nutritional counseling; (2) a physical activity plan; (3) alcohol and smoking cessation counseling and services; (4) stress management; (5) dietary supplements that have health claims approved by the Secretary; and (6) compliance assistance provided by a CHC employee. Risk factors must include weight, tobacco and alcohol use, exercise rates, nutritional status, and blood pressure. Wellness plans must make comparisons between the individuals involved and a control group of individuals with respect to these risk factors. There are authorized to be appropriated SSAN to carry out these activities. This section requires the Secretary, through the CDC, to fund research on public health services and systems, to include (1) examining evidence-based prevention practices, including comparing community-based public health interventions in terms of effectiveness and cost; (2) analyzing the translation of interventions from academic to real-world settings; and (3) identifying effective strategies for organizing, financing, or delivering public health services in community settings, including comparing state and local health department structures and systems in terms of effectiveness and cost. Such research must be coordinated with the TFCPS. This section amends PHSA Title XXVIII , "National All-Hazards Preparedness for Public Health Emergencies," adding a new Subtitle C , "Strengthening Public Health Surveillance Systems," consisting of a new PHSA Sec. 2821 , "Epidemiology-Laboratory Capacity Grants." The purpose is to establish a grant program, subject to the availability of appropriations, to strengthen national epidemiology, laboratory, and information management capacity for the response to infectious diseases and other conditions of public health importance. Eligible entities are state, local, or tribal health departments, tribal jurisdictions, or academic centers that meet CDC-specified criteria. There are authorized to be appropriated $190 million for each of FY2011 through FY2013, of which at least $95 million per fiscal year must be used to award grants for epidemiology and disease control capacity, at least $60 million per fiscal year for grants for information management capacity, and at least $32 million per fiscal year for laboratory capacity. The Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA; P.L. 111-3 ) contains several quality of care provisions, including one requiring the Secretary to conduct a demonstration project to develop a model for reducing childhood obesity. CHIPRA authorized the appropriation of $25 million for the period FY2009 through FY2013 for this demonstration. This ACA section amends SSA Sec. 1139A(e) , replacing the authorization of appropriations with a total appropriation of $25 million for the period of FY2010 through FY2014. This section amends PHSA Sec. 1707 , elevating the existing Office of Minority Health ("the Office") in the Office of Public Health and Science at HHS by placing it within the Office of the Secretary. The Office is to be headed by a Deputy Assistant Director for Minority Health (DAD) who reports directly to the Secretary. The Secretary, through the DAD, is required to award grants and contracts, and to enter into agreements with certain types of entities to assure improved health status of racial and ethnic minorities, and to develop measures to evaluate the effectiveness of activities aimed at reducing health disparities and supporting the local community, as specified. The Secretary must report to Congress biennially regarding the program. A similar requirement is placed on HHS agency heads regarding their respective Offices of Minority Health, which must be established as described below. The section authorizes the appropriation of SSAN for each of FY2011 through FY2016 for the Office. The section also adds a new PHSA Sec. 1707A , requiring the heads of CDC, HRSA, SAMHSA, AHRQ, FDA, and CMS to establish offices of minority health within the respective agencies. Each office's director is appointed by and reports directly to the agency head. The Secretary is required to designate as specified, for carrying out the activities of the section, an appropriate amount of funds appropriated for each agency for a fiscal year. Finally, the section amends PHSA Title IV , redesignating the NIH National Center on Minority Health and Health Disparities as an Institute. It expands the Institute Director's authority to make research endowments to include those made to certain centers of excellence for research education and training. It also changes eligibility requirements for centers to receive certain endowments, making the calculation based upon the national median of endowment funds. The section requires the Institute Director, as the primary federal official responsible for coordinating all NIH research and activities on minority health and health disparities, to plan, coordinate, review and evaluate research and other activities conducted or supported by NIH. This section requires the Secretary, in collaboration with CDC, to prepare and publish a biennial national diabetes report card, and, to the extent possible, a report card for each state. In addition, the Secretary is required, through the CDC, to promote the education and training of physicians on the importance of birth and death certificate data, encourage state adoption of the latest standard revisions of birth and death certificates, and work with states to re-engineer their vital statistics systems. The Secretary is also required, in collaboration with IOM, to study and report on the impact of diabetes on medical practice, and the appropriateness of medical education regarding diabetes. Finally, the Secretary is allowed to promote improvements to the collection of diabetes mortality data. There are authorized to be appropriated SSAN to carry out this section. This section amends Part P of Title III of the PHSA adding a new PHSA Sec. 399V-2 . This new section authorizes the Secretary, through the CDC, to enhance and expand infrastructure to track the epidemiology of congenital heart disease; to organize such information into a nationally representative surveillance system; or to award a grant to one eligible entity to undertake these activities. This surveillance system must be made available to the public and must comply with the HIPAA Privacy Rule. This section also amends Subpart 2 of Part C of Title IV of the PHSA by adding at the end a new PHSA Sec. 425 . This new section authorizes the Director of the NIH National Heart, Lung, and Blood Institute (the Director) to expand, intensify and coordinate research with respect to congenital heart disease. The Director must consider the application of this research to minority and medically underserved populations. There are authorized to be appropriated SSAN for each of FY2011 through FY2015 for both the surveillance system and the expanded research program. This section amends and reauthorizes PHSA Sec. 312 , which requires the Secretary to award grants for public access defibrillation programs. Specifically, ACA requires that information clearinghouses established to increase access to defibrillation in schools be administered by an organization with expertise in pediatric education, pediatric medicine, and electrophysiology and sudden death. Also, the section authorizes the appropriation of $25 million for each of FY2003 through FY2014. This section adds a new Part V to PHSA Title III, "Programs Relating to Breast Health and Cancer," consisting of a new PHSA Sec. 399NN . This new section requires the Secretary, through the CDC, to conduct a national evidence-based education campaign, with several specified elements, to increase breast cancer awareness among young women between the ages of 15 and 44. Among other things, the Secretary is required, within 60 days of enactment, to establish an advisory committee to assist in conducting the campaign. The section also requires the Secretary, through the CDC, to conduct prevention research on breast cancer in younger women. In addition, the NIH is required to develop and validate new screening tests and methods for prevention and early detection of breast cancer in young women. The section authorizes the appropriation of $9 million for each of FY2010 through FY2014 for these activities. This section creates a new PHSA Sec. 399V-3 requiring the Secretary, through the CDC, to establish a national diabetes prevention program, targeted at high-risk adults, with specified program components. Entities eligible for program grants are state or local health departments, tribal organizations, national networks of community-based non-profits focused on health and well-being, academic institutions, or other entities, as the Secretary determines. There are authorized to be appropriated SSAN for each of FY2010 through 2014. Infant mortality, low birth weight, and complications of pregnancy and childbirth disproportionately affect low-income and minority populations. Access to health care coverage and related psychological, educational, and material support has been shown to positively influence these outcomes. The federal government funds health care coverage and services to increase access to maternity care for low-income women, improve the quality of the care pregnant women receive, and improve pregnancy outcomes. Several federal programs support access to health care for low-income pregnant women and their families. Specifically, Medicaid coverage is the largest single source of federal support for maternal and child health care. Other major sources of maternal and child health funding are the Maternal and Child Health Services Block Grant Program and Healthy Start, both of which support state-level initiatives. In addition to health care services, these programs provide links to other support systems, including housing, nutrition, and education assistance. As noted elsewhere in this report, the ACA expands eligibility and coverage requirements for Medicaid and increases funding for community health centers, which are both important providers of maternal and child health care. The ACA also promotes other policies that may improve access to prenatal care for low-income women and that are associated with improved outcomes for mothers and infants, such as home visiting and school-based support for pregnant and parenting teens and women. Additionally, the ACA funds programs that encourage breastfeeding for those who are able, and promotes screening and treatment of post-partum depression. The ACA appropriates $1.5 billion over five years (FY2010-FY2014) to support evidence-based early childhood home visiting programs. Home visitation is used to deliver support and services to families or individuals in their homes. Early childhood home visitation programs typically seek to improve maternal and child health; early childhood social, emotional, and cognitive development; and family/parent functioning. Depending on the particular model of early home visitation being used, the visitors may be specially trained nurses, other professionals, or paraprofessionals. Participation of families is voluntary. Early childhood home visitation programs are in operation in all 50 states and the District of Columbia. In addition to private and state and local public funds provided for early childhood home visitation, a number of federal programs have been used to support early childhood home visiting programs. Sources include, among others, Medicaid, the Temporary Assistance for Needy Families (TANF) block grant, Community-Based Grants to Prevent Child Abuse and Neglect, the Maternal and Child Health (MCH) Services Block Grant, Healthy Start, and Early Head Start. Prior to the enactment of the ACA there was no dedicated federal support for early childhood home visitation and the Obama Administration, as part of its "Zero to Five Initiative," (discussed in its FY2010 budget request), sought mandatory federal funding for this purpose. The ACA also appropriates $250 million over 10 years ($25 million for each of FY2010 through FY2019) to establish a new competitive grant program to enable states to provide services for pregnant and parenting teens and women. With regard to postpartum depression, the ACA authorizes funding for support, education, and research, and requires HHS to conduct a study on the benefits of screening for that condition. The ACA requires employers to provide certain nursing mothers of infants both time and a place to express breast milk while at work. This section amends Title V to add a new SSA Sec. 511 , Maternal, Infant, and Early Childhood Home Visiting Programs . This section requires states to conduct a unique statewide needs assessment as a condition of receiving their FY2011 MCH Services Block Grant funds. This section also appropriates $1.5 billion over five years (FY2010-FY2014) to support evidence-based early childhood home visiting programs. This section appropriates a total of $1.5 billion for FY2010 through FY2014 for the home visitation grant program: $100 million for FY2010; $250 million for FY2011; $350 million for FY2012; $400 million for FY2013; and $400 million for FY2014. Of the amount appropriated for this program, 3% must be reserved for research and evaluation, and 3% for making grants to tribal entities for home visitation services to Indian families. The new early childhood home visitation grant program is collaboratively administered by two HHS agencies: the ACF and the MCH Bureau of HRSA. These sections create and fund a new competitive grant program administered by the HHS Secretary to help pregnant and parenting teens and women. Sec. 10211 defines terms associated with the new pregnancy assistance fund. Sec. 10212 creates a new Pregnancy Assistance Fund that requires the HHS Secretary (in collaboration and coordination with the Secretary of Education) to establish a competitive grant program to states to help pregnant and parenting teens and women. Sec. 10213 allows states to make pregnancy assistance grant funds available to (1) institutions of higher education, (2) high schools and community service centers, (3) a state's attorney general, and/or (4) to increase public awareness and education. Sec. 10214 authorizes and appropriates $25 million annually for each of the 10 fiscal years FY2010 through FY2019 for the new pregnancy assistance fund. This section of the ACA encourages the Secretary to expand and intensify specified types of research—including epidemiology, improved screening and diagnosis, clinical research, and public education—to expand understanding of the causes and treatments for postpartum depression and related conditions. Further, this section creates a new SSA Sec. 512 that requires the HHS Secretary to study the benefits of screening for postpartum conditions (including postpartum depression and postpartum psychosis) and, within two years of enactment (i.e., no later than March 23, 2012), to submit a report to Congress on the results. In addition, under the new SSA Sec. 512 , Services to Individuals with a Postpartum Condition and their Families , the HHS Secretary is authorized to award grants to eligible entities to establish, operate and coordinate effective and cost-efficient systems for the delivery of essential services to individuals with, or at risk of, postpartum depression (including postpartum psychosis) and their families. The law authorizes funding of $3 million for these grants for FY2010, and such sums as may be necessary for each of FY2011 and FY2012. The section stipulates that the HHS Secretary may, to the extent practicable and appropriate, integrate this program with other grant programs administered by HHS, including grants related to health centers for medically underserved populations (authorized under Sec. 330 of the PHSA). Eligible grantees include public or nonprofit private entities, state or local government public-private partnerships, recipients of Healthy Start grants, public or nonprofit private hospitals, community-based organizations, hospices, ambulatory care facilities, community health centers, migrant health centers, public housing, primary care centers, and homeless health centers. Finally, ACA Sec. 2952 states that it is the sense of Congress that the Director of the National Institute of Mental Health (NIMH) may conduct a nationally representative longitudinal study (during the period FY2010-FY2019) on the relative mental health consequences for women of resolving a pregnancy, intended and unintended, in various ways (e.g., carrying the pregnancy to term and parenting the child, carrying the baby to term and placing the child for adoption, miscarriage, and abortion). Subject to the completion of such a study, beginning within five years after enactment (i.e., March 23, 2015), and periodically thereafter for the duration of the study, the NIMH Director may submit to Congress reports on the study's findings. This section amends Sec. 7 of the Fair Labor Standards Act (FLSA) , to require employers to provide a reasonable break time for an employee to express breast milk for her nursing child (for one year after the child's birth). The break time must be made available each time such an employee needs to express milk. Further the employer must provide a space for the employee to express milk that is not a bathroom, is shielded from view, and is free from intrusion from coworkers and the public. The section stipulates that an employer is not required to compensate an employee for this break time. Further, because it amends the part of FLSA related to maximum work hours, this section's requirement does not apply to employees who are exempt from federal overtime pay provisions of that law (e.g., executive, administrative, and professional employees). In addition, the ACA explicitly states that employers of fewer than 50 employees are not subject to these requirements if they would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer's business. Finally, these provisions do not preempt any state law that provides greater protections to employees. Prior to enactment of the ACA, several laws addressed the subject of teen pregnancy prevention. PHSA Title XX (Adolescent Family Life (AFL) Demonstration Projects) authorizes a number of voluntary teen pregnancy prevention, counseling, and related programs. PHSA Title X (Population Research and Voluntary Family Planning Programs) authorizes grants for comprehensive voluntary family planning services, education, and research, including such activities for adolescents. PHSA Sections 318 and 318A authorize grants for technical assistance and voluntary services (including screening, treatment, counseling, and education) to address sexually transmitted diseases in women (these provisions do not explicitly address adolescents). P.L. 111-117 , the Consolidated Appropriations for FY2010, included a new discretionary Teen Pregnancy Prevention (TPP) program, identical to one proposed in the President's FY2010 budget, that provides grants and contracts, on a competitive basis, to public and private entities to fund "medically accurate and age appropriate" programs that reduce teen pregnancy. The TPP program is administered by the new Office of Adolescent Health within HHS. P.L. 111-117 also provided a separate appropriation (within the Public Health Service Act program evaluation funding) to carry out evaluations of teenage pregnancy prevention approaches. There are also several other federally funded programs that provide pregnancy prevention information and/or services to teens. SSA Sec. 510 authorizes a separate state formula grant program to support abstinence-only education programs. Funds are awarded to states based on the proportion of low-income children in each state compared to the national total, and may only be used for teaching abstinence. To receive funding, a state must match every $4 in federal funds with $3 in state funds. Sec. 510 provided $50 million for each of the six fiscal years (FY1998-FY2003). Prior to the ACA, the program had not been reauthorized, although appropriations were extended through 2009. The ACA restores funding for the abstinence-only approach to teen pregnancy prevention. Congress had let the funding for the SSA Sec. 510 abstinence education program expire on June 30, 2009. The ACA resumes that funding, appropriating $250 million for the program at $50 million per year for five years. Concurrently, the ACA also establishes a new state formula grant program and appropriates $375 million at $75 million per year for five years (FY2010-FY2014) to enable states to operate a new Personal Responsibility Education program, which is a comprehensive approach to teen pregnancy prevention that educates adolescents on both abstinence and contraception to prevent pregnancy and sexually transmitted diseases, and also provides youth with information on several adulthood preparation subjects (i.e., healthy relationships, adolescent development, financial literacy, parent-child communication, educational and career success, and healthy life skills). The ACA also amends the adoption tax credit. This section adds a new SSA Sec. 513 , Personal Responsibility Education , to be administered by the ACF. This section establishes a new state formula grant program and appropriates $75 million annually for each of the five fiscal years FY2010 through FY2014 to enable states to operate a new Personal Responsibility Education program. Under the funding allocation formula, each state receives an amount based on the size of its youth population (persons ages 10 through 19) as a percentage of the national youth population. However, each state receives a minimum allotment of at least $250,000 for each of the five fiscal years FY2010 through FY2014. The section also specifies that each state's Personal Responsibility Education program must include at least three of the six stipulated adulthood preparation subjects, which are (1) healthy relationships, including marriage and family interactions; (2) adolescent development, including the development of healthy attitudes and values about adolescent growth and development, body image, racial and ethnic diversity, and other related subjects; (3) financial literacy; (4) parent-child communication; (5) educational and career success, including developing skills for employment preparation, job seeking, independent living, financial self-sufficiency, and workplace productivity; and (6) healthy life skills, including goal-setting, decision making, negotiation, communication and interpersonal skills, and stress management. The Secretary is required to annually reserve $10 million (out of the $75 million annual appropriation) for grants to entities to implement innovative youth pregnancy prevention strategies and target services to high-risk, vulnerable, and culturally under-represented youth populations. An entity that is awarded a grant is required to participate in a rigorous federal evaluation of the activities funded by the grant. The Secretary is required to reserve 5% of remaining funds for allotments to Indian tribes and tribal organizations and 10% of remaining funds for technical assistance and evaluation expenditures by the Secretary. This section amends SSA Sec. 510 by appropriating $50 million for each of FY2010 through FY2014 for the abstinence-only education block grant program to states. This section amends IRC Sec. 23b, which had, prior to the enactment of the ACA, provided both an adoption tax credit and income tax exclusion for taxpayers with qualified expenses related to a domestic or international adoption of a child. The ACA increased the qualified expense limitation for the adoption tax credit and the income exclusion for qualified employer-provided adoption assistance programs to $13,170 for tax year 2010 (a $1,000 increase over prior law) and it indexes this new amount to inflation for tax year 2011. In addition, for tax years 2010 and 2011, the ACA made the adoption tax credit refundable. Finally, the elimination of the exclusion for employer-provided adoption assistance and the changes in the adoption tax credit scheduled to go into effect with tax year 2011 were delayed by one year. Under the ACA, those changes took effect in tax year 2012 (i.e., the tax year beginning after December 31, 2011). The Joint Committee on Taxation estimated tax expenditures resulting from ACA amendments to these adoption-related tax benefits will total $1.2 billion. Prior to the ACA, numerous stakeholders, including policymakers, had engaged in a wide range of efforts to improve health care quality. These efforts generally focused on developing, improving and refining metrics for measuring the quality of care delivered in a number of settings; publicly reporting comparative information on quality performance; and aligning payment policies with performance on metrics as a mechanism to incentivize and encourage provider accountability (e.g., value-based purchasing). In addition, a number of approaches that seek to improve the delivery of health care services, and thus both quality and efficiency, had gained attention, including efforts focused on improved coordination of care; the development of new patient-centered care models, for example, medical homes; and the enhancement of patient safety. However, these efforts had not generally been guided by a single federal strategy, entity, or set of priorities or goals, nor had they benefitted from a coordinated infrastructure specifically devoted to improving health care quality. ACA employs a multi-faceted approach to improving the quality of health care, which relies for the most part on a collection of incremental steps that together aim to make progress toward addressing the key issues outlined above. ACA specifically leverages three broad mechanisms to improve the quality of health care: 1. Codifying a series of provisions which together comprise a national-level approach to the improvement of health care quality, quality measurement, and the use of quality data; 2. Supporting quality improvement and patient safety activities through research support, grants to implement research findings, and educational efforts; and 3. Incentivizing the development or implementation of, or facilitating, a number of health service delivery reforms (such as care coordination through medical homes or other approaches) including those that target quality improvement reforms across the spectrum of payers, including private health insurers, Medicare, and Medicaid. Regarding the first of these mechanisms, the ACA seeks to create a coordinated strategy for quality measurement. Prior to ACA's enactment, health care quality improvement efforts were largely uncoordinated, although in some cases efforts were led by AHRQ and CMS. These efforts—spanning quality improvement activities at the delivery level, measure development, measure endorsement, measure selection and implementation, public reporting of quality data, and inter-agency coordination of health care quality activities—were often linked, but were not systematically coordinated. In addition, progress in these areas was not necessarily being assessed for comprehensiveness. ACA aimed to take steps to address these issues by including a series of five provisions focusing on the development of a national strategy, priorities, and strategic plan to improve health care quality; coordination of health care quality activity at the federal level; measure development and endorsement; public reporting of quality data; and the coordinated selection of measures for use in federal quality programs through a pre-rulemaking process. Regarding the second mechanism, ACA includes provisions that aim to support both quality improvement and patient safety activities. Specifically, ACA includes a provision tasking an existing center at AHRQ with carrying out research on best practices in a number of areas and establishing a grant program to assist entities with implementation and adoption of the research findings of this center. The ACA also includes patient safety related provisions that aim to enhance the education of health care providers in this area and that establish an effort to publicly report on measures for hospital acquired conditions (HACs) that are currently utilized by CMS for the adjustment of payment to hospitals based on rates of hospital-acquired infections; and through provisions that aim to improve the quality and safety of care delivered to nursing home residents. For more information on these provisions, see the section "Nursing Homes and Other Long-Term Care Facilities and Providers." Regarding the third mechanism, health care delivery reforms have often sought to improve the efficiency of the delivery of services, as well as improving the quality or value of service delivery. ACA includes a number of provisions that aim to improve the coordination of the delivery of health care across settings. Many of these provisions specifically focus on patient-centered models of care, such as medical homes, and on improving care for chronic conditions. Specifically, the ACA authorizes funding for several types of programs aimed at enhancing the coordination of care. Some programs seek to improve the delivery of health care services by supporting medical homes, medication management services, primary care extension programs, the co-location of mental and other health services, or community-based collaborative care networks. Others aim to empower patients by facilitating shared decisionmaking among patients, caregivers and providers, or modifying requirements for patient navigator services. The ACA care coordination-related provisions incentivize the improvement of the coordination of care by broadly encouraging reforms in various settings, with different patient populations, with different payer sources, and by attempting to educate and empower patients to improve coordination of their care. Specifically, ACA includes numerous provisions that expand value-based purchasing in the Medicare program; that target improvements in the quality of care provided through the Medicaid program; and which extend to private insurers' quality reporting requirements relating to both covered benefits and reimbursement structures that improve health outcomes and patient safety. The application of health care quality requirements to private health plans governed by the PHSA, ERISA and the IRC, and not as a condition of participation in a public program, is a noteworthy departure from law prior to ACA. The following sections provide an overview of the specific provisions related to developing and coordinating health care quality activities at the national level, quality improvement/patient safety related reforms, and health care service delivery reforms related to care coordination. Sec. 3011, as amended by ACA Sec. 10302, creates in Title III a new PHSA Part S, Health Care Quality Programs , Subpart I , National Strategy for Quality Improvement in Health Care . It includes a new Sec. 399HH , National Strategy for Quality Improvement in Health Care , which required the Secretary to establish a national strategy for healthcare quality improvement to improve the delivery of health care services, outcomes, and population health, and to identify national priorities for quality improvement by January 1, 2011. This section requires the Secretary to ensure that the national priorities would address health care provided to patients with high-cost chronic diseases; improve federal payment policy to emphasize quality and efficiency; have the greatest potential for improving health outcomes, efficiency, and patient-centeredness of care; reduce health disparities; and address gaps in quality and health outcomes measures, comparative effectiveness information, and data aggregation techniques, among others. The national strategy must include a comprehensive strategic plan to achieve the national priorities for quality improvement and will be required to address a number of issues, including coordination among agencies within the Department and strategies to align public and private payers with regard to quality and patient safety efforts, among others. The Secretary is also required to create a health care quality website to make public the national priorities and other information the Secretary deems appropriate. This section requires the President to convene a working group to be known as the Interagency Working Group on Health Care Quality. The goals of this group include achieving collaboration, cooperation, and consultation between federal departments and agencies with respect to quality improvement activities; avoiding duplication of quality improvement efforts; developing a streamlined process for quality reporting and compliance requirements; and assessing alignment of quality efforts in the public sector with private sector initiatives. The working group is composed of senior level representatives of specified federal agencies and departments; the Secretary serves as the chair; and members serve as vice chair on a rotating basis. The Working Group was required to submit a report describing its progress and recommendations to relevant committees of Congress and to make this report publicly available. Subsection 3013(a) creates in PHSA Title IX Part D , Health Care Quality Improvement , Subpart I , Quality Measure Development . It includes a new PHSA Sec. 931 , Quality Measure Development, which requires the Secretary, in consultation with AHRQ and CMS, to identify gaps where no quality measures exist or where existing measures need improvement, updating or expansion consistent with the national strategy under Sec. 399HH. In identifying these gaps, the Secretary is to consider the gaps identified by the entity with a contract under SSA Sec. 1890(a) and other stakeholders. The Secretary must make a report on any gaps identified, and the process used to identify the gaps, available to the public. The section further requires the Secretary to fund or enter into agreements with eligible entities to develop, improve, update, or expand quality measures in areas identified as gap areas. The Secretary is to give priority to the development of quality measures that allow for the assessment of health outcomes and functional status of patients; the management and coordination of health care across episodes of care and care transitions; the meaningful use of health information technology; the safety, effectiveness, efficiency, patient-centeredness, and timeliness of care; and health disparities, among other things. An entity receiving funds under this section is required to use the funds to develop quality measures that allow, to the extent practicable, data on measures to be collected using health information technology, that are free of charge to users, and that are publicly available, among other things. The Secretary may use funds under this section to update and test quality measures endorsed by the entity with a contract under SSA Sec. 1890(a). As amended by ACA Sec. 10303(a), the section requires the Secretary to develop, and periodically update, provider-level outcome measures for hospitals and physicians, and other providers as determined appropriate. The measures must include outcome measurement for acute and chronic disease and primary and preventive care. In developing the outcome measures, the Secretary is required to seek to address risk adjustment, accountability, and sample size issues; and include the full scope of services that comprise a cycle of care. Subsection 3013(b) amends new SSA Sec. 1890A , as added by ACA Sec. 3014(b), discussed below, by requiring CMS, in consultation with AHRQ, through contracts, to develop quality and efficiency measures as determined appropriate for use under the SSA. The subsection also requires the Secretary to publicly report on measures for hospital-acquired conditions (see ACA Sec. 10303(b), discussed below). Subsection 3013(c) authorizes to be appropriated $75 million for each of FY2010 through FY2014, to remain available until expended, to carry out the provisions in this section. At least 50% of the amounts appropriated must be used for the activities authorized under subsection (b). Subsection 3014(a), as amended by ACA Sec. 10304, amends SSA Sec. 1890(b) by expanding the duties of the consensus-based entity under contract with CMS pursuant to this section (currently the National Quality Forum). The entity is required to convene multi-stakeholder groups to provide input on the national priorities for health care quality improvement developed under ACA. In addition, the multi-stakeholder groups are required to provide input on the selection of quality measures for use in various specified Medicare payment systems for hospitals and other providers, as well as in other health care programs, and for use in reporting performance information to the public. The entity is required to transmit to the Secretary the input of multi-stakeholder groups no later than February 1 of each year, beginning in 2012. The subsection amends SSA Sec. 1890(b)(5)(A) to require the consensus-based entity to submit a report to Congress and the Secretary describing gaps in endorsed measures and areas where evidence is insufficient to support endorsement of quality measures in priority areas identified under the national strategy. Subsection 3014(b), as amended by ACA Sec. 10304, adds a new SSA Sec. 1890A , Quality and Efficiency Measurement. This section requires the Secretary to establish a multi-step pre-rulemaking process and timeline for the adoption, dissemination, and review of measures by the Secretary. The steps include gathering multi-stakeholder input; making measures under consideration available to the public; transmission to, and consideration by the Secretary of, the input of multi-stakeholder groups; and the publication of the rationale for the use of any quality measure in the Federal Register. The subsection also requires the Secretary to establish a process for disseminating quality measures used by the Secretary and to periodically review quality measures and determine whether to maintain the use of the measure or to phase it out. To carry out the provisions above, the Secretary must provide for the transfer of $20 million from the Medicare Part A and Part B trust funds to the CMS Program Management Account for each of FY2010 through FY2014. This section amends PHSA Title III by adding at the end the following new PHSA Sec. 399II, Collection and Analysis of Data for Quality and Resource Use Measures . This section, as amended by Sec. 10305 of ACA, requires the Secretary to establish and implement an overall strategic framework to carry out the public reporting of performance information, as described in new PHSA Sec. 399JJ , as added by this act. In addition, the Secretary is required to collect and aggregate consistent data on quality and resource use measures, and may award grants or contracts for this purpose, and to ensure that data collection, aggregation and analysis systems involve an increasingly broad range of patient populations, providers, and geographic areas over time. This section allows the Secretary to award grants or contracts to eligible entities to support new, or improve existing, efforts to collect and aggregate quality and resource use measures. The Secretary, under this section, is only permitted to award grants or contracts to entities that enable summary data that can be integrated and compared across multiple sources. There are authorized to be appropriated SSAN for FY2010 through FY2014. The section also adds a new PHSA Sec. 399JJ , Public Reporting of Performance Information , which requires the Secretary to make available to the public, through standardized websites, performance information summarizing data on quality measures. This performance information is required to include information regarding clinical conditions to the extent such information is available, and the information would, where appropriate, be provider-specific and sufficiently disaggregated and specific to meet the needs of patients with different clinical conditions. The Secretary is required to consult with the entity with a contract under SSA Sec. 1890(a) and other entities as appropriate to determine the type of information that is useful to stakeholders. In addition this section requires the entity with a contract under Sec. 1890(a) to convene multi-stakeholder groups to review the design and format of each website and to transmit the views of these groups to the Secretary. There are authorized to be appropriated SSAN for FY2010 through FY2014. This section creates a new Subpart II , Health Care Quality Improvement Programs , and includes a new PHSA Sec. 933 , Health Care Delivery System Research, to enable the Director of AHRQ to identify, develop, evaluate, and disseminate innovative strategies for quality improvement practices in the delivery of health care services that represent best practices, and to require The Center for Quality Improvement and Patient Safety of AHRQ (hereinafter referred to as the "Center"), or another relevant agency or department designated by the Director, to carry out several specified functions. The general functions of this Center include, among others (1) identifying providers that deliver consistently high-quality, efficient health care services and employ best practices that are adaptable and scalable to diverse health care settings; (2) assessing research, evidence, and knowledge about what strategies and methodologies are most effective in improving health care delivery; (3) finding ways to translate such information rapidly and effectively; (4) creating strategies for quality improvement through the development of tools, methodologies, and interventions that can successfully reduce variation in the delivery of health care; and (5) building capacity at the state and community level to lead quality and safety efforts through education, training and mentoring programs. The center is required to support research on health care delivery system improvement and the development of tools to facilitate the adoption of best practices. This section requires the Director to make the research findings of the center available to the public, ensures that research findings and results generated by the center are shared with the Office of the National Coordinator of Health Information Technology, and requires the center to coordinate its activities with the Center for Medicare and Medicaid Innovation established by ACA. The Director is required to identify a list of processes or systems on which to focus research and dissemination activities, and is required to take into account a number of factors, including the cost to federal health programs and provider assessment of such processes or systems, among others. This section authorizes to be appropriated $20 million for FY2010 through FY2014. This section also adds a new PHSA Sec. 934 , Quality Improvement Technical Assistance and Implementation, which requires the Director, through the center, to award technical assistance funding to specified eligible entities. Funds provide technical support to institutions that deliver health care so that such institutions understand, adapt, and implement the models and practices identified by the research conducted by the center. Funds also support implementation awards to eligible entities to implement these models and practices. Sec. 3511 of ACA authorizes the appropriation of SSAN to carry out the activities in this section. This section allows the Secretary to award grants to eligible entities or consortia to carry out demonstration projects to develop and implement academic curricula that integrate quality improvement and patient safety into the clinical education of health professionals. A grant may be awarded under this section only if the receiving entity or consortium agrees to make available non-federal contributions toward the costs of the program in an amount that is not less than $1 for each $5 of federal funds. This section also requires the Secretary to evaluate the projects funded under this section and publish, make publicly available, and disseminate the results of such evaluations on as wide a basis as is practicable. Finally, this section requires the Secretary to submit a report to specified congressional committees that would describe the specific projects supported under this section and provide recommendations to Congress. Sec. 3511 of ACA authorizes the appropriation of SSAN to carry out the activities in this section. Medicare pays acute care hospitals using the inpatient prospective payment system (IPPS), where each patient is classified into a Medicare severity adjusted diagnosis-related group (MS-DRG). Generally, except for outlier cases, a hospital receives a predetermined amount for a given MS-DRG regardless of the services provided to a patient. In some instances, Medicare patients may be assigned to a different MS-DRG with a higher payment rate based on secondary diagnoses. Starting October 1, 2008, hospitals did not receive additional Medicare payment for complications that were acquired during a patient's hospital stay for certain select conditions. These hospital-acquired conditions (HACs) are (1) high-cost, high-volume, or both; (2) identified though a secondary diagnosis that will result in the assignment to a different, higher paid MS-DRG; and (3) reasonably preventable through the application of evidence-based guidelines. Sec. 10303(b) amends SSA Sec. 1890A , as added by Sec. 3014(b), and as amended by Sec. 3013(b), to require the Secretary, to the extent practicable, to publicly report on measures for HACs that are currently utilized by CMS for the adjustment of payment to hospitals based on rates of hospital-acquired infections. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Sec. 304(b)) required the Secretary to enter into a contract with the IOM to conduct a study on the best methods used in developing clinical practice guidelines in order to ensure that organizations developing such guidelines have information on approaches that are objective, scientifically valid, and consistent. The IOM is required to submit to the Secretary, and the appropriate committees of jurisdiction of Congress, a report containing the results of this study and recommendations for legislation and administrative action. Finally, stakeholders with expertise in making clinical recommendations are required to participate on the panel responsible for conducting this study and preparing the report. Sec. 10303(c) requires the Secretary, following receipt of the report required under MIPPA Sec. 304(b), and not less than every three years thereafter, to contract with the IOM to employ the results of the study and the best methods identified for the purpose of identifying existing and new clinical practice guidelines that were developed using such best methods, including guidelines listed in the National Guideline Clearinghouse. This section requires the Secretary, in carrying out this identification process, to allow for consultation with professional societies, voluntary health care organizations, and expert panels. This section requires the Secretary to implement a grant program for the purpose of establishing health teams to provide support to primary care providers, and providing capitated payments to these providers. Eligible grantees are a state (or designee), Indian tribe, or tribal organization that submits a plan for financial sustainability and for incorporating prevention initiatives, patient education, and care management resources into care delivery; ensures that the health team includes a multi-disciplinary team of specified providers; and agrees to provide services to Medicaid beneficiaries with chronic conditions, as described in SSA Sec. 1945 (as added by Sec. 2703 of ACA), in accordance with the payment methodology established under that section. "Medical home" is defined as a mode of care that includes (1) personal physicians; (2) whole-person orientation; (3) coordinated and integrated care; (4) safe and high quality care though evidence-informed medicine, appropriate use of health information technology, and continuous quality improvements; (5) expanded access to care; and (6) payment that recognizes added value from additional components of patient-centered care. A health team is required to carry out 10 specific activities, including establishing contractual agreements with primary care providers to provide support services; developing plans that integrate preventive services for patients; providing 24-hour care management and support during transitions in care settings; and others. Primary care providers who contract with these teams are required to provide care plans for patient participants, provide access to participant health records and primary care practices, and meet regularly with the care team to ensure integration of care. Sec. 3511 of ACA authorizes the appropriation of SSAN to carry out the activities in this section. This section adds a new PHSA Sec. 935, Grants or Contracts to Implement Medication Management Services in Treatment of Chronic Diseases , which requires the Secretary, acting through the Patient Safety Research Center established in PHSA Sec. 933 (as added by Sec. 3501 of ACA), to provide grants to support medication therapy management (MTM) services provided by licensed pharmacists. Grantees are required to provide various specified MTM services to targeted individuals, such as (1) assessing patients' health and functional status; (2) formulating a medical treatment plan; (3) administering appropriate medication therapy; (4) monitoring and evaluating patient response to therapy; (5) documenting the care delivered and communicating essential aspects to appropriate care providers; (6) providing education and training to enhance the appropriate use of medications; and (7) coordinating and integrating MTM services in broader health care management. MTM services provided by licensed pharmacists under this program are targeted at individuals who take four or more prescribed medications, take high-risk medications, have two or more chronic diseases, or have undergone a transition of care or other factors that are likely to create a high risk of medication-related problems. The Secretary is required to assess and evaluate specified aspects of the program and report to Congress. Sec. 3511 of ACA authorizes the appropriation of SSAN to carry out the activities in this section. This section adds a new PHSA Sec. 936 , Program to Facilitate Shared Decisionmaking , to facilitate shared decision making between patients and caregivers and their clinicians by engaging the patient in clinical decision making, providing information on trade-offs among treatment options, and incorporating patient preferences and values into the medical plan. The Secretary is required to enter into a contract with the consensus-based organization with a contract under SSA Sec. 1890 to develop and identify standards for patient decision aids, to review patient decision aids, and develop a certification process for determining whether patient decision aids meet those standards. The Secretary, acting through the Director of AHRQ, is required to award grants or contracts to develop, update, and produce patient decision aids, to test such materials to ensure they are balanced and evidence-based, and to educate providers on their use. The Secretary is required to award grants for establishing Shared Decision Making Resource Centers to develop and disseminate best practices to speed adoption and effective use of patient decisions aids and shared decision making. The Secretary also is required to award grants to providers for the development and implementation of shared decision-making techniques. Providers receiving a grant are required to report to the Secretary data on those quality measures, and the Secretary is required to provide feedback to those providers. This section authorizes to be appropriated SSAN for FY2010, and each subsequent fiscal year. This section amends PHSA Sec. 340A to prohibit the Secretary from awarding a grant to an entity under this section unless the entity provides assurances that patient navigators recruited, assigned, trained, or employed using these grant funds meet certain minimum core proficiencies. These proficiencies are defined by the entity that submits the application and would be tailored for the main focus or intervention of the navigator involved. The section authorizes an appropriation of $3.5 million for FY2010, and SSAN for each of FY2011 through FY2015. This section, as amended by Sec. 10501(f) of ACA, adds a new PHSA Sec. 399V-1 , Primary Care Extension Program , requiring the Secretary to establish a Primary Care Extension Program. The program is to provide support and assistance to primary care providers (as defined) to educate providers about preventive medicine, health promotion, chronic disease management, mental health services, and evidence-based therapies in order to enable providers to incorporate such matters into their practice and to improve community health by working with community-based health connectors (referred to in this section as "Health Extension Agents"). A Health Extension Agent is any local, community-based health worker who facilitates and provides assistance to primary care practices by implementing quality improvement or system redesign, incorporating the principles of the patient-centered medical home to provide guidance to patients in culturally and linguistically appropriate ways, and linking practices to diverse health system resources. The Secretary is required to award competitive grants to states to establish Primary Care Extension Program State Hubs, consisting of the state health department and other specified entities. Hubs established under a grant must contract with and provide grant funds to county or local entities to serve as Primary Care Extension Agencies and organize statewide or multistate networks of such agencies to share information. Primary Care Extension Agencies established by a Hub are required to (1) assist primary care providers to implement a patient-centered medical home; (2) develop and support primary care learning communities; (3) participate in a national network of hubs and proposed how best practices can be shared; and (4) develop a plan for financial sustainability after the initial six-year period of funding under this section is completed. The section authorizes six-year program grants for entities that submit a fully developed Hub implementation plan, and two-year planning grants for entities to develop such a plan. Recipients of program grants are to be evaluated at the end of the grant period by an evaluation panel appointed by the Secretary, and may receive additional support if their program and sustainability plan receive a satisfactory evaluation. There are authorized to be appropriated $120 million for each of FY2011 and FY2012, and SSAN for FY2013 and FY2014. This section creates a new PHSA Sec. 520K , Grants for Co-Locating Primary and Specialty Care in Community-Based Mental Health Settings , requiring the Secretary to fund demonstration projects for providing coordinated care to special populations, which are defined as individuals with mental illness and co-occurring primary care conditions and chronic diseases. The Secretary is to award grants to eligible entities to establish demonstration projects for the provision of coordinated and integrated services to special populations through the co-location of primary and specialty care services in community-based mental and behavioral health settings. Grantees are required to use grant funds to provide specific services such as primary care services, diagnostic and laboratory services, and screenings for the defined special populations, and certain specialty care services. Not more than 15% of the funds may be used for information technology or facility improvements or modifications. Within 90 days of expiration of the grant, grantees are required to submit to the Secretary an evaluation of the effectiveness of the activities carried out under the grant. There is authorized to be appropriated $50 million for FY2010 and SSAN for each of FY2011 through FY2014 to carry out this section. This section adds a new PHSA Sec. 340H , Community-Based Collaborative Care Networks , authorizing the Secretary to award grants to eligible entities to support community-based collaborative care networks (CCNs). An eligible CCN is a consortium of health care providers with a joint governance structure that provides comprehensive coordinated and integrated health care services (as defined by the Secretary) for low-income populations. CCNs must include (unless such provider does not exist within the community, declines or refuses to participate, or places unreasonable conditions on their participation) a safety net hospital and all FQHCs in the community. Grant funds may be used to assist low-income individuals, as described; provide case management and care management; perform health outreach; provide transportation; expand capacity; and provide direct patient care services. The Secretary is authorized to limit the percent of grant funding that may be spent on direct care services provided by HRSA grantees or to impose other requirements on such grantees deemed necessary. There is authorized to be appropriated SSAN for each of FY2011 through FY2015. This section adds a new PHSA Sec. 520B , Centers of Excellence for Depression , requiring the Secretary, acting through the SAMHSA Administrator, to award five-year grants on a competitive basis to eligible entities to establish national centers of excellence for depression. These centers are required to engage in activities related to the treatment of depressive disorders, as defined. If funds authorized are appropriated in the amounts provided, the Secretary is required to establish not more than 20 centers no later than one year after enactment; and not more than 30 centers no later than September 30, 2016. The Secretary is prohibited from funding an entity unless they agree to make non-federal contributions toward grant activities equal to $1 for every $5 of federal grant funds. Each center is required to carry out specified activities, including developing improved treatment standards, clinical guidelines, diagnostic protocols, and care coordination practices; and expanding translational research through collaboration of centers and community-based organizations. One grant recipient is to be designated as the coordinating center, as specified. The coordinating center is required to establish and maintain a national database. The Secretary, acting through the SAMHSA Administrator, must establish performance standards for each center and the network of centers and issue center report cards, as described. Based upon the report cards, the Secretary is required to make recommendations to (1) the centers regarding improvements; and (2) Congress for expanding the centers. The Secretary is required to arrange for an independent third party review to conduct an evaluation of the network of centers. To carry out this section, there are authorized to be appropriated $100 million for each of FY2011 through FY2015, and $150 million for each of FY2016 through FY2020. Of the amount appropriated for a fiscal year, the Secretary is required to determine the allocation for each center, which may not be more than $5 million to each center, and no more than $10 million to the coordinating center. Federal and state governments share responsibility to ensure that nursing homes provide quality care in a safe environment for the nation's 1.5 million skilled nursing facilities (SNF) and nursing facilities (NF) residents. Prior to ACA, Congress established most quality requirements for Medicare-certified SNFs and Medicaid-certified NFs under the Omnibus Budget Reconciliation Act of 1987 (OBRA87; P.L. 100-203 ). OBRA87 defined standards that nursing homes must meet in order to receive Medicare and Medicaid payment (called conditions of participation). OBRA87 also contained a range of sanctions that state and federal officials could impose on facilities that failed to meet the federal standards—including civil money penalties (CMPs), payment denial for new admissions, termination from federal health programs, installation of temporary management, and directed plans of action. For example, as a condition for participation, certification, or re-certification, SSA Sec. 1124 requires Medicare and Medicaid entities to disclose full and complete information for each person with ownership or control interest. As part of the shared federal and state responsibility for enforcing SNF and NF quality requirements, CMS contracts with state survey agencies to conduct periodic inspections and investigate complaints, both of which contribute to whether or not SNFs and NFs meet federal standards. Generally, state agencies follow federal regulations for surveying facilities; however, some survey activities and policies are determined by state survey agencies, including hiring and retaining a surveyor workforce, training surveyors, reviewing deficiency citations, and managing regulatory interactions with the industry and public . State surveyors generally first propose sanctions based on deficiencies identified during inspections. CMS regional office officials will then review and implement the state surveyor recommendations. Prior to ACA enactment, there were no provisions in law requiring use of a standardized complaint form. However, there were mechanisms to ensure nursing facilities met certain minimum patient safety and quality standards—standard surveys and complaint investigations. Every SNF or NF undergoes a standard survey at least every 15 months, and the statewide average interval for these surveys must not exceed 12 months. During a standard survey, surveyor teams assess how well SNFs and NFs meet comprehensive federal quality-of-care and fire safety requirements. In contrast, complaint investigations generally focus on specific allegations of substandard resident care or safety violations. Complaint investigations provide an opportunity for state surveyors to intervene promptly if problems arise between standard surveys. Complaints may be filed against a home by a resident, the resident's family, or a nursing home employee verbally, via a complaint hotline, or in writing, but there were not standard reporting forms that helped document the complaint for investigators or helped in collecting comparable data. Surveyors generally follow state procedures when investigating complaints, but must comply with certain federal guidelines and time frames. In resident abuse cases, such as pushing, slapping, beating, or otherwise assaulting residents by individuals to whom their care has been entrusted, state survey agencies may notify state or local law enforcement agencies that can initiate criminal investigations. States must maintain a registry of qualified nurse aides, the primary caregivers in nursing homes. The registry contains any findings where aides were responsible for abuse, neglect, or theft of residents' property, which constitutes a ban from further nursing home employment ban. Overall, ACA's nursing home transparency, enforcement, and staff training provisions expand federal quality and accountability requirements for SNFs and NFs. These provisions require SNFs and NFs to disclose ownership and organizational relationships, implement ethics and compliance programs, and report direct care staff expenditures. ACA also requires the Secretary, among other activities, to develop and disseminate a standardized complaint form, refine and update Medicare's Nursing Home Compare website, and implement a national independent monitor demonstration program. In addition, GAO is required to conduct a study and report to Congress on CMS's Five-Star Quality Rating System. ACA authorizes the Secretary and states to impose CMPs on SNFs and NFs found to provide deficient care that jeopardizes residents' safety and health. Further, ACA's nursing home transparency and accountability changes establish new requirements for SNF and NF administrators to inform residents, their representatives, the Secretary, states, and other stakeholders of planned facility closures. ACA requires the Secretary to conduct demonstration projects on best practices for culture change and use of information technology in SNFs and NFs. Moreover, ACA requires the Secretary to expand initial nurse aide training, competency, and evaluation requirements to include dementia and abuse prevention. ACA Sec. 6101 amended SSA Sec. 1124 to require the Secretary, within two years of enactment (by March 23, 2012), to issue regulations or amend contracts mandating SNFs and NFs supply the Secretary or state agency complete information on ownership or control interests (owner, governance, management, officer, etc.) for each SNF or NF where there was least a 5% ownership interest. ACA Sec. 6101 also required facilities to disclose each facility's organizational structure as well as relationships where subcontractors have at least a 5% control interest in the facility. In implementing these requirements, the Secretary was to ensure SNF and NFs reported disclosable party and other accountability information in standard formats. Prior to ACA, Medicare and Medicaid law did not require SNFs and NFs to develop and implement compliance and ethics training programs. ACA Sec. 6102 required the Secretary, by March 23, 2012, and in collaboration with the HHS Office of Inspector General (OIG), to issue regulations specifying requirements for SNFs and NFs to follow in developing and implementing compliance and ethics programs. Within three years after date by which facilities had to comply with ethics program regulations are issued (by March 23, 2015), the Secretary is to submit a report to Congress on whether these requirements reduced deficiency citations, increased quality performance, or affected other patient quality-of-care metrics. CMS developed the Nursing Home Compare (NH Compare) website to improve SNF and NF quality of care and to improve access to nursing home quality information for long-term care (LTC) consumers and their families. Since its launch in November 2002, CMS has enhanced the website by adding or improving quality measures and website navigation. Medicare's NH Compare website includes national data on all nursing facilities that participate in Medicare and Medicaid. The data include facility ratings, selected results from survey and certification inspections, and staffing information on Medicare SNFs and Medicaid NFs. Sec. 6103 requires the Secretary to enhance the information on SNFs and NFs available on the NH Compare website, and to ensure that the information is prominent, easily accessible, searchable, and readily understandable to LTC consumers. This section requires SNFs to report expenditures for wages and benefits for direct care staff on facility cost reports. The reports must be broken out into categories including registered nurses, licensed professional nurses, certified nurse assistants, and other medical and therapy staff. Within one year of enactment (by March 23, 2011) the Secretary was required to consult with private sector accountants experienced with cost reports to assist in redesigning those reports to separately capture direct care staff wage and benefit expenditures. In addition, the Secretary was required to consult with the Medicare Payment Advisory Commission (MedPAC), the HHS OIG, the Medicaid and CHIP Payment Access Commission (MACPAC), and other experts in categorizing direct care wages and benefits into functional areas. SNFs were required to report expenditures for direct care staff on cost reports submitted two years after ACA's enactment date (by March 23, 2012). The Secretary was required to categorize the first year's expenditure data within 30 months of enactment (by September 23, 2012) and on an annual basis thereafter. The Secretary is further required to establish procedures for making expenditure reports readily available to interested parties upon request. ACA Sec. 6105 requires the Secretary to develop a standardized form to be used by SNF and NF residents and their representatives in submitting quality-of-care complaints. The new standard complaint form is not to prevent SNF and NF residents from submitting complaints in other ways, including orally. States are required to establish a complaint resolution process that includes (1) procedures to ensure accurate tracking of received complaints, including notifications to the complainant (or his/her representative) that the complaint was received; (2) procedures to determine the complaint's likely severity, and for the investigation of the complaint; and (3) deadlines for responding to the complaint and for notifying the complainant of the outcome of the investigation. Such processes are required to ensure that legal representatives or other responsible parties are not denied access to a resident or otherwise retaliated against if they complain about the facility's quality of care or safety issues. The changes in this section became effective on March 23, 2011. This section amends SSA Sec. 1128I requiring the Secretary, in consultation with stakeholders, to establish specifications for SNFs and NFs to electronically report direct staffing information to the Secretary. These regularly reported staffing data are to include agency and contract staff, by staff position categories (based on payroll and other verifiable and auditable data). The reporting requirements are to include the category of work employees perform, resident census data, information on employee turnover and tenure, and the hours of care provided per resident per day. The reporting process is required to be electronic and data are to be reported in a uniform format. Facilities were required to begin submitting uniform staffing information electronically within two years of enactment (by March 23, 2012). The Medicare NH Compare website includes data from the quality rating system that gives facilities a rating of between one and five stars. Nursing homes with five stars are considered to provide superior quality and nursing homes with one star are considered to provide lower quality care. NH Compare gives each nursing home an overall rating as well as separate ratings for the following three areas: health inspections, staffing, and quality measures. ACA Sec. 6107 required GAO to conduct a study and submit a report to Congress on the CMS nursing home Five-Star Quality Rating System. GAO's report was due by March 23, 2012, and was to include the following analyses: (1) how the Five-Star Quality Rating System was being implemented; (2) any problems associated with implementation of the system; and (3) how the Five-Star Quality Rating System can be improved. GAO's report also was to offer recommendations for legislative and administrative action. ACA Sec. 6111 authorizes the Secretary and states to impose additional CMPs on SNFs and NFs with deficiencies and quality-of-care issues that jeopardize residents' safety and health. This section also requires the Secretary to issue regulations establishing an independent, informal dispute resolution process that produces a written record. The dispute hearing is to occur within 30 days of the penalty citation. In instances where deficiencies are cited at the level of actual harm and immediate jeopardy, the Secretary may place CMPs in an escrow account following completion of the informal dispute resolution process, or up to 90 days after the date of the CMP, whichever is earlier. Monetary amounts collected and placed in escrow are to be kept in interest bearing escrow accounts pending the resolution of appeals. The Secretary and states may reduce CMPs if deficiencies were self-reported and corrected within 10 calendar days after imposition. Reductions are to be made for self-reported deficiencies cited at the immediate jeopardy level, at the actual harm level if the harm were found to be a "pattern" or "widespread," or for deficiencies that result in a resident's death. Facilities cited for repeat deficiencies during the past year are ineligible for reductions, even if the deficiencies were self-reported. The Secretary also is required to issue regulations that, in the case where such appeals are unsuccessful, authorize a portion of CMPs to fund activities that benefit residents. These activities include projects that strengthen and support resident and family councils, offset the costs of relocating residents to home and community-based settings or another facility, and support and protect residents in situations where a facility closes or is decertified. CMP funds used to benefit patients also may be used for facility improvement initiatives approved by the Secretary, including joint training of facility staff and surveyors; technical assistance for facilities implementing quality assurance programs; and appointment of temporary management firms. The changes in this section became effective March 23, 2011. This section required the Secretary within one year of enactment (by March 23, 2011) to develop, test, and implement a two-year national independent monitoring demonstration program to oversee interstate and large intrastate chains of SNFs and NFs. The Secretary is required to select chains for participation in the demonstration and evaluate them for evidence of serious safety and quality-of-care deficiencies. The facilities in those chains are subject to review, oversight, and root-cause quality and deficiency analyses by an independent monitor under contract to the Secretary. Chains that receive a report containing findings and recommendations from the independent monitor are required, within 10 days, to submit a report outlining corrective actions that will be taken. If a chain declines to implement the independent monitor's recommendations, the chain is required to submit reasons why it will not do so. After receiving the chain's response, the independent monitor is required to finalize recommendations and to submit a report to the chain and the facilities of the chain, the Secretary, and relevant state or states, as appropriate. Chains are responsible for a portion of the costs associated with appointment of independent monitors. The Secretary has authority to waive Medicare and Medicaid laws to carry out the independent monitor pilot program. Within six months of the end of the independent monitor demonstration, (by September 23, 2013) the HHS OIG will evaluate the independent monitor program to determine the feasibility of establishing a permanent program, as well as appropriate procedures and mechanisms to implement the program permanently and to submit the evaluation report to Congress and the Secretary. There are authorized to be appropriated SSAN to carry the section. This section requires the administrator of a SNF or NF that is preparing to close to provide written notification to residents, legal representatives of residents or other responsible parties, the state, the Secretary, and the LTC ombudsman program. This notification is to be made at least 60 days before closure. Facilities are required to prepare a plan for closing the facility by a specified date and submit the plan to the state where the facility is located. States are required to approve the plan and ensure the safe transfer of residents to another facility or alternative setting that the state finds appropriate in terms of quality, services and location, and takes into consideration the needs and best interests of each resident. In cases where the Secretary terminates a facility's participation, the Secretary is required to provide written notification to stakeholders by the date that the Secretary determines appropriate. Facilities are not permitted to admit new residents on or after the date on which written notification is submitted. The Secretary is to continue making payments to a facility to support residents until they are relocated, as the Secretary determines appropriate. SNF and NF administrators who fail to comply with the closure notice requirements could be subject to sanctions of up to $100,000 and exclusion from federal health program participation. The requirements for SNF and NF administrators to notify stakeholders of pending facility closures take effect one year after enactment. This section requires the Secretary to conduct the following two demonstration projects for SNFs and NFs: (1) to develop best practices for facilities involved in culture change (developing patient-centric models of care); and (2) to develop SNF and NF best practices for the use of information technology to improve resident care. The demonstration projects are required to take into consideration the special needs of facility residents with cognitive impairments. The Secretary was to award one or more grants three-year duration under each demonstration project by March 23, 2011. The Secretary is required to submit a report to Congress within nine months of the completion of the demonstration projects that evaluates the projects and makes recommendations for legislation and administrative actions. There are authorized to be appropriated SSAN to carry out the projects. This section amends SSA Secs. 1819 (Medicare) and 1919 (Medicaid) by requiring SNFs and NFs, respectively, to include dementia and abuse prevention training as part of pre-employment initial training for permanent and contract or agency staff and, if the Secretary determines appropriate, as part of ongoing in-service nurse aide training. These new training requirements took effect on March 23, 2011. This section requires the Secretary to establish a nationwide program for background checks on direct patient access employees of long-term care (LTC) facilities or providers (as defined), and to provide federal matching funds to states to conduct these activities. The Secretary is required to carry out the nationwide program under terms and conditions similar to those used for the Background Check Pilot program, authorized by Sec. 307 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ). From January 2005 through September 2007, CMS administered the Background Check Pilot program, in consultation with the Department of Justice (DOJ), in seven states (Alaska, Idaho, Illinois, Michigan, Nevada, New Mexico, and Wisconsin) selected to participate. Under the nationwide program, the Secretary is required to enter into agreements with newly participating states and previously participating states. Certain LTC providers are required to obtain state and national criminal history background checks on their prospective employees as the Secretary determines appropriate, efficient, and effective. The section requires the Secretary of the Treasury to transfer to HHS an amount specified by the HHS Secretary as necessary (not to exceed $160 million) to carry out the nationwide program for the period of FY2010 through FY2012. Such amounts are required to remain available until expended. The Secretary is authorized to reserve no more than $3 million of the amount transferred to conduct an evaluation. ACA builds on provisions included in ARRA that expanded the federal government's role in the oversight and funding of comparative effectiveness research. ARRA provided a total of $1.1 billion for comparative effectiveness research, instructed the Secretary to contract with the IOM to produce a report with recommendations on national comparative effectiveness research priorities, and created the Federal Coordinating Council for Comparative Effectiveness Research (FCCCER), an interagency advisory group. FCCCER was required to report to the President and the Congress annually on federal comparative effectiveness research activities. The IOM released its report on June 30, 2009. Reflecting broad stakeholder input, the report identified 100 health topics as high-priority areas for comparative effectiveness research. FCCCER also released its initial report in June 2009. The report's recommendations focused on (1) the importance of disseminating comparative effectiveness research findings to doctors and patients; (2) targeting comparative effectiveness research to the needs of priority populations such as racial and ethnic minorities, and persons with multiple chronic conditions; (3) researching high-impact health arenas such as medical and assistive devices, surgical procedures, and behavioral interventions and prevention; and (4) electronic data networks and exchange. In ACA, Congress terminates FCCCER and replaces it with a new private, non-profit corporation called the Patient-Centered Outcomes Research Institute (PCORI). PCORI is responsible for coordinating and supporting comparative clinical effectiveness research, which is broadly defined in the law to mean "research evaluating and comparing health outcomes and the clinical effectiveness, risks, and benefits of 2 or more ... health care interventions, protocols for treatment, care management and delivery, procedures, medical devices, diagnostic tools, pharmaceuticals ... integrative health practices, and any other strategies or items being used in the treatment, management, and diagnosis of, or prevention of illness or injury." ACA creates a 10-year, multi-billion dollar trust fund to support such research. This section adds a new SSA Title XI Part D , Comparative Clinical Effectiveness Research , comprising new SSA Secs. 1181-1183 . New SSA Sec. 1181 ,Comparative Clinical Effectiveness Research , authorizes the establishment of a private, nonprofit, tax-exempt (by amending IRC Sec. 501(l)) corporation called the Patient-Centered Outcomes Research Institute (the Institute). The Institute is to "assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of [clinical] evidence ... through research and evidence synthesis." The Institute is to identify national priorities for research, including attention to chronic conditions, gaps in evidence, quality of care, patient health and well-being, and the effect on national expenditures associated with interventions or conditions, among other concerns. The section requires the Institute to enter into contracts with federal agencies as well as with appropriate academic, private sector research, or study-conducting entities for the management of funding and conduct of research. The Institute's 19-member board includes the directors (or their designees) of AHRQ and NIH, along with others appointed by the U.S. Comptroller General to include representation of a broad range of groups, including patients and health care consumers; physicians and providers; private payers; pharmaceutical, device, and diagnostic manufacturers; quality improvement or independent health services researchers; and government representatives. The Institute is to, as appropriate, appoint expert advisory panels to assist in identifying research priorities and establishing the research project agenda. The section directs the appointment of panels for clinical trials and rare diseases. The law required the Institute to establish a methodology committee, consisting of no more than 15 members appointed by the Comptroller General plus the directors of AHRQ and NIH, which is to have responsibility for developing and improving the science and methods of comparative clinical effectiveness research. The methodology committee is to establish, with outside input and with public comment, and periodically update research design standards regarding clinical outcomes measures, risk-adjustment, subpopulation analysis, and other aspects of research and assessment. The methodology committee is to be able to consult and contract with the IOM and other private and governmental entities. The section also includes extensive procedures regarding conflict-of-interest, data privacy, peer-review, and the public availability of information. A new PHSA Sec. 937 , Dissemination and Building Capacity for Research , requires AHRQ to broadly disseminate research findings that are published by the Institute and other government-funded comparative effectiveness research entities; create information tools; and develop a publicly available database of government-funded evidence. Dissemination materials are to identify researchers; describe research methodology, limitations, and subpopulation-specific considerations; and must not include practice guidelines, or recommendations for payment, coverage, or treatment. This section also requires training of researchers and building of data capacity in coordination with other federal health programs, and authorizes federal agencies to contract with the Institute for the conduct and support of relevant research. New SSA Sec. 1182 , Limitations on Certain Uses of Comparative Clinical Effectiveness Research, limits certain uses of evidence and findings from comparative effectiveness research. The Secretary may only use the findings to make coverage determinations if the use is through an iterative and transparent process that includes public comment and considers the effect on subpopulations. The Secretary is prohibited from using these research findings in determining Medicare coverage in a manner that treats extending the life of an elderly, disabled, or terminally ill individual as of lower value than extending the life of an individual who is younger, nondisabled, or not terminally ill; or that would preclude or discourage an individual from choosing a health care treatment based on how the individual values the tradeoff between extending the length of their life and the risk of disability. Also, the Institute is prohibited from using values that discount the value of life because of an individual's disability or to use such measures in determining coverage. New IRC Sec. 9511, Patient-Centered Outcomes Research Trust Fund, establishes a new Patient-Centered Outcomes Research Trust Fund (PCORTF) in the U.S. Treasury to fund the Institute and its activities. The fund will receive the following amounts: (1) specified annual appropriations over the period FY2010-FY2019 totaling $1.26 billion (new IRC Sec. 9511 ); (2) additional annual appropriations over the period FY2013-FY2019 equal to the net revenues from a new fee levied on health insurance policies (new IRC Sec. 4375 ) and self-insured health plans (new IRC Sec. 4376 ) through FY2019; and (3) transfers from the Medicare trust funds through FY2019 (new SSA Sec. 1183, Trust Fund Transfers to Patient-Centered Outcomes Research Trust Fund ). The new health insurance fee is to equal $2 multiplied by the average number of covered lives in a policy/plan year ($1 in the case of policy/plan years ending during FY2013), updated annually by the rate of medical inflation. Similarly, the transfers from the Medicare trust funds are to equal $2 multiplied by the average number of Part A and Part B beneficiaries in a given fiscal year ($1 in FY2013), updated annually by the rate of medical inflation. This section terminates the FCCCER upon enactment. This is in keeping with the assignment of coordinating activities to the new Patient-Centered Outcomes Research Institute. Prior to the ACA, the federal government collected data on health disparities through a number of systems administered by various agencies within HHS, but much of this effort was not coordinated. For example, since 1999, HHS-funded and sponsored surveys and data collection systems have been required to collect health disparities data in accordance with the department's Inclusion Policy. The policy mandates the inclusion of information on race and ethnicity and encourages (but does not require) the collection of socioeconomic or cultural background characteristics. It specifies that OMB's standards for racial and ethnic data collection are to be used; however, the requirement for collecting race and ethnicity data may be waived under certain circumstances. Medicare for many years has obtained race and ethnicity information about its beneficiaries from the Social Security Administration (SSA). The SSA provides CMS with copies of the SS-5 ("Application for a Social Security Card") form, which includes information about race and ethnicity. While the SS-5 information is supposed to be OMB-compliant, there are deficiencies in the accuracy and completeness of the data. Section 185 of MIPPA instructed the Secretary to evaluate approaches for collecting disparities data on Medicare beneficiaries and to provide a report to Congress, within 18 months of enactment, including recommendations for reporting nationally recognized quality measures, such as Healthcare Effectiveness Data and Information Set (HEDIS) measures, on the basis of race, ethnicity, and sex. MIPPA further instructed the Secretary to implement the approaches identified in the initial report and, four years after enactment and every four years thereafter, report back to Congress with recommendations for improving the identification of health care disparities among Medicare beneficiaries based on an analysis of those efforts. The Medicaid Statistical Information System (MSIS) is the primary source of state-reported data on Medicaid enrollees and expenditures. The MSIS required data set includes information on eligibility, including racial and ethnic data. States have the discretion to choose whether or how to collect racial and ethnic information; if they do collect this information CMS requires that it be reported in a standardized format. There is considerable variation in the quantity and quality of the data that is reported. Regarding the collection of data on key national indicators, there are a number of current efforts, some mandated in the PHSA, to collect and disseminate health statistics on the U.S. population. The National Center for Health Statistics (NCHS), part of the CDC, collects statistics on (1) the extent and nature of illness and disability in the U.S. population; (2) the impact of illness and disability of the population on the U.S. economy; (3) environmental, social, and other health hazards; (4) determinants of health; (5) health resources; (6) utilization of health care; (7) health care costs and financing; and (8) family formation, growth, and dissolution. NCHS also has responsibility, under PHSA Sec. 306, for compiling national vital statistics from records of births, deaths, marriages, and divorces. That section also establishes the National Committee on Vital and Health Statistics (NCVHS) to assist and advise the Secretary on issues related to the collection of vital and health statistics in the United States. In addition, it directs the Secretary to ensure comparability and reliability of health statistics, requiring the Secretary to provide adequate technical assistance to assist state and local jurisdictions in the development of model laws dealing with issues of confidentiality and comparability of data. The ACA includes three sets of provisions that aim to enhance the completeness, accuracy, and uniformity of health data. First, in the area of health disparities, the law mandates the collection and reporting of data on race, ethnicity, sex, primary language, and disability status by all federally conducted and supported health care and public health programs (e.g., Medicare, Medicaid), activities, and surveys (including surveys conducted by the Bureau of Labor Statistics and the Bureau of the Census). It specifies that the existing Office of Management and Budget (OMB) standards must be used, at a minimum, for recording race and ethnicity, and instructs the Secretary to issue new standards for measuring the other three factors (i.e., sex, primary language, and disability status). Second, the law requires the development of a system to collect data on key national indicators, to be determined by the Secretary (notably, the nature of the data to be collected under this system is not addressed by the statutory language, with the term "health" never appearing in the provision). Finally, the ACA seeks to improve states' collection of vital statistics by educating providers about the importance of standardized birth and death certificate data, among other things. Additional background on each of these topics is provided below. Subsection 4302(a) creates a new PHSA Title XXXI—Data Collection, Analysis, and Quality. It requires the Secretary to ensure that, by no later than two years after enactment, all federally conducted or supported health care and public health programs, activities, and surveys collect and report, to the extent practicable, data on race, ethnicity, sex, primary language, and disability status. Such data must be aggregated at the smallest practicable geographic level. The collected data must be sufficient to generate statistically reliable estimates of racial, ethnic, sex, primary language, and disability status subgroups. The Secretary may require the collection of other demographic data regarding health disparities. The subsection establishes uniform standards for the measurement and collection of health disparities data, requiring that OMB's standards must be used, at a minimum, for recording race and ethnicity. The Secretary is instructed to develop standards for the measurement of sex, primary language, and disability status. In addition, the Secretary must develop standards for collecting health disparities data, whether by self-report or from a parent or legal guardian. The Secretary is also required to ensure that federal health care programs that report quality measures include data on individuals receiving health care items and services by race, ethnicity, sex, primary language, and disability status. Finally, the Secretary is instructed to develop data management, interoperability, and security standards for the collected information on health disparities. The subsection requires the Secretary to analyze the data collected on health disparities; provide for the public reporting and dissemination of the data and analyses; and safeguard the privacy of the information. The subsection authorizes the appropriation of SSAN for each of FY2010 through FY2014 for the above data collection, analysis, and reporting activities. However, data may not be collected unless funds are directly appropriated for such purpose. Subsection 4302(b)(1) amends the Medicaid statute (i.e., SSA Sec. 1902) to require that any health disparities data collected under a Medicaid state plan meet all the requirements established above. The subsection also amends the CHIP statute (i.e., SSA Sec. 2108) to require states to include in their annual report health disparities data collected and reported in accordance with the same requirements. Subsection 4302(b)(2) amends the Medicaid statute by adding the language in MIPPA Sec. 185 (discussed in the preamble above) as a new SSA Sec. 1946 , with the following two revisions. First, all references to Medicare are replaced by referencing both Medicaid and CHIP. Second, whereas the original MIPPA language addressed the collection of data on race, ethnicity, and gender, the new provision in the Medicaid statute addresses data collection on the basis of race, ethnicity, sex, primary language, and disability status (in accordance with the subsection 4302(a) above). Thus, this subsection requires the Secretary to evaluate approaches for collecting disparities data on Medicaid and CHIP beneficiaries and report to Congress on improving the identification of health care disparities among those beneficiaries. This section establishes the Commission on Key National Indicators ("Commission") composed of eight members appointed equally by the majority and minority leaders of the Senate and the Speaker and minority leader of the House of Representatives. The Commission has the following responsibilities: (1) conduct comprehensive oversight of the newly established key national indicator system; (2) make recommendations on how to improve the key national indicator system; (3) coordinate with federal government users and information providers to assure access to relevant and quality data; and (4) enter into contracts with the National Academy of Sciences ("Academy"). The Commission is required to enter into an arrangement with the Academy to review available public and private sector research on key national indicator set selection and determine how to best establish a key national indicator system. The Academy must establish the key national indicator system by either creating its own institutional capability, or partnering with an independent, private, non-profit organization as an Institute. The Academy is required to identify and select all criterion and methodologies to establish and operate the key national indicator system. The Academy is further required to design, publish, and maintain a website for public access to key national indicators. Also, the Academy is to develop a quality assurance framework to ensure rigorous and independent processes and quality data selection, and is required to submit a report not later than 270 days after enactment, and annually thereafter, to the Commission outlining the findings and recommendations of the Academy. The U.S. Comptroller General is required to conduct a study of previous work conducted by a range of entities with respect to best practices for a key national indicator system, and is required to submit this study to the appropriate authorizing committees of Congress. This section authorizes to be appropriated $10 million for FY2010, and $7.5 million for each of FY2011 through FY2018, with amounts appropriated to remain available until expended. This subsection requires the Secretary, acting through the CDC Director, to promote the education and training of physicians on the importance of birth and death certificate data, encourage state adoption of the latest standard revisions of birth and death certificates (including the collection of such data for diabetes and other chronic diseases), and work with states to re-engineer their vital statistics systems. (Note: Sec. 10407 in its entirety is discussed earlier in this report under " Prevention and Wellness ") To promote the growth of electronic record keeping and claims processing in the nation's health care system, HIPAA's 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, among others. In addition, HIPAA directed the Secretary to adopt a standard for transferring standard data elements among health plans to improve the coordination of benefits and the sequential processing of claims. In 2000, CMS issued an initial set of standards for seven of the nine transactions and for the coordination of benefits, and listed the codes sets that must be used in the transactions to identify specific diagnoses and clinical procedures. The code sets include the International Classification of Diseases, 9 th Revision, Clinical Modification (ICD-9-CM) codes that are used for diagnoses and inpatient procedures. As required under HIPAA, the Secretary published updated standards in early 2009 to replace the existing versions. The compliance deadline for the updated standards was January 1, 2012. CMS also set a deadline of October 1, 2013, for providers to switch from using the ICD-9-CM codes to report diagnoses and clinical procedures to using the greatly expanded ICD, 10 th Revision (ICD-10) code set. CMS has since extended the ICD-10 deadline by one year to October 1, 2014, in response to providers' concerns. The HIPAA standard for the payment and remittance advice transaction, which is a communication from a health plan to a provider that includes an explanation of the claim and payment for that claim, 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 at the time of ACA's enactment there was no EFT mandate in federal law for Medicare, Medicaid, or private health insurance. 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. ACA seeks to address this variability by requiring the adoption of 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. HIPAA does not mandate that providers conduct the transactions electronically, though health plans typically 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. In September 2005, CMS proposed a standard for health care claims attachments, one of the two remaining HIPAA-specified transactions for which a standard must be adopted. A claims attachment transaction is used to request and provide additional clinical data necessary to adjudicate a claim. HIPAA also 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 were adopted prior to ACA, while the health plan identifier was still under review at the time of the law's enactment. Congress has blocked the development of a unique individual identifier through language added to the annual Labor-HHS appropriations bill. This ACA section amends SSA Sec. 1173 to establish a timeline for the development, adoption and implementation of a single set of operating rules for each HIPAA transaction for which there is an existing standard. The standards and associated operating rules must meet certain requirements. They have to (1) enable determination of an individual's eligibility and financial responsibility for specific services prior to or at the point of care; (2) be comprehensive, requiring minimal augmentation with paper; and (3) provide for timely acknowledgment, response, and status reporting that supports a transparent claims and denial management process. Operating rules are 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 is required to consider the recommendations of a qualified nonprofit entity that uses a multi-stakeholder, consensus-based process for developing such rules. Also, the section adds EFT for the payment of health claims as a HIPAA transaction and requires the Secretary to adopt an EFT standard no later than January 1, 2012, to take effect by January 1, 2014. Operating rules for eligibility and health claims status transactions had to be adopted by July 1, 2011, and were to take effect by January 1, 2013. Operating rules for claims payment/remittance and EFT had to be adopted by July 1, 2012, and are to take effect by January 1, 2014. The Secretary must adopt operating rules for the remaining HIPAA transactions (i.e., health claims, plan enrollment and disenrollment, health plan premium payments, and prior authorization and referral) by July 1, 2014, to take effect by January 1, 2016. By January 1, 2014, the Secretary must establish a committee to review and provide recommendations for updating and improving the HIPAA standards and operating rules. By April 1, 2014, and biennially thereafter, the committee must conduct hearings to evaluate the adopted standards and operating rules, and by July 1, 2014, and biennially thereafter, the committee must submit its recommendations to the Secretary. The Secretary must adopt the recommendations through promulgation of an interim final rule within 90 days of receipt of the committee's report. By December 31, 2013, health plans are required to file a certification statement with the Secretary that their data and information systems comply with the most current published standards and associated operating rules, for the following transactions: eligibility, health claims status, claims payment/remittance and EFT. By December 31, 2015, health plans are 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 is permitted to designate an outside entity to verify that health plans have met the certification requirements and must conduct periodic audits of plans to ensure that they maintain compliance with the standards and operating rules. The section requires 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. By May 1, 2014, and annually thereafter, the Secretary must provide the Treasury Secretary with a list of health plans that have been assessed a penalty fee for noncompliance, and by August 1, 2014, and annually thereafter, the Treasury Secretary must provide notice to all such plans. The deadline for health plans to pay the penalty fees is November 1, 2014, and annually thereafter. The Secretary of the Treasury, acting through the Financial Management Service, is responsible for the collection of penalty fees. Unpaid penalty fees are to be increased by an interest payment determined in a manner similar to underpayment of income taxes and considered debts owed to federal agencies, which may offset and reduce the amount of tax refunds otherwise payable to a health plan. The section requires the Secretary to issue a rule to establish a unique health plan identifier. The rule was to take effect no later than October 1, 2012. In addition, the Secretary is required to adopt a transaction standard and single set of associated operating rules for health claims attachments no later than January 1, 2014, to take effect by January 1, 2016. In addition to the above provisions, the section amends SSA Sec. 1862(a) to require that as of January 1, 2014, no Medicare payment may 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 standard. This section further amends SSA Sec. 1173 to require the Secretary, by January 1, 2012, and not less than every three years thereafter, to solicit input from the NCVHS, the Health Information Technology Policy and Standards Committees and other stakeholders on whether standards and operating rules should be developed for other administrative and financial transactions. The Secretary was to solicit input on the following specified areas by January 1, 2012: (1) whether enrollment of health care providers by health plans could be made electronic and standardized; (2) whether the HIPAA standards and operating rules should apply to the health care transactions of automobile insurance, worker's compensation, and other programs not covered under HIPAA; (3) whether standardized forms could apply to financial audits required by health plans and government agencies; (4) whether there could be greater transparency and consistency in the methods used to establish claim edits used by health plans; and (5) whether health plans should be required to publish their timeliness of payment rules. The section also required the Secretary to convene a meeting of the ICD-9-CM Coordination and Maintenance Committee by January 1, 2011, to receive stakeholder input and make recommendations about revisions to the crosswalk between the ICD-9 and ICD-10 codes. The Secretary must make appropriate revisions and post the revised crosswalk on the CMS website. For subsequent versions of the ICD codes, the Secretary is required, after consultation with appropriate stakeholders, to post on the CMS website a crosswalk between the previous and subsequent versions of the codes no later than the date on which the subsequent version is implemented. This section adds a new PHSA Title XXX, Subtitle C , Other Provisions , comprising Sec. 3021 . The Secretary, within 180 days of enactment and in consultation with the HIT Policy Committee and the HIT Standards Committee, was required to develop interoperable and secure standards that facilitate enrollment of individuals in federal and state health and human services programs. The standards and protocols must allow for the following functions: (1) electronic matching against existing federal and state data that provide evidence of eligibility; (2) simplification and submission of electronic documentation, digitization of documents, and systems verification of eligibility; (3) reuse of stored eligibility information; (4) capability of individuals to manage their eligibility information online; (5) ability to expand the enrollment system to integrate new programs; (6) notification, including by e-mail and phone, of eligibility, recertification, and other information regarding eligibility; and (7) other functionalities to streamline the enrollment process. The Secretary is required to notify states upon approval of the standards and protocols and may require that states and other entities incorporate such standards and protocols as a condition of receiving federal HIT funds. The Secretary is required to award grants to states and localities to develop new or upgrade existing IT systems to implement the enrollment standards and protocols. Eligible grantees are required to submit an adoption and implementation plan that includes, among other things, demonstrated collaboration with other grantees. The Secretary also is required to ensure that the enrollment IT adopted by grantees be shared at no cost to other qualified states, localities, and others. Amid concerns of an overburdened emergency care system, the IOM in 2006 issued three reports examining the state of the U.S. emergency medical system. The reports focused on the hospital-based emergency system (i.e., emergency departments); the emergency medical system including trauma care, ambulances, and other forms of transport; and emergency care for children. Each report discussed deficiencies with the current emergency care system, including overcrowded hospital emergency departments, local and regional variation in the availability of services, an insufficient workforce to provide necessary care, limited financial or personnel resources, and other deficiencies that may strain the systems' ability to handle a disaster. The IOM reports made a number of recommendations to address those deficiencies. ACA amends existing and creates new emergency and trauma care provisions in Title XII of the PHSA. These provisions address a number of the IOM recommendations to improve the U.S. emergency and trauma care system. They include designating the Assistant Secretary for Preparedness and Response as the lead office within HHS for emergency and trauma care; authorizing grants to create regionalized systems for trauma care; allocating additional funds to facilities with large uncompensated care burdens; and improving the emergency care workforce, among other provisions. In addition to these specific provisions, ACA may impact the emergency medical system through its changes to the private health insurance system and the expansion of Medicaid that are intended to reduce the number of uninsured. Some of the challenges that the emergency care system—and hospital emergency departments in particular—face are associated with, or exacerbated by, having to provide care to the uninsured. Under the Emergency Medical Treatment and Labor Act (EMTALA), hospital emergency departments must examine and treat any individual who comes to the hospital with an emergency medical condition, and any woman who is in labor. EMTALA requires hospitals to offer treatment, within their capacity and with the individual's consent, to stabilize the emergency condition, or transfer the individual to another medical facility, subject to certain restrictions. The act prohibits discrimination and delay in examining or treating emergency patients, and provides protections to whistleblowers who report violations of its provisions. Uncompensated care provided to the uninsured in emergency departments can place a financial burden on hospitals, which can hinder access to emergency care overall. This section amends PHSA Sec. 1203 , which provides grants to states and localities to improve access to and enhance the development of trauma care systems, by renaming the section, Competitive Grants for Trauma Systems for the Improvement of Trauma Care , and by transferring administration of the program from HRSA to the Assistant Secretary for Preparedness and Response. In addition, the section adds a new PHSA Sec. 1204 , requiring the Secretary, acting through the Assistant Secretary for Preparedness and Response, to award no fewer than four multiyear contracts or competitive grants for pilot projects to improve regional coordination of emergency services. Eligible grantees (including states and Indian tribes) must propose a pilot project to design, implement, and evaluate certain emergency medical and trauma systems. Grants must be matched with cash or in-kind at a rate of $1 for every $3 of federal funds, and priority is to be given to entities in medically underserved areas. Within 90 days of completing a pilot project, the grantee is required to submit to the Secretary a detailed evaluation of the program's characteristics and impact. The Secretary is further required, as appropriate, to disseminate that information to the public and to Congress. In addition, the section authorizes to be appropriated for Title XII Parts A and B trauma care grant programs $24 million for each of FY2010 through FY2014, and transfers authority for administering those grants and related authorities to the Assistant Secretary for Preparedness and Response. Finally, the section adds a new PHSA Sec. 498D , directing the Secretary to expand and accelerate basic science, translational and service delivery research on emergency medical care systems and emergency medicine, including pediatric emergency medical care. The Secretary also is required to support research on the economic impact of coordinated emergency care systems. There are authorized to be appropriated SSAN for each of FY2010 through FY2014 to carry out the new section. This section amends PHSA Secs. 1241-1245 by replacing the existing provisions with new language requiring the Secretary to establish three programs to award grants to qualified public, nonprofit Indian Health Service, Indian tribal, and urban Indian trauma centers to (1) help defray substantial uncompensated care costs, (2) further the core missions of such centers, and (3) provide emergency relief to ensure the continued availability of trauma services. In states with a trauma care system, a trauma center is not eligible for a grant unless it is part of the trauma care component of the state plan for the provision of emergency care services. The maximum grant amount is $2 million per fiscal year. To receive a substantial uncompensated care grant, qualified trauma centers are categorized based on the percentage of emergency department visits that are charity, self-pay, and Medicaid patients. Trauma centers in each category are eligible for grants up to some specified percentage of their uncompensated care costs. For example, category A centers—those with the highest percentage of charity or self-pay patient visits—are eligible for grants covering 100% of their uncompensated care costs. The section specifies the distribution of funding allocated for core mission grants among the different levels of trauma centers. Preference in awarding emergency relief grants is to be given to applications from trauma centers in areas in which the availability of trauma care is declining or would significantly decrease if the center was forced to scale back or close. The Secretary is authorized to require that grantees (1) maintain access to trauma care services at comparable levels to the prior year during the grant program; and (2) provide data to a national and centralized registry of trauma cases, in accordance with American College of Surgeons (ACS) guidelines. The section authorizes $100 million to be appropriated for FY2009, and SSAN for each of FY2010 through FY2015 to carry out the three grant programs. Seventy percent of the total amount appropriated for a fiscal year is for substantial uncompensated care awards unless the appropriation is less than $25 million, in which case all the funding will be used for such awards. The Secretary is required to submit a biennial report to Congress on the status of the grant programs. The section also adds a new PHSA Sec. 1246 that defines the term "uncompensated care costs." Additionally, this section adds a new PHSA Sec. 1281 , requiring the Secretary to award grants to states for the purpose of supporting trauma-related physician specialties and broadening access to and availability of trauma care services. Distribution of grant funds among the states is based on the program's annual appropriation level. The lower the appropriation amount, the more the distribution of funds is restricted to those states with trauma centers that provide a substantial amount of uncompensated care. If the appropriation is less than $10 million, the lowest amount specified, then the funds are distributed among only those states with one or more category A centers. The section adds a new PHSA Sec. 1282 that authorizes $100 million to be appropriated for each of FY2010 through FY2015 to provide for the state grants. This section amends PHSA Sec. 1910 , which authorizes demonstration grants to expand emergency services for children, by lengthening the grant period to four years (with an optional fifth year). It also authorizes to be appropriated $25 million for the program for FY2010, $26.3 million for FY2011, $27.6 million for FY2012, $28.9 million for FY2013, and $30.4 million for FY2014. Under general authorities in PHSA Title III and Title IV, NIH established the Pain Consortium to enhance pain research and promote collaboration among researchers across various NIH Institutes and centers that have programs and activities addressing pain. In addition, PHSA Sec. 403 requires the NIH Director to submit to the President and Congress a biennial report that includes, among other things, a summary of the research activities throughout the agency organized by category; the chronic disease category includes pain and palliative care. ACA addresses several issues with the goal of advancing research and treatment for pain care management. For the purpose of recognizing pain as a national public health problem, the Secretary is required to convene an IOM Conference on Pain. The act also encourages the NIH Director to continue and expand pain research through the Pain Consortium and establishes a health professionals training program in pain care. The following describes these provisions in greater detail. This section requires the Secretary to seek an agreement with the IOM (or another appropriate entity if the IOM declines) to convene a Conference on Pain, no later than one year after the appropriation of funds, for the purposes of increasing the recognition of pain as a significant public health problem in the United States, among other purposes. It also requires a report summarizing the Conference's findings to be submitted to Congress. For the purpose of carrying out this section, ACA authorizes to be appropriated SSAN for each of FY2010 and FY2011. The section adds a new PHSA Sec. 409J , which encourages the NIH Director to continue and expand an aggressive program of research on the causes of and potential treatment for pain through the Pain Consortium. The Pain Consortium, no less than annually, develops and submits to the NIH Director recommendations on appropriate pain research initiatives that could be undertaken with funds reserved under the NIH Common Fund or otherwise available for such initiatives. The Secretary also is required to establish, no later than one year after enactment, and as necessary maintain, the Interagency Pain Research Coordinating Committee to coordinate all efforts within HHS and other federal agencies that relate to pain research, among other duties. The section adds a new PHSA Sec. 759 , authorizing the Secretary to establish a program to train health professionals in pain care. The Secretary may fund health professions schools, hospices, and other entities for the development and implementation of education and training programs to health care professionals in pain care. Award applicants must agree to include information and education on the following topics: (1) recognized means for assessing, diagnosing, treating, and managing pain and related signs and symptoms; (2) applicable laws, regulations, rules, and policies on controlled substances; (3) interdisciplinary approaches to the delivery of pain care; (4) cultural, linguistic, literacy, geographic, and other barriers to care in underserved populations; and (5) recent findings, developments, and improvements in the provision of pain care. The Secretary also is required to provide for an evaluation of the implemented programs. For the purposes of carrying out this section, there are authorized to be appropriated SSAN for each of FY2010 through FY2012 with amounts remaining available until expended. ACA represents Congress's first attempt at comprehensive legislation to address abuse, neglect, and exploitation of the elderly at the federal level by incorporating the Elder Justice Act into health reform legislation. The enactment of elder justice provisions not only brings greater national attention to the issue, but emphasizes various public health and social service approaches to the prevention, detection, and treatment of elder abuse. At the federal level, the enactment of the Elder Justice Act places the issue of elder abuse on par with similar legislation Congress has enacted with respect to child abuse and neglect, under the Child Abuse Prevention and Treatment Act (CAPTA), and domestic violence, under the Violence Against Women's Act (VAWA). Abuse, neglect, and exploitation of older individuals in domestic and institutional settings, such as nursing homes, affects hundreds of thousands of older Americans every year according to national experts. Precisely how many older individuals are mistreated by someone on whom they depend for care or protection is unknown. Efforts to collect data on elder abuse, neglect, and exploitation at the national level are hampered by variation in state statutory definitions of elder abuse that make it difficult to identify actions that constitute abuse and neglect, and by the absence of a uniform reporting system across states. In 2003, a National Research Council Study estimated that between 1 and 2 million Americans age 65 and older had been injured, exploited, or mistreated. Other evidence and anecdotal reports indicate that the problem is serious and that many incidents are never reported. Congressional interest in the issue of elder abuse, neglect, and exploitation spans more than a quarter of a century with numerous hearings and reports concerning the need for a federal response to abuse, neglect, and exploitation of the elderly. Prior to enactment of ACA, Congress took a number of modest steps towards addressing elder abuse, including federal assistance to state Adult Protective Services programs through the Social Security Block Grant (SSBG) program and amendments to the Older Americans Act (OAA) to provide separate funding for elder abuse prevention and vulnerable elder rights protection activities, including establishment of the Long-Term Care Ombudsman Program (LTCOP). Provisions regarding elder justice were also incorporated in the OAA reauthorization of 2006 ( P.L. 109-365 ). The Elder Justice Act, first introduced in 2002 and periodically re-introduced since that time, represents an effort to produce a coordinated federal effort with a multidisciplinary approach that combines law enforcement, public health, and social services to combat abuse, neglect, and exploitation of the elderly. The following summarizes the Elder Justice Act provisions enacted under ACA. This section includes the following provisions divided into three subsections: (a) elder justice provisions amending Title XX of the SSA; (b) various provisions related to protecting residents of long-term care facilities; and (c) establishing a national nurse aide registry. Subsection (a) of Sec. 6703 renames SSA Title XX as Block Grants to States for Social Services and Elder Justice , places the existing sections (i.e., Secs. 2001-2007) under a new Subtitle A, Block Grants to States for Social Services , and adds a new Subtitle B, Elder Justice , composed of the following two parts. Part I—National Coordination of Elder Justice Activities and Research Title XX, Subtitle B, Part I is divided into two subparts— Subpart A establishes an Elder Justice Coordinating Council and Advisory Board on Elder Abuse, Neglect, and Exploitation comprised of new SSA Secs. 2021-2024 ; Subpart B adds a new Sec. 2031 awarding grants to establish and operate stationary and mobile forensic centers. These sections and activities are described in further detail below. Subpart A—Elder Justice Coordinating Council and Advisory Board on Elder Abuse, Neglect, and Exploitation. Subpart A adds a new Sec. 2021, Elder Justice Coordinating Council , establishing such a Council in the Office of the Secretary. The Council includes the Secretary as chair and the U.S. Attorney General, as well as the head of each federal department or agency, identified by the chair, as having administrative responsibility or administering programs related to elder abuse, neglect, and exploitation. The council is required to submit a report to the appropriate committees of Congress within two years of enactment and every two years thereafter that describes its activities and challenges; and make recommendations for legislation, model laws, and other actions deemed appropriate. There are authorized to be appropriated SSAN to carry out the Council's functions. Subpart A also adds a new Sec. 2022 , Advisory Board on Elder Abuse, Neglect, and Exploitation , establishing an Advisory Board to create a short- and long-term multidisciplinary plan for development of the field of elder justice and make recommendations to the Elder Justice Coordinating Council. The Advisory Board must be composed of 27 members from the general public appointed by the Secretary and must have experience and expertise in prevention of elder abuse, neglect, and exploitation. The Advisory Board is required to submit a report to the Elder Justice Coordinating Council and the appropriate committees of Congress within 18 months of enactment and annually thereafter that contains information on the status of federal, state, and local elder justice activities; and make specified recommendations. There are authorized to be appropriated SSAN to carry out the functions of the Advisory Board. Subpart A adds a new Sec. 2023 , Research Protections , requiring the Secretary to promulgate guidelines to assist researchers working in the areas of elder abuse, neglect, and exploitation with issues relating to human research subject protections. For the purposes of the application of certain specified federal regulations to research conducted under Subpart A it defines "legally authorized representative" to mean, unless otherwise provided by law, the individual, or judicial or other body authorized under the applicable law to consent to medical treatment on behalf of another person. To carry out the functions under Subpart A, a new Sec. 2024 , Authorization of Appropriations , authorizes to be appropriated $6.5 million for FY2011, and $7.0 million for each of FY2012 through FY2014. Subpart B—Elder Abuse, Neglect, Exploitation Forensic Centers. Subpart B adds a new Sec. 2031 , Establishment and Support of Elder Abuse, Neglect, and Exploitation Forensic Centers , requiring the Secretary, in consultation with the U.S. Attorney General, to award grants to eligible entities to establish and operate both stationary and mobile forensic centers and to develop forensic expertise pertaining to elder abuse, neglect, and exploitation. It authorizes to be appropriated $4 million for FY2011, $6 million for FY2012, and $8 million for each of FY2013 and FY2014 to carry out these activities. Part II—Programs to Promote Elder Justice Title XX, Subtitle B, Part II establishes several grant programs and other activities to promote elder justice. These provisions are established in the following new Secs. 2041-2046 and are described below. Sec. 2041. Enhancement of Long-Term Care. This section requires the Secretary, in coordination with the Secretary of Labor, to carry out activities that provide incentives for individuals to train for, seek, and maintain employment providing direct care in LTC. The Secretary is required to award grants to eligible entities to conduct programs that offer direct care employees continuing training and varying levels of certification. It also authorizes the Secretary to make grants to LTC facilities for specified activities that would assist such entities in offsetting costs related to purchasing, leasing, developing, and implementing certified EHR technology designed to improve patient safety and reduce adverse events and health care complications resulting from medication errors. This section also requires the Secretary to adopt electronic standards for the exchange of clinical data by LTC facilities and, within 10 years of enactment, to have in place procedures to accept the optional electronic submission of clinical data by LTC facilities pursuant to such standards. The standards adopted must be compatible with standards established under current law, as specified, and with general HIT standards. The section authorizes to be appropriated $20 million for FY2011, $17.5 million for FY2012, and $15 million for each of FY2013 and FY2014 to carry out the activities under this section. Sec. 2042. Adult Protective Service Functions and Grant Program. This section requires the Secretary to ensure that the Department (1) provides authorized funding to state and local adult protective services (APS) offices that investigate reports of elder abuse, neglect, and exploitation; (2) collects and disseminates data in coordination with DOJ; (3) develops and disseminates information on best practices regarding, and provides training on, carrying out APS; (4) conducts research related to the provision of APS; and (5) provides technical assistance to states and other entities that provide or fund APS. To carry out these functions, the section authorizes to be appropriated $3 million for FY2011, and $4 million for each of FY2012 through FY2014. The section also requires the Secretary to establish two grant programs. The first it to enhance APS programs provided by states and local governments. The second is grants to states for APS demonstration programs. Annual grants awarded to states to enhance APS programs are to be distributed to states based on a formula. For each of FY2011 through FY2014, the section authorizes to be appropriated $100 million for annual grants to enhance APS programs and $25 million for the APS demonstration grants. Sec. 2043. Long-Term Care Ombudsman Program Grants and Training. This section requires the Secretary to award grants to eligible entities with relevant expertise and experience in abuse and neglect in LTC facilities or state LTC ombudsman programs to (1) improve the capacity of state LTC ombudsman programs to respond to and resolve abuse and neglect complaints; (2) conduct pilot programs with state or local LTC ombudsman offices; and (3) provide support for such state LTC ombudsman programs and such pilot programs. It authorizes to be appropriated $5 million for FY2011, $7.5 million for FY2012, and $10 million for each of FY2013 and FY2014. The section also requires the Secretary to establish programs to provide and improve ombudsman training with respect to elder abuse, neglect, and exploitation for national organizations and state LTC ombudsman programs. It authorizes to be appropriated $10 million for each of FY2011 through FY2014. Sec. 2044. Provision of Information Regarding, and Evaluation of, Elder Justice Programs. To be eligible to receive a grant under Part II, this section requires an applicant to (1) agree to provide the required information to eligible entities conducting an evaluation of the activities funded through the grant; and (2) in the case of an applicant for a certified EHR technology grant, to provide the Secretary with such information as the Secretary may require. It requires the Secretary to reserve a portion of the funds appropriated in each program under Part II (no less than 2%) to be used to provide assistance to eligible entities to conduct validated evaluations of the effectiveness of the activities funded under each program under Part II. This provision does not apply to the certified EHR technology grant program; instead, the Secretary is required to conduct an evaluation of the activities funded under this grant program and appropriate grant audits. Sec. 2045. Report. This section requires the Secretary to submit a report to the Elder Justice Coordinating Council and the appropriate committees of Congress, no later than October 1, 2014, compiling, summarizing, and analyzing state reports submitted under the APS grant programs and recommendations for legislative or administrative action, as the Secretary determines appropriate. Sec. 2046. Rule of Construction. This section states that nothing in Subtitle B should be construed as (1) limiting any cause of action or other relief related to obligations under this subtitle that are available under the state law; or (2) creating a private cause of action for a violation of this subtitle. The section also amends SSA Sec. 402(a)(1)(B) to require a state's TANF state plan to indicate whether the state intends to assist individuals to train for, seek, and maintain employment providing direct care in a LTC facility or in other occupations related to elder care. States that add this option are required to provide an overview of such assistance. The amendment took effect on January 1, 2011. Subsection (b) of Sec. 6703 establishes (1) a National Training Institute for Surveyors and grants to state survey agencies; and (2) requirements for reporting crimes in federally funded LTC facilities. Specifically, this subsection requires the Secretary to enter into a contract to establish and operate the National Training Institute for federal and state surveyors to carry out specified activities that provide and improve training of surveyors investigating allegations of abuse, neglect, and misappropriation of property in programs and LTC facilities that receive payments under Medicare or Medicaid. It authorizes to be appropriated $12 million for the period of FY2011 through FY2014 to carry out these activities. The HHS Secretary is also required to award grants to state survey agencies that perform surveys of Medicare or Medicaid participating facilities to design and implement complaint investigation systems. It authorizes $5 million for each of FY2011 through FY2014 to carry out these activities. This subsection amends SSA Title XI, Part A (as amended by ACA Sec. 6005) by adding a new Sec. 1150B , Reporting to Law Enforcement of Crimes Occurring in Federally Funded Long-Term Care Facilities , requiring the reporting of crimes occurring in federally funded LTC facilities that receive at least $10,000 during the preceding year. It requires the owner or operator of these facilities to annually notify covered individuals that they are required to report any reasonable suspicion of a crime against a resident or individual receiving care from the facility. Failure to report suspicion of a crime would result in a civil money penalty and the Secretary may make a determination to exclude the covered individual from participation in any federal health care program. If an individual is classified as an "excluded individual," a LTC facility that employs that person is not eligible to receive federal funds under the SSA. It prohibits a LTC facility from retaliating against an employee for making a report. If retaliation occurs, the LTC facility may be subject to a civil money penalty or the Secretary may exclude them from participation in any federal health care program for a period of two years, or both. In addition, each LTC facility is required to post conspicuously, in an appropriate location, a sign specifying the rights of employees under this section. Subsection (c) of Sec. 6703 requires the Secretary, in consultation with appropriate government agencies and private sector organizations, to conduct a study on establishing a national nurse aide registry. No later than 18 months after the date of enactment, the Secretary is required to submit a report to the Elder Justice Coordinating Council and appropriate congressional committees containing the findings and recommendations of the study. It authorizes to be appropriated SSAN to carry these activities, with funding for the study not to exceed $500,000. ACA contains provisions that impact various stages of the medical product development pipeline, including basic biomedical research, premarket and postmarket review of medical products by the Food and Drug Administration (FDA), and revenue generation via products already on the market. Basic biomedical research supported by the National Institutes of Health (NIH) and other federal agencies can sometimes result in the development of medical products. ACA contains two provisions designed to facilitate biomedical research and help translate promising research findings into new medical products. One creates a two-year temporary tax credit equal to 50% of investment in certain types of therapeutic research. Another authorizes NIH funding for the Cures Acceleration Network (CAN) to speed treatment development not likely to occur through market incentives. FDA is responsible for ensuring medical product safety and effectiveness; it derives most of its authorities from the Federal Food, Drug, and Cosmetic Act (FFDCA). Adding FDA requirements may increase the quality of medical products but may also raise the cost or delay consumer access to those products. Three ACA provisions affect FDA regulation of medical products. One requires that, if certain conditions are met, additional health benefit and risk information about a prescription drug must be included in its labeling and in advertisements. A second makes it easier for a generic drug to continue to seek FDA approval if the associated brand-name drug changes its labeling within 60 days of the generic's approval. A third provision will enable biosimilar biological products to reach the marketplace for the first time. Because of its significance, the biosimilar provision is discussed in its own section below. Medical products comprise 14% of health care expenditures. The implementation of ACA may increase the demand for medical products as more individuals obtain health insurance. ACA contains provisions designed to generate tax revenue from the sale of prescription drugs and medical devices. It also contains a provision that taxes (and may deter) the use of another product regulated under the FFDCA: ultraviolet lamps used for indoor tanning. (Note that ACA provisions that affect Medicare and Medicaid reimbursement for medical products are discussed in separate CRS reports, which are listed at the beginning of this report.) This section inserts a new Sec. 48D , Qualifying Therapeutic Discovery Project Credit , into the IRC, Chapter 1, subchapter A, part IV, Subpart E and makes other conforming and clerical amendments. The new provision creates a two-year temporary tax credit program for small companies with 250 or fewer employees that invest in qualifying therapeutic discovery projects. Companies may apply for one or more tax credits, each covering 50% of the cost of qualifying research investments made in 2009 or 2010. However, the total amount of tax credits any one company receives may not exceed $5 million. Overall, the tax credit program is capped at $1 billion. There are three types of qualifying therapeutic discovery projects for which investments may be eligible for the new tax credit. The first consists of studies designed to treat or prevent diseases or conditions for the purpose of securing FDA approval of a new drug (under FFDCA Sec. 505(b)) or licensure of a new biological product (under PHSA Sec. 351(a)). The second includes projects to diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions. The third includes projects to develop a product, process, or technology to further the delivery or administration of therapeutics. In addition, when determining which investments to certify as qualified for the tax credit (as described below), the Secretary of the Treasury, in consultation with the Secretary is directed to consider: only projects that have both a reasonable potential to (1) result in new therapies to treat areas of unmet medical need or to prevent, detect, or treat chronic or acute diseases and conditions; (2) reduce long-term health care costs in the United States, or (3) significantly advance the goal of curing cancer within the 30-year period; and projects that have the greatest potential to create and sustain (directly or indirectly) high-quality, high-paying jobs in the United States, and to advance U.S. competitiveness in the fields of life, biological, and medical sciences. Within 60 days of enactment, the Treasury Secretary, in consultation with the Secretary, must establish a qualifying therapeutic discovery project program to consider and award certifications for qualified investments eligible for the new credit to qualifying therapeutic discovery project sponsors. Those wishing to obtain the required certification for the new tax credit will have to make an application to the Secretary of the Treasury, who must respond with a determination within 30 days of receipt. In lieu of the tax credit for investments in 2009 or 2010, companies may elect to receive one or more grants, subject to the same restrictions (i.e., grants may cover up to 50% of the amount of qualifying investments made in 2009 and 2010, and the total amount of grants any one company receives for the two years may not exceed $5 million). The section appropriates SSAN to carry out the grant program. An application for certification for the new tax credit is also considered by the Secretary of the Treasury to be an application for the new grant program. Certain types of expenditures are excluded from the eligibility for the credit and the grant, such as facility maintenance and employee remuneration. Certain other restrictions apply related to the use of tax deductions or other tax credits for project expenses claimed for the new tax credit or grant. ACA amends PHSA Sec. 402(b) to require the NIH Director (Director) to implement a new Cures Acceleration Network (CAN), to facilitate the development of "high need cures," as described below. It also amends PHSA Sec. 499(c)(1) to enable the Foundation for the National Institutes of Health to accept charitable gifts to support the CAN. If funded, CAN will help support the development of treatments for diseases or conditions that are rare, or for which market incentives are inadequate. ACA adds a new PHSA Sec. 402C , Cures Acceleration Network , containing definitions, establishing CAN within the Office of the Director, specifying CAN's functions, establishing CAN's Board, and requiring the Director to award grants, contracts, or cooperative agreements to carry out the purposes of the section. ACA defines a "high need cure" as a medical product (a drug, device, or biological product) that the NIH Director determines: (1) is a priority to diagnose, prevent, or treat harm from a disease or condition; and (2) that the incentives of the commercial market are unlikely to result in its adequate or timely development. The Director must award, as specified, grants, contracts, or cooperative agreements to accelerate the development of high need cures. Each Cures Acceleration Partnership Award is to, among other things, provide up to $15 million for the first year, payable in a lump sum, with a matching requirement. The Cures Acceleration Grant Awards are similar but have no matching requirement. The Cures Acceleration Flexible Research Awards will be available if the Director determines that the goals of the section could not be met otherwise, and will consist of awards not to exceed 20% of the total funds appropriated under this section (see below). The CAN is directed to conduct and support revolutionary advances in basic research, facilitate FDA review for CAN-funded cures, as specified, and carry out other specified functions. A CAN Review Board is to be established to advise the Director on CAN activities. The board is also to advise the Director on significant barriers to the translation of basic science into clinical applications, among other things, and must submit to the Secretary reports regarding any barrier that is identified. The Director must then respond to such recommendations in writing. There are authorized to be appropriated $500 million for FY2010, and SSAN for subsequent fiscal years. Other funds appropriated under the PHSA may not be allocated to the CAN. This section requires the Secretary, acting through the FDA Commissioner, to determine whether the addition of information about the health benefits and risks of a prescription drug to that drug's labeling and advertising would improve health care decision-making by clinicians, patients, and consumers. Such information would be presented in a standard format such as a "Drug Facts Box." To reach this determination, the Secretary must review all available scientific evidence and research on decision-making and social and cognitive psychology and consult with a wide range of stakeholders. Within one year of enactment, the Secretary must submit to Congress a report that includes the determination and the reasoning behind it. If the determination is that decision-making would be improved, the Secretary must propose implementation regulations not later than three years after the report's submission. Sec. 3511 of ACA authorizes the appropriation of SSAN to carry out the activities in this section. To receive FDA approval, a generic drug must, in addition to other requirements in an abbreviated new drug application (ANDA), use the same labeling that FDA had approved for the listed referent (usually brand-name) drug. This provision addresses the situation in which the labeling of the listed referent drug is changed within 60 days of its generic product ANDA approval. ACA amends FFDCA Sec. 505(j) to allow the Secretary to approve an otherwise qualified generic application with the existing (unrevised) labeling if (1) the revisions did not involve the "Warning" section, (2) the generic sponsor submits revised labeling (to put it in accord with the listed referent drug's revised labeling) within 60 days, and (3) the Secretary has not determined that sale of the product with the existing (unrevised) labeling adversely impacts the safe use of the drug. This section, as amended by HCERA Sec. 1404, imposes an annual fee on covered entities; that is, certain manufacturers and importers of branded prescription drugs (including biological products and excluding orphan drugs). Effective in 2011, a covered entity must pay an annual fee to the Secretary of the Treasury. The total fee amounts authorized per year are as follows: $2.5 billion for 2011; $2.8 billion for each of 2012 and 2013; $3 billion for each of 2014 through 2016; $4 billion for 2017; $4.1 billion for 2018; and $2.8 billion for 2019 and each year thereafter. Fees amounts are to be transferred to the Medicare Part B trust fund. The annual fee amount that each covered entity must pay is based on its share of the total prescription drug sales to specified government programs. Each entity must pay a proportion of the annual fee total equal to the entity's proportion of all such sales for the previous year. However, only specified amounts of such drug sales are taken into account when calculating entities' annual fees; for sales of not more than $5 million, none will be taken into account. For sales of more than $5 million and not more than $125 million, 10% will be taken into account. For sales of more than $125 million and not more than $225 million, 40% will be taken into account. For sales of more than $225 million and not more than $400 million, 75% will be taken into account. For sales of more than $400 million, 100% will be taken into account. In the event that more than one person is liable for a fee with respect to a single covered entity, all such persons are jointly and severally liable for payment. The Secretary of the Treasury is required to calculate the proportion to be paid by each covered entity based upon annual reports made by the Secretaries of HHS, Veterans Affairs, and Defense. Reports are required to contain the total branded prescription drug sales for each covered entity with respect to Medicare Parts B and D, Medicaid, the Department of Veterans Affairs programs, and the Department of Defense programs and TRICARE. The Secretary of the Treasury is required to publish guidance necessary to carry out the purposes of this section. This provision creates a new IRC Sec. 4191 in new Subchapter E – Medical Devices . Beginning in 2013, the law imposes a 2.3% sales tax on the sale of a medical device by a manufacturer, producer, or importer. Taxable devices include those defined in FFDCA Sec. 201(h), excluding eyeglasses, contact lenses, hearing aids, and any other devices determined by the Secretary to be of a type the general public typically buys at retail for individual use. Tax exemptions listed under IRC Sec. 4221(a)(3)-(6) and Sec. 6416(b)(2)(B)-(E) do not apply, including those for state and local governments, nonprofit educational entities, and certain others. This provision also repeals ACA Sec. 9009, as amended by ACA Sec.10904 (imposition of annual fee on medical device manufacturers and importers). This section adds a new IRC Sec. 5000B (in a new Chapter 49), imposing a 10% tax on amounts paid for indoor tanning services performed on or after July 1, 2010. Phototherapy services performed by licensed medical professionals are not subject to this tax. The person receiving payment for the service must collect the amount of the tax from the individual on whom the procedure is performed, and is responsible for the tax amount if the client does not submit the payment. The provider must submit the tax to the Treasury Secretary on a quarterly basis. This section also nullifies ACA Sec. 9017 (Excise Tax on Elective Cosmetic Medical Procedures). ACA establishes a new FDA regulatory authority by creating a licensure pathway for biosimilars and authorizing the agency to collect associated fees. 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. Congressional interest in an expedited pathway for the licensure of biosimilars is the same as it was for generic chemical drugs in 1984; namely, cost savings. The pathway for biosimilars is 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 innovator 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 costs about $15,000 per year. A pathway enabling the FDA approval of biosimilars may allow for market competition and reduction in prices, though perhaps not to the same extent as occurred with generic chemical drugs under Hatch-Waxman. Based on its analysis of published studies of the impact of follow-on biologics on health care spending, CBO estimates that establishing a regulatory pathway for approving such products would result in a net savings to the federal government of $9.2 billion over a 10-year period. This section provides the title, "Biologics Price Competition and Innovation Act of 2009," and the sense of the Senate that a biosimilars pathway balancing innovation and consumer interests should be established. This section amends PHSA Sec. 351 to create a new regulatory pathway for the FDA 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 section allows 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 will determine if the reference product and a biosimilar 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. The section provides a 12-year data exclusivity period (from the date on which the reference product was first approved) for the reference product during which time the FDA cannot approve a follow-on version of the innovator biologic drug. If a reference product has been designated an orphan drug, an application for a biosimilar or interchangeable product may not be filed until the later of (1) the seven-year period of orphan drug exclusivity described in the FFDCA, or (2) the 12-year period established by this section. The section also allows for a period of exclusive marketing for the biological product that is the first to be established as interchangeable with the reference product. The Secretary is authorized to 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 does not preclude the review of, or action on, an application. The section sets forth a process governing patent infringement claims against an applicant or prospective applicant for a biological product license. It also establishes new processes for identifying patents that might be disputed between the reference product company and the company submitting a biosimilar application. The section further requires that all biological product applications be submitted under PHSA Sec. 351. For the small number of biological products that have been approved under FFDCA Sec. 505, the approved application will be deemed to be a license for the biological product under Sec. 351 as of 10 years after enactment. The section allows for the collection of user fees for the review of applications for approval of biosimilars. The Secretary is required to develop recommendations regarding goals for the review of biosimilar product applications for FY2013 through the end of FY2017 and present them to Congress. The recommendations must be published in the Federal Register with a 30-day public comment period, and a public meeting must be held. The revised recommendations must be presented to Congress by January 15, 2012. Based on those recommendations, it is the sense of the Senate that Congress will authorize a user fee program effective October 1, 2012. Through October 1, 2010, the Secretary must collect data on the cost of biosimilar product application review as conducted according to the prescription drug user fee program. Two years after receiving the first user fee for a biosimilar product application, and every two years thereafter until October 1, 2013, the Secretary must perform an audit of the application review costs. An alteration of the user fee will occur depending on results of the audit, as specified in this section. The section authorizes the appropriation of SSAN for each of FY2010 through FY2012 to cover the costs of developing recommendations for a user fee program and for auditing the costs of reviewing biosimilar product applications. An extra six months of data (market) exclusivity will be provided for a new biologic drug if pediatric studies are conducted prior to FDA approval of the drug. An extra six months of data (market) exclusivity is provided for a biologic drug already on the market if pediatric studies are conducted and the request for the extension is made not less than nine months before the expiration of the original exclusivity period. The section requires an IOM study to be conducted that will review and assess the number and importance of biological products for children that are being tested as a result of amendments made by this ACA title, as well as biological products that are not being tested for pediatric use, and offer recommendations for ensuring pediatric testing of biological products. This section requires that the Secretary and the Treasury Secretary determine for each fiscal year the amount saved to the federal government as a result of enactment of the approval pathway for biosimilar biological products. Notwithstanding any other provision, the savings to the federal government as a result of enactment of the biosimilars approval pathway will be used for deficit reduction. Concern about the rising rates of obesity and the resulting effect on individuals' health and health care costs has prompted Congress to consider a number of options in an effort to reduce obesity levels in the U.S. population. ACA includes one such option. The law requires nutrition labeling for foods sold in chain restaurants and vending machines, which were previously exempted from FDA's nutrition labeling regulations. This section inserts a new paragraph H into FFDCA Sec. 403(q)(5) , requiring nutrition labeling for standard menu items offered for sale in chain restaurants or similar retail food establishments with 20 or more locations. These establishments must disclose on the menu and the menu board, as specified, for standard menu items: (1) the number of calories contained in the item; and (2) the suggested daily caloric intake, as specified by the Secretary by regulation. Such establishments must also make available at the premises upon request certain detailed written nutritional information. The establishments must have a reasonable basis for their nutrient content disclosures. The Secretary must establish by regulation standards for determining and disclosing the nutrient content for standard menu items that come in different flavors, varieties, or combinations, but that are listed as a single menu item. The section also requires certain vending machine operators that own or operate 20 or more machines to provide specified signs disclosing the number of calories contained in each article of food, so that the information is accessible to consumers before they make their purchases. The Secretary must promulgate proposed regulations as specified to carry out the requirements of the section, and to provide quarterly reports to Congress describing progress toward promulgating final regulations. The section amends FFDCA Sec. 403A to preempt states and localities from establishing or continuing in effect any requirement for nutrition labeling of a food that is not identical to the requirements of FFDCA Sec. 403(q), including the new requirements for foods sold in certain restaurants and similar retail food establishments. The section also prohibits the amendments it made from being construed as (1) preempting any provision of state or local law unless the state or local law creates or continues nutrition disclosures of the type that would be required by this section and those disclosures would be expressly preempted; (2) applying to any state or local requirement about food labeling that provides for safety warnings concerning the food or a component of the food; or (3) applying to any restaurant or similar retail food establishment other than those described in this proposal and offering for sale substantially the same menu items, except if the restaurant or retail food establishment is not part of a chain of 20 or more locations but elects to comply with requirements for such restaurants. Under PHSA Sec. 340B, pharmaceutical drug manufacturers that participate in the Medicaid drug rebate program are required to enter into pharmaceutical pricing agreements that provide discounts on covered outpatient drugs purchased by certain public health facilities (covered entities). HRSA, the agency that administers the 340B program, indicates that approximately 14,000 covered entities and 800 pharmaceutical manufacturers participate in the program. Covered entities are eligible to receive discounts on outpatient prescription drugs from participating manufacturers. These entities include hospitals owned or operated by state or local government that serve a higher percentage of Medicaid beneficiaries, as well as federal grantees such as FQHCs, FQHC look-alikes, family planning clinics, state-operated AIDS drug assistance programs, Ryan White CARE Act grantees, family planning and sexually transmitted disease clinics, and others, as identified in the PHSA. Covered entities do not receive discounts on inpatient drugs under the 340B program. Participating 340B covered entities are prohibited from diverting drugs purchased under the program to other organizations and from obtaining multiple discounts, including participation in outpatient group purchasing arrangements. The 340B discount is determined by dividing the average total Medicaid rebate percentage of 15.1% for single source and innovator multiple source drugs, and 11% for non-innovator multiple source drugs by the average manufacturer price (AMP) for each dose and strength. Medicaid statute defines AMP as the average price paid to manufacturers by wholesalers for drugs distributed to the retail pharmacy class of trade. Manufacturers are required to report AMP and their best price to the Secretary, but subject to verification, manufacturers calculate the maximum price ("ceiling price") they may charge 340B entities. Manufacturers are permitted to audit covered entity records if they suspect product diversion or multiple discounts are taking place. Sec. 6004 of the Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ) amended SSA Sec. 1927(a) to require prescription drug manufacturers to add certain qualifying children's hospitals (those that are exempt from the Medicare prospective payment system) to the entities entitled to receive discounts under the 340B program. DRA Sec. 6004 also required the children's hospitals to meet all other 340B participation requirements. A final rule for participation of children's hospitals in the 340B program was issued on September 1, 2009. The ACA further expanded the types of entities that could participate in the program. It also included two provisions related to improving program integrity and oversight. This section, as amended by HCERA Sec. 2302, amends PHSA Sec. 340B to add the following to the list of covered entities entitled to discounted drug prices under the 340B program: (1) certain children's and free-standing cancer hospitals excluded from the Medicare prospective payment system; (2) critical access hospitals; and (3) certain rural referral centers and sole community hospitals. These new 340B-eligible facilities also must meet other specified 340B participation requirements. In addition, the changes in this section and Sec. 7102 (described below) are to be used to determine whether drug manufacturers meet the pricing requirements under Sec. 340B and SSA Sec. 1927. The provisions in this section and Sec. 7102, as amended by HCERA, became effective on January 1, 2010, and were applicable to drug purchases beginning January 1, 2010. This section further amends PHSA Sec. 340B to require the Secretary to develop systems to improve manufacturer and covered entity compliance and program integrity activities, as well as administrative procedures to resolve disputes. The compliance and program integrity systems are to include a number of specifications to increase transparency and strengthen monitoring, oversight, and investigation of the prices that manufacturers charge covered entities, as well as additional improvements to ensure covered entities do not divert drugs or obtain multiple discounts. The Secretary is required to establish a new administrative dispute resolution process to mediate and resolve covered entity overpayment claims and manufacturer claims against covered entities for drug diversion or multiple discounts. Civil money penalty sanctions up to $5,000 per instance for manufacturer overcharges are authorized under this section. The Secretary is required to establish standards and issue regulations for assessing CMPs on drug manufacturers for overcharge violations by September 19, 2010. The Secretary also is required to issue regulations within 180 days of enactment (by September 19, 2010) to implement a dispute resolution process by which covered entities can report instances where they suspect they have been overcharged. The section authorizes the appropriation of SSAN for FY2010 and each succeeding fiscal year to carry out the improvements to the 340B program. Finally, this section amends the PHSA Sec. 340B to require that pricing agreements stipulate that drug makers will report to the Secretary quarterly ceiling prices for each covered drug and to offer these drugs to covered entities at or below these prices. HCERA Sec. 2302 amends ACA Sec. 7102 to exclude orphan drugs, as designated by FFDCA Sec. 526, from 340B discounts for the newly added hospital entities. This section requires GAO to submit a report to Congress that examines whether individuals receiving services through 340B-covered entities are receiving optimal health care services. The report was due within 18 months of enactment (by September 23, 2011) and is to at least make recommendations on (1) whether the 340B program should be expanded; (2) whether mandatory 340B sales of certain products could hinder patients' access to those therapies through any provider; and (3) whether 340B income is being used by covered entities to further program objectives. Although medical malpractice liability reform has attracted congressional attention over the years, ACA is the first law enacted with provisions on the topic. One provision expresses the Sense of the Senate that Congress should consider establishing a state demonstration program to evaluate alternatives to tort litigation. The second establishes such an initiative that will be in effect for five years. Since before ACA was enacted, various states have regulated and implemented tort reform for medical malpractice lawsuits. In states that have done so, tort reform laws include statutes of limitation and caps on non-economic damages or punitive damages, for example. It is unclear whether, or by how much, such reforms have reduced costs on the health care system. ACA does not create a federal medical liability reform law as prior congressional bills have sought to do, but rather gives states a financial incentive to develop their own alternatives to tort litigation aimed at meeting specific goals. Furthermore, ACA extends Federal Tort Claims Act liability protection to members, employees, and contractors of free clinics. Sec. 6801 expresses the Sense of the Senate that (1) health care reform presents an opportunity to address issues related to medical malpractice and medical liability insurance; (2) states are encouraged to develop and test litigation alternatives while preserving an individual's right to seek redress in court; and (3) Congress should consider establishing a state demonstration program to evaluate alternatives to the existing civil litigation system with respect to medical malpractice claims. Sec. 10607 creates a new PHSA Sec. 933V-4 , that authorizes the appropriation of $50 million for a five-year period beginning in FY2011 for the Secretary to award demonstration grants to states for the development, implementation, and evaluation of alternatives to current tort litigation for resolving disputes over injuries allegedly caused by health care providers or organizations. These grants will exist for no more than five years. States that receive a grant are required to develop an alternative that (1) allows for the resolution of disputes caused by health care providers or organizations; and (2) promotes a reduction of health care errors by encouraging the collection and analysis of patient safety data related to the resolved disputes. Prior to receiving a grant, a state will have to demonstrate that its alternative: (1) increases the availability of prompt and fair resolutions of disputes; (2) encourages the efficient resolution of disputes; (3) encourages the disclosure of health care errors; (4) enhances patient safety by reducing medical errors and adverse events, (5) improves access to liability; (6) informs the patient about the differences between the alternative and tort litigation; (7) allows the patient to opt out of the alternative at any time; (8) does not conflict with state law regarding tort litigation; (9) does not abridge a patient's ability to file a medical malpractice claim. Each state will be required to identify the sources from and methods by which compensation will be paid, which can include public and private funding sources. In addition, each state will be required to establish a scope of jurisdiction to whom the alternative will apply so that it is sufficient to evaluate the effects of the alternative. The Secretary will provide to the states that are applying for the grants technical assistance, including guidance on common definitions, non-economic damages, avoidable injuries, and disclosure to patients of health care errors and adverse events. When reviewing states' grant applications, the Secretary will consult with a newly established review panel that will be composed of relevant experts appointed by the Comptroller General. There are various reporting requirements that must be completed. First, states that receive a grant must submit a report to the Secretary covering the impact of the activities funded on patient safety and on the availability and price of medical liability insurance. Second, the Secretary must submit an annual compendium to Congress that examines any differences that may result in the areas of quality of care, number and nature of medical errors, medical resources used, length of time for dispute resolution, and the availability and price of liability insurance. Third, the Secretary, in consultation with the review panel, must contract with a research organization to conduct an overall evaluation of the effectiveness of grants awarded. This evaluation must be submitted to Congress no later than 18 months following the date of implementation of the first funded program. Fourth, MedPAC and the Medicaid and CHIP Payment and Access Commission (MACPAC) must each conduct an independent review of the impact of state-implemented alternatives on their programs and beneficiaries. These reports must be submitted no later than December 31, 2016. The section would not limit any prior, current, or future efforts of any state to establish any alternative to tort litigation. The Federal Tort Claims Act (FTCA) waives sovereign immunity to make the United States liable, in accordance with the law of the state where a tort occurs, for "injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the government while acting within the scope of his office or employment." Congress can choose to immunize a private organization, or its employees or volunteers, from tort liability by enacting a statute that specifically deems them federal employees for purposes of the FTCA. In 1996, Congress granted FTCA liability protection to volunteer health professionals at free clinics. In other words, such individuals have been deemed federal employees such that they are immunized from liability under the FTCA if medical malpractice claims are brought against them. ACA Sec. 10608 amends PHSA Sec. 224(o)(1) to extend FTCA liability protection to officers, governing board members, employees, and contractors of free clinics. Under this, free clinics that qualify for such protection have the option of not purchasing medical malpractice insurance to cover the organization, members, employees, or contractors. Appendix A. ACA Provisions Amended or Struck by ACA Title X and/or HCERA Appendix B. Timeline of Public Health, Workforce, Quality, and Related ACA Provisions In some instances, ACA, as amended by HCERA, specifies dates for key administrative or programmatic activities or requirements. The following timeline (see Table B -1 ) lists provisions summarized in this report that include dates for the following: final report deadlines, including reports to Congress; implementation or termination of new or existing grant programs; rulemaking or guidance; new or expiring authorities, activities, or requirements; and establishment or termination of entities. Other activities or requirements that have no date specified in ACA and are implicitly effective upon enactment (March 23, 2010) are not included in this timeline. Table B -1 lists the ACA dates which are grouped alphabetically under headings that correspond to section headings in the report. Within each heading, table entries are organized alphabetically by title with key dates in chronological order within each title. Effective dates stated in terms of days, months, or years after enactment have been converted to calendar dates (e.g., 180 days is 9/19/2010; six months is 9/23/2010, etc.). Table entries for specific implementation requirements or deadlines that are not tied to a specific calendar date are presented at the end of each title. Each table entry includes the ACA section number (as amended); a descriptive title for each activity or requirement; a brief description of the activity or requirement; and the associated start date, effective date, or deadline. Where applicable, the end date, frequency or duration associated with specific activities or requirements is noted. For additional information on provisions that appear in the timeline, refer to the more detailed section summaries in the report. For definitions of acronyms used in the timeline, refer to Appendix C . Unless otherwise stated, references in the table to "the Secretary" refer to the Secretary of Health and Human Services (HHS). Appendix C. Acronyms Used in the Report | In March 2010, President Obama signed into law a comprehensive health reform bill, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148), and a package of amendments to ACA, the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152). Health reform was one of President Obama's top domestic policy priorities during his first term, 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 were seen to require changes to both the financing and delivery of health care. This report—one of a series of CRS products on ACA, as amended—focuses on the law's workforce, public health, health care quality, and related provisions. It includes summaries of these provisions, explores some of their implications for health policy, and contains an associated timeline. This report is primarily for reference purposes. The material in it is intended to provide context to help the reader better understand the intent of ACA's individual provisions at the time of enactment. The report does not track or discuss ongoing ACA-related regulatory and other implementation activities. ACA includes numerous provisions intended to increase the primary care and public health workforce, promote preventive services, and strengthen quality measurement, among other things. It amends and expands many of the existing health workforce programs authorized under Title VII (health professions) and Title VIII (nursing) of the Public Health Service Act (PHSA); creates a Public Health Services Track to train health care professionals emphasizing team-based service, public health, epidemiology, and emergency preparedness and response; and makes a number of changes to the Medicare graduate medical education (GME) payments to teaching hospitals, in part to encourage the training of more primary care physicians. The new law also establishes a national commission to study projected health workforce needs. In addition, ACA creates an interagency council to promote healthy policies and prepare a national prevention and health promotion strategy. It establishes a Prevention and Public Health Fund to boost funding for prevention and public health; increases access to clinical preventive services under Medicare and Medicaid; promotes healthier communities; and funds research on optimizing the delivery of public health services. Funding also is provided for maternal and child health services, including abstinence education and a new home visitation program. ACA also establishes a national strategy for quality improvement; creates an interagency working group to advance quality efforts at the national level; develops a comprehensive repertoire of quality measures; and formalizes processes for quality measure selection, endorsement, data collection, and public reporting of quality information. It creates and funds a new private, nonprofit comparative effectiveness research institute. Other key provisions in ACA include new requirements for the collection and reporting of health data by race, ethnicity, and primary language to detect and monitor trends in health disparities; and electronic format and data standards to improve the efficiency of administrative and financial transactions between health care providers and health plans; programs to prevent elder abuse, neglect, and exploitation; a new regulatory pathway for licensing biological drugs shown to be biosimilar or interchangeable with a licensed biologic; new nutrition labeling requirements for chain restaurant menus and vending machines. |
The Andean Counterdrug Initiative was designed to provide assistance to seven countries inthe broadly defined Andean region: Bolivia, Brazil, Colombia, Ecuador, Panama, Peru, andVenezuela. (3) The regionis important to the U.S. drug policy because it includes three major drug producing countries(Colombia, Bolivia, and Peru) where virtually all the world's cocaine and significant quantities ofhigh quality heroin destined for the United States are produced. U.S. objectives for the ACI programare to eliminate the cultivation and production of cocaine and opium, build law enforcementinfrastructure, arrest and prosecute traffickers, and seize their assets. The region also includes two major oil producing countries (Venezuela and Ecuador),members of the Organization of Petroleum Exporting Countries (OPEC), which supply significantquantities of oil to the United States. For the five traditional Andean countries (Colombia,Venezuela, Ecuador, Peru, and Bolivia), the Andes mountain range that runs through South Americaposes geographical obstacles to intra-state and inter-state integration, but the countries are linkedtogether in the Andean Community economic integration pact. U.S. support for Plan Colombia began in 2000, when Congress passed legislation providing$1.3 billion in interdiction and development assistance ( P.L. 106-246 ) for Colombia and six regionalneighbors. Funding for ACI from FY2000 through FY2005 totaled nearly $4.3 billion. ACI ismanaged by the State Department's Bureau of International Narcotics Control and Law EnforcementAffairs (INCLE). Some ACI funds are transferred to the U.S. Agency for International Development(USAID) for alternative development programs. ACI funds are divided between programs that support eradication and interdiction efforts,as well as those focused on alternative crop development and democratic institution building. Onthe interdiction side, programs train and support national police and military forces, providecommunications and intelligence systems, support the maintenance and operations of host countryaerial eradication aircraft, and improve infrastructure related to counternarcotics activities. On thealternative development side, funds support development programs in coca growing areas, includinginfrastructure development, and marketing and technical support for alternative crops. It alsoincludes assisting internally displaced persons, promoting the rule of law, and expanding judicialcapabilities. ACI also funds the Air Bridge Denial Program that is currently operational in Colombia, andtemporarily suspended in Peru, after an accidental shooting down of a civilian aircraft carrying U.S.missionaries in 2001. After the incident, in which two Americans died, the program in bothcountries was suspended until enhanced safeguards were developed. The program in Colombiaresumed in August 2003. The program supports an aircraft fleet, pilot training, and logistical andintelligence support. The program tracks aircraft suspected of being involved in drug trafficking,and forces them to land for inspection. If the aircraft is repeatedly unresponsive, it may be shotdown, at the direction of the commander of the Colombian Air Force. The resumption of a programin Peru is still pending the development of safety enhancements. The Administration requested a total of $734.5 million for FY2006 for the AndeanCounterdrug Initiative, an increase from the FY2005 estimate of $725.2 million. Included as partof the request was $21 million for the Air Bridge Denial Program, that would continue contractorlogistical support and training for operations in Colombia. The request also included a newcomponent, $40 million for a Critical Flight Safety Program that was described as the firstinstallment of a multi-year program to upgrade and refurbish of State Department aircraft used foreradication and interdiction missions. In the FY2006 Foreign Operations Appropriations Act ( H.R. 3057 , P.L.109-102 ), Congress approved the Administration's request of $734.5 million for ACI but changedhow those funds are allocated. Congress provided $14 million for the Air Bridge Denial programinstead of the requested $21 million. For the new Critical Flight Safety program, Congress provided$30 million instead of the requested $40 million. Congress also recommended different fundinglevels for Colombia and Peru, as noted below. Table 1. Andean Counterdrug Initiative FY2006 ForeignOperations Conference Report ( P.L. 109-102 / H.Rept. 109-265 ) (in millions $) * The conference report directed $131.2 million for alternative development and $27.4 million forRule of Law programs. Additional funding for the Andean region is provided through the Foreign Military Financing(FMF) program and the International Military Education and Training (IMET) program, bothmanaged by the State Department. The Defense Department has a counternarcotics account forworldwide programs involving interdiction, training, equipment, and intelligence sharing. In theWestern Hemisphere, these programs are managed by the U.S. Army Southern Command. Foreign Military Financing (FMF) provides funding grants to foreign nations to purchaseU.S. defense equipment, services, and training. The program's objectives are to assist key allies toimprove their defense capabilities, to strengthen military relationships between the United States andFMF recipients, and to promote the professionalism of military forces in friendly countries. FMF isprovided to Colombia and the Andean region to support the efforts of those nations to establish andstrengthen national authority in remote areas that have been used by leftist guerrilla organizations,rightist paramilitaries, and narcotics traffickers. A portion of FMF funding in Fiscal Years 2002 and2003 went for infrastructure protection of oil pipelines in Colombia. The FY2005 estimate for theAndean region was $103 million, with $99 million for Colombia. The FY2006 request was for $94 million for the region, with Colombia proposed to receive$90 million, mainly to provide operational support and specialized equipment to the Colombianmilitary, with a focus on the Colombian Army's specialized and mobile units, and units assigned toprotect the Caño Limón oil pipeline. Bolivia was proposed to receive $1.8 million, Ecuador$750,000, Panama $1.1 million, and Peru $300,00 to strengthen their capabilities to interdict drugproduction and trafficking. In the FY2006 Foreign Operations Appropriations Act( H.R. 3057 , P.L. 109-102 ), Congress earmarked funds for some countries, but none inLatin America. The Administration has $242 million to fund remaining unearmarked countries, forwhich they requested $318 million. It is likely that amounts requested for some Andean recipientscould be trimmed to accommodate the decrease in available funds. The IMET program provides training on a grant basis to students from allied and friendlynations. Its objectives are to improve defense capabilities, develop professional and personalrelationships between U.S. and foreign militaries, and influence these forces in support of democraticgovernance. Training focuses on the manner in which military organizations function under civiliancontrol, civil-military relations, military justice systems, military doctrine, strategic planning, andoperational procedures. IMET funding for the Andean region was estimated at $3.7 million inFY2005 out of a total of $14 million for all of Latin America. The request for FY2006 for theAndean countries was $3.5 million out of a hemisphere-wide total of $13.7 million. The request for Colombia was $1.7 million and would focus on civil-military issuesfor junior and mid-grade military officers. For FY2006, Congress provided the Administration'sworldwide request of $86.74 million, so it is likely that Andean countries will receive the requestedamounts. The Department of Defense has authority for counternarcotics detection and monitoringunder Sections 124, 1004, and 1033 of the National Defense Authorization Act. DOD requests alump sum for counternarcotics programs worldwide and does not request amounts by country. Theestimated amount for Colombia in FY2004 ranges from $122 million to $160 million. The estimatefor FY2005 DOD counternarcotics funding for Latin America is $366.9 million, of which up to $200million is planned for Colombia. DOD requested a total of $896 million globally for counternarcotics programs, of which itestimated spending $368 million in Latin America in FY2006. Of this amount, $122 million wouldbe in direct support of Colombia. Activities include detection and monitoring operations to assistU.S. law enforcement agencies interdict drug trafficking. In the Andean region, support is providedin the form of training, equipment, and intelligence sharing activities. The FY2006 DefenseAppropriations Act ( H.R. 2863 , P.L. 109-148 ) provided $917.65 million for druginterdiction programs worldwide. Colombia receives the single largest portion of ACI funds. For FY2006, the Administrationrequested $463 million, of which $311 million was for interdiction and eradication efforts, $125million for alternative development and institution building programs, and $27 million for rule oflaw programs. Interdiction funds would support the Colombian military's aviation program and drugunits with training, logistics support, operating expenses, equipment, and to upgrade forwardoperating locations. Assistance would also be used to support Colombian National Police aviation,eradication and interdiction programs with equipment, logistical support, training, new baseconstruction, communications and information links. Alternative development programs wouldsupport the introduction of new licit crops, the development of agribusiness and forestry activities,and the development of local and international markets for new products. Rule of law assistancewould help promote democracy through judicial reform, support for vulnerable groups, and trainingand technical assistance for advisors in rule of law areas. ACI funds would also be used to assist theBureau of Alcohol, Tobacco and Firearms provide training and support to bomb squads in an effortto stem terrorist bombings in Colombia. In the FY2006 Foreign Operations Appropriations Act, Congress provided a total of $469.5million for Colombia, divided among $310.9 million for interdiction, $131.2 million for alternativedevelopment, and $27.4 million for rule of law programs. The amount for alternative developmentrepresents a $6.5 million increase from FY2005 levels. Colombia also receives small amounts ofNon-proliferation, Anti-terrorism, Demining and Related Programs (NADR). Colombia's spacious and rugged territory, whose western half is transversed by three parallelmountain ranges, provides ample isolated terrain for drug cultivation and processing, and contributesto the government's difficulty in exerting control throughout the nation. The country is known fora long tradition of democracy, but also for continuing violence, including a guerrilla insurgencydating back to the 1960s, and persistent drug trafficking activity. Recent administrations have hadto deal with a complicated mix of leftist guerrillas, rightist paramilitaries (or "self-defense" forces),and independent drug trafficking cartels. The two main leftist guerrilla groups are the RevolutionaryArmed Forces of Colombia (FARC) and the National Liberation Army (ELN). The rightistparamilitaries are coordinated by the United Self-Defense Forces of Colombia (AUC). All threegroups participate in drug production and trafficking, regularly kidnap individuals for ransom, andhave been accused of gross human rights abuses. The three have been designated foreign terroristorganizations by the United States. The AUC and Colombian military have been accused ofcollaborating in fighting the FARC and ELN. Table 2. U.S. Counternarcotics Assistance to Colombia,FY2000-FY2006 (in millions $) Sources: Figures are drawn from the annual State Department and USAID Budget Justificationsfrom the Department of State and the USAID Budget Justifications for fiscal years 2002 through2006, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ) and Conference Report( H.Rept. 109-265 ), and congressional testimony. Peru is the second largest recipient of ACI funding with $97 million requested for FY2006. This represented a reduction from $115.4 million in FY2005. ACI funding would be split between$54 million for interdiction and $43 million for alternative development and institution building. Interdiction funds would focus on improving Peruvian airlift operations, using U.S.-owned assets,determining the extent of coca cultivation in the country, demand reduction and money launderingprograms. Alternative development funds would rehabilitate roads, bridges, schools and health careaccess, land reform, and agri-business. For FY2006, Congress directed that Peru receive $108 million, of which $59 million wouldbe for interdiction and $49 million for alternative development. Unlike previous years, Congressdid not include a provision requiring notification prior to restarting the Air Bridge Denial programin Peru. Peru shares its northern border with Colombia, and is the second largest cocaine producerin the world. It exports high purity cocaine and cocaine base to markets in South America, Mexico,Europe, and the United States. Nevertheless, Peru has been viewed as a success story incounternarcotics efforts because joint U.S.-Peru air and riverine interdiction operations, aggressiveeradication efforts, and alternative development programs have significantly reduced cocaproduction. Facing mounting protests, the Peruvian government temporarily suspended theeradication program in the Upper Huallaga Valley in early July 2002, but resumed the program inSeptember 2002 once concerns were addressed, in part to be eligible for Andean Trade PreferenceAct benefits. The State Department reports that coca cultivation had decreased in Peru by 15% in2003. For 2004, the ONDCP reported a slight decrease, while the United Nations reported a 14%increase. (5) Counternarcotics policy in Peru has faced growing resistance from indigenous communitiesthat view coca leaf cultivation as a cultural right and source of income. A 2004 Peruvian studyfound that approximately two million people use coca leaf either habitually or occasionally, andanother two million use it for tea, or for traditional or ceremonial purposes. Some regions haveattempted to de-criminalize coca growing, a move which the President Toledo government hasresisted. With Toledo's low popularity and growing discontent in coca growing regions, someobservers believe the government is unwilling to take on the increasingly assertive cocagrowers. (6) Table 3. U.S. Counternarcotics Assistance to Peru, FY2000-FY2006 (in millions $) Sources: Figures are drawn from the annual State Department and USAID Budget Justifications forfiscal years 2002 through 2006, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ),and Conference Report ( H.Rept. 109-265 ). For FY2006, the Administration proposed spending $80 million in Bolivia, a reduction from$90 million in FY2005. The requested amount would be divided between $43 million forinterdiction and $37 million for alternative development and institution building. Interdiction fundswould continue eradication programs in the Chapare and Yungas regions, provide training for police,maintain support for Bolivian security forces riverine and ground operations, and aviation programs. Alternative development would continue support for the production of licit crops, and establishintegrated justice centers in conflictive regions. For FY2006, Congress approved theAdministration's request. Landlocked Bolivia shares no border with Colombia, but Bolivia's significant gains inreducing illegal coca production could be threatened by any successes in controlling production inColombia. At one time the world's foremost producer of coca leaf, Bolivia made great strides inreducing coca cultivation under the Banzer-Quiroga administration (1997-2002). (8) However, forcible eradicationof coca has become a source of social discontent, exacerbating tensions over class and ethnicity thatmay foment political instability in Latin America's poorest country. Moreover, according to the StateDepartment, coca cultivation increased 23% in 2002 and 17% in 2003. (9) Nevertheless, Bolivia's cocacultivation is still about half of its 1995 levels. For some 20 years, U.S. relations with Bolivia have centered largely on controlling theproduction of coca leaf and coca paste, which was usually shipped to Colombia to be processed intococaine. In support of Bolivia's counternarcotics efforts, the United States has provided significantinterdiction and alternative development assistance, and it has forgiven all of Bolivia's debt fordevelopment assistance projects, and most of the debt for food assistance. There has been growingpublic opposition to Bolivia's counternarcotics policy that has served to fuel to popular discontentthat has contributed to political instability. Some critics believe that U.S. policy supporting forceddrug crop eradication is contributing to popular support for left-of-center opposition political figures. Coca growers ( cocaleros ) have organized themselves in legally recognized labor unions, and haveformed a political party, Movement Toward Socialism (MAS). The MAS presidential candidate,Evo Morales, who came in a close second in 2002 presidential elections, won the presidency inDecember 2005. Considering Morales' comments critical of U.S. counternarcotics policy in theregion, the future of U.S.-Bolivian relations is unclear. Table 4. U.S. Counternarcotics Assistance to Bolivia,FY2000-FY2006 (in millions $) Sources: Figures are drawn from the annual State Department and USAID Budget Justifications forfiscal years 2002 through 2006, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ),and Conference Report ( H.Rept. 109-265 ). Ecuador is the next largest recipient of ACI funds, with $20 million appropriated for FY2006. This represented a reduction from nearly $26 million in FY2005. Funds would be divided between$8.5 million for interdiction and $11.5 million for alternative development and institution building. The objective of assistance to Ecuador is to stop or prevent any spillover of drug trafficking andguerrilla activities from Colombia, and to stop the transit of drugs destined for the United States. On Colombia's southern border, Ecuador is the most exposed of Colombia's neighbors, beingsituated adjacent to areas in southern Colombia that are guerrilla strongholds and heavy drugproducing areas. As a major transit country for cocaine and heroin from Colombia and Peru,Ecuador cooperates extensively with the United States in counternarcotics efforts. Nonetheless, theState Department reports that weak public institutions, the uneven implementation of new criminalproceedings, and widespread corruption limit the country's ability to counter drug trafficking. In2004, the Ecuadoran government published a new national drug strategy and implementation plan,with a focus on strengthening institutions and drug trafficking laws, and providing more resourcesfor its drug agency, the National Drug Council. In November 1999, the United States signed a10-year agreement with Ecuador for a forward operating location (FOL) in Manta, on the PacificCoast, for U.S. aerial counterdrug detection and monitoring operations. According to press reports, Colombian guerrillas pass into Ecuadoran territory for rest,recuperation, and medical treatment, and FARC camps have been detected in Ecuador's northernprovince of Sucumbios, where it was reported that barracks, ammunition, explosives and radioequipment were found. (11) Ecuadoran officials say they have uncovered and destroyedseveral small cocaine processing labs in the area. The Ecuadoran border region is experiencing aconstant flow of Colombian refugees into the poor areas, and fighters with Colombian paramilitaryorganizations have been arrested for running extortion rings in Ecuadorian border regions. Ecuadoran officials have complained that the armed conflict and drug trafficking in Colombia ishaving an adverse affect on Ecuadoran peasants in border areas, and that the aerial fumigation inColombia is harming the Ecuadoran environment and negatively affecting Ecuadorans' health. (12) Table 5. U.S. Counternarcotics Assistance to Ecuador,FY2000-FY2006 (in millions $) Sources: Figures are drawn from the annual State Department and USAID Budget Justifications forfiscal years 2002 through 2006, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ),and Conference Report ( H.Rept. 109-265 ). FY2006 ACI funds appropriated for Brazil total $6 million mainly for interdiction and lawenforcement activities. The goal is to prevent any spillover effect from Colombia. Congressapproved the Administration's request. Brazil's isolated Amazon region, populated largely byindigenous groups, forms Colombia's southeastern border. Brazil is not a significant drug-producingcountry, but it is a conduit for the transit of coca paste and cocaine from Colombia to Europe andthe United States. It is also becoming a final destination, with marked increases in crack cocaine andheroin abuse. Brazil passed an omnibus federal counternarcotics law in 2002, and adopted a new nationalstrategy to deal with money laundering in 2004. Also in 2004, Brazil began implementing a 1998shoot-down law, in which the Air Force has the authority to use lethal force against civilian aircraftreasonably suspected to be engaged in drug trafficking. Brazilians have long been concerned aboutthe sparsely populated territory in the huge Amazon region, and they have been fearful historicallyof foreign intervention in this territory. In an effort to exercise control over this vast territory, Brazilhas constructed a $1.4 billion sensor and radar project called the Amazon Vigilance System (SIVAMfrom its acronym in Portuguese), offering to share data from this system with neighbors and theUnited States. It has established a military base at Tabatinga, with 25,000 soldiers and policemen,with air force and navy support. In 2000, it launched COBRA, an inter-agency border securityprogram to deal with spillover effects from Colombia. In 2003, Brazil expanded COBRA-like toits northern borders with Peru, Venezuela, and Bolivia. The programs focus on controlling land andair entry into Brazil and is headquartered at Tabatinga. Table 6. U.S. Counternarcotics Assistance to Brazil,FY2000-FY2006 (in millions $) Sources: Figures are drawn from the annual State Department and USAID Budget Justifications forfiscal years 2002 through 2006, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ),and Conference Report ( H.Rept. 109-265 ). Brazil did not received FMF during this time period. The Administration proposed spending $3 million in FY2006 counternarcotics assistance toVenezuela largely for interdiction and law enforcement purposes. Congress appropriated $2.3million. Because of Venezuela's extensive 1,370-mile border with Colombia, it is a major transitroute for cocaine and heroin destined for the United States. According to the Department of State's March 2005 International Narcotics Control StrategyReport (INCSR), cocaine seizures by the Venezuelan government amounted to 17.8 metric tons (mt)in 2002, 19.5 mt in 2003, and 19.1 mt during the first six months of 2004. Despite some friction inU.S.-Venezuelan relations that increased in 2005, cooperation between the two countries at the lawenforcement agency level led to significant cocaine seizures in 2004. The INCSR report assertedthat Venezuela carried out some 400 cocaine and heroin seizures in the first half of 2004 and thatseveral important cocaine and heroin trafficking organizations were effectively attacked in 2004,including several important extraditions. Nevertheless, the Department of State maintained in thereport that Venezuela needs to make substantial efforts in five areas: passing an Organized CrimeLaw; making effective efforts to combat corruption; cracking down on document fraud; enforcingcourt-ordered wiretaps; and conducting opium poppy and coca eradication operations at leastannually. On September 15, 2005, President Bush designated Venezuela, pursuant to international drugcontrol certification procedures set forth in the Foreign Relations Authorization Act, FY2003 ( P.L.107-228 ), as one of two countries that has failed demonstrably to adhere to its obligations underinternational narcotics agreements. At the same time, the President waived economic sanctions thatwould have curtailed U.S. assistance for democracy programs in Venezuela, and ACI funding willnot be affected.The justification noted that despite Venezuela's increase in drug seizures overthe past four years, Venezuela has not addressed the increasing use of Venezuelan territory totransport drugs to the United States. According to the State Department, the overall picture is oneof decreasing Venezuelan focus on counternarcotics initiatives and reduced cooperation with theUnited States. Table 7. U.S. Counternarcotics Assistance to Venezuela,FY2000-FY2006 (in millions $) Sources: Figures are drawn from the annual State Department and USAID Budget Justifications forfiscal years 2002 through 2006, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ),and Conference Report ( H.Rept. 109-265 ). Venezuela did not receive FMF during this period. For FY2006, the Administration proposed, and Congress approved, $4.5 million forcounternarcotics programs to assist Panama. Because of its geographic location bordering Colombiaat the crossroads of North and South America, its largely unguarded coastline, and itswell-developed transportation, banking, trade and financial sectors, Panama is a major transit routefor illicit drugs and an attractive site for money laundering. The country is on the President's list ofmajor drug transit countries and has been on the State Department's list of "countries of primaryconcern" for money laundering for the past three years. Drug traffickers use fishing vessels, cargoships, small aircraft, and go-fast boats to move illicit drugs -- primarily cocaine, but also heroin andEcstasy -- through Panama. According to the Department of State, security in Panama's Darien region borderingColombia has improved in recent years, although the smuggling of weapons and drugs across theborder continues. Drugs and arms trade associated with Colombian terrorist groups also reportedlyoccurs in other parts of Panamanian territory and in the country's coastal waters, according to theU.S. DEA. (15) According to the Department of State's International Narcotics Control Strategy Report, Panama'scooperation with the United States on counternarcotics efforts is excellent, although the country'sdifficult fiscal situation has impeded Panama's law enforcement ability. For this reason, theDepartment of State maintains that U.S. assistance is critical in ensuring effective Panamanian lawenforcement. Table 8. U.S. Counternarcotics Assistance to Panama,FY2000-FY2006 (in millions $) Sources: Figures are drawn from the annual State Department and USAID Budget Justifications forfiscal years 2002 through 2006, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ),and Conference Report ( H.Rept. 109-265 ). Since first approving expanded assistance to Colombia for counternarcotics programs in2000, Congress has included a number of conditions on U.S. assistance in both authorization andappropriations legislation. The most recently enacted funding legislation is the FY2006 ForeignOperations Appropriations Act ( H.R. 3057 , P.L. 109-102 ), which included a numberof longstanding provisions relating to the Andean Counterdrug Initiative. The FY2005 NationalDefense Authorization Act ( H.R. 4200 , P.L.108-375 ) also included provisions relatingto Colombia. The FY2006 National Defense Authorization Act ( H.R. 1815 , P.L.109-163 ) authorized funding for Department of Defense drug interdiction activities. Both the FY2006 Foreign Operations Appropriations Act and the FY2005 the NationalDefense Authorization, maintains language, first approved by Congress in 2002, authorizing supportfor a unified campaign against narcotics trafficking and activities by organizations designated asterrorist organizations. Appropriations report language notes that counternarcotics, alternativedevelopment, and judicial reform should remain the principal focus of U.S. policy in Colombia. Thisauthority shall cease if the Secretary of State has credible evidence that the Colombian Armed Forcesare not vigorously attempting to restore government authority and respect for human rights in areasunder the effective control of paramilitary and guerrilla organizations. The FY2005 National Defense Authorization Act changed existing law with regard to the capon the number of U.S. military and civilian contractors that can be deployed in Colombia in supportof Plan Colombia. The cap on military personnel was raised from 400 to 800, and for civiliancontractors, from 400 to 600. As of September 30, 2005, there were 359 U.S. military, and 365 U.S.contractors in Colombia in support of Plan Colombia. During the previous three months, militarypersonnel levels varied between 234 and 460, while civilian personnel levels varied from 345 to392. (16) These numberschange as programs begin, expand, or finish. The personnel caps also do not apply to foreign nationalcontract employees, or to personnel stationed at the U.S. embassy. The FY2006 Foreign Operations Appropriations Act maintains current law requiring that ifany helicopter procured with ACI funds is used to aid or abet the operations of any illegalself-defense group or illegal security cooperative, the helicopter shall be immediately returned to theUnited States. The FY2006 Foreign Operations Appropriations Act requires that the Secretary of State, inconsultation with the Administrator of USAID, provide to the Committees on Appropriations areport within 45 days of enactment and prior to the initial obligation of funds on the proposed usesof all ACI funds on a country-by-country basis for each proposed program, project, or activity. TheFY2005 National Defense Authorization Act requires a report from the Secretary of State within 60days of enactment (in consultation with the Secretary of Defense and the Director of CentralIntelligence) on any relationships between foreign governments with organizations in Colombia thathave been designated foreign terrorist organizations by the United States. The report is to describewhat direct or indirect assistance these groups are receiving and the U.S. policies designed to addresssuch relationships. The FY2006 Foreign Operations Appropriations Act allows the obligation of 75% ofassistance to the Colombian Armed Forces without a determination and certification from theSecretary of State regarding respect for human rights and severing ties with paramilitary groups. Theremaining 25% can be released in two installments of 12.5% each. The first installment can be madeprovided that the Secretary of State certifies that: the Commander General of the Colombian Armed Forces is suspendingmembers who have been credibly alleged to have committed gross violations of human rights or tohave aided or abetted paramilitary organizations; the Colombian government is vigorously investigating and prosecutingmembers of the military who have been credibly alleged to have committed gross violations ofhuman rights or to have aided or abetted paramilitary organizations, and promptly punishing thosefound guilty; the Colombian Armed Forces have made substantial progress in cooperatingwith civilian prosecutors and judicial authorities in such cases; the Colombian Armed Forces have made substantial progress in severing linksto paramilitary organizations; the Colombian government is dismantling paramilitary leadership and financialnetworks by arresting commanders and financial backers; and the Colombian government is taking effective steps to ensure that land andproperty rights of indigenous communities are not being violated by the Colombian Armed Forces. The last installment can be made after July 31, 2006, if the Secretary of State certifies thatthe Colombian Armed Forces are continuing to meet the above conditions and are conductingvigorous operations to restore government authority and respect for human rights in areas under theeffective control of paramilitary and guerrilla organizations. The law also requires that not later than60 days after enactment, and every 90 days thereafter, the Secretary of State shall consult withinternationally recognized human rights organizations regarding progress in meeting theseconditions. The law denies visas to anyone who the Secretary of State determines willfully provided anysupport to leftist guerrilla organizations or rightist paramilitaries, or has participated in thecommission of gross violations of human rights in Colombia. The provision may be waived by theSecretary of State determines and certifies, on a case-by-case basis, that the issuance of a visa isnecessary to support the peace process in Colombia, or for urgent humanitarian purposes. In addition to these provisions that are specific to Colombia, the law includes a provisionfrom previous legislation, often called the Leahy amendment, that denies funds to any unit of asecurity force for which the Secretary of State has credible evidence of gross human rights violations. The Secretary may continue funding if he determines and reports to Congress that the foreigngovernment is taking effective measures to bring the responsible members of these security forcesto justice. The FY2006 Foreign Operations Appropriations Act designated that not less than $228.8million of ACI funds be allocated to USAID for alternative development and institution building. Of this amount, USAID is directed to use $131.2 million for programs in Colombia. Bill languagedirects that ACI funds apportioned to USAID shall be allocated by the Administrator of the U.S.Agency for International Development in consultation with the Assistant Secretary of State forInternational Narcotics and Law Enforcement Affairs. The act also required that not less than $6 million be made available for judicial reformprograms in Colombia and not less than $8 million for programs to protect human rights. It alsoearmarks not less than $2 million for programs to protect biodiversity and indigenous reserves inColombia. Conference report language ( H.Rept. 109-265 ) directs that $500,000 of funds availablefor the Colombian Armed Forces be made available for incidental costs associated with treating inthe United States, soldiers injured by land mines. Report language also recommends additionalassistance through the Leahy War Victims Fund be made available to help Colombian civilians whoare disabled by land mines. The FY2006 Foreign Operations Appropriations Act requires that not more than 20% offunds used for the procurement of chemicals for aerial coca and poppy fumigation be made availableunless the Secretary of State certifies that 1) the herbicide mixture is in accordance with EPA labelrequirements for comparable use in the United States and any additional controls recommended bythe EPA; and 2) the herbicide mixture does not pose unreasonable risks or adverse effects to humansor the environment, including endemic species. Further, the Secretary of State must certify thatcomplaints of harm to health or licit crops caused by fumigation are evaluated and fair compensationis being paid for meritorious claims. These funds may not be made available unless programs arebeing implemented by USAID, the Colombian government, or other organizations, and inconsultation with local communities, to provide alternative sources of income in areas where securitypermits for small-acreage growers whose illicit crops are targeted for fumigation. The FY2006 Foreign Operations Appropriations Act and the FY2005 National DefenseAuthorization continues the prohibition on U.S. military personnel or U.S. civilian contractorsparticipating in any combat operations in Colombia. This provision has been included inauthorization and appropriation legislation since the original Plan Colombia law approved byCongress in 2000. The FY2006 Foreign Operations Appropriations Act requires the Secretary of State to certifythat the Bolivian military is respecting human rights, and that civilian judicial authorities areinvestigating and prosecuting, with the military's cooperation, military personnel who have beenimplicated in gross violations of human rights. Such a certification must be issued before any ACIfunds may be made available to the Bolivian military. The FY2006 Foreign Operations Appropriations Act makes $20 million available in FY2006to assist in the demobilization and disarmament of former members of foreign terrorist organizations(FTOs), if the Secretary of State certifies that: assistance will be provided only for individuals who have verifiably renouncedand terminated any affiliation or involvement with FTOs, and are meeting all the requirements ofthe Colombia Demobilization program; the Colombian government is fully cooperating with the United States inextraditing FTO leaders and members who have been indicted in the United States for murder,kidnaping, narcotics trafficking, and other violations of U.S. law; the Colombian government is implementing a concrete and workableframework for dismantling the organizational structures of FTOs; and funds will not be used to make cash payments to individuals, and funds willonly be available for any of the following activities: verification, reintegration (including trainingand education), vetting, recovery of assets for reparations for victims, and investigations andprosecutions. The FY2006 Foreign Operations Appropriations Act report language urges theAdministration to include in its FY2007 budget a funding request for a maritime refueling supportvessel that is capable of refueling U.S. and allied vessels engaged in drug interdiction in the easternPacific transit zone. On June 28, 2005, the House passed H.R. 3057 ( H.Rept. 109-152 ) fully fundingthe ACI at $734.5 million. The Senate passed H.R. 3057 on July 20, 2005 ( S.Rept. 109-96 )fully funding the ACI at $734.5 million. Both House and Senate versions included conditions onassistance, similar to current law, regarding human rights, expanded authority for a unifiedcampaign, a prohibition on combat, and the use of U.S.-provided helicopters. House Provisions. Some House provisionsdiffered from the Senate. The House made ACI funds available until September 30, 2008, ratherthan 2007 as provided by the Senate. The House version did not include several earmarks thatappeared in the Senate bill, including $2 million to protect biodiversity in Colombia's national parksand indigenous reserves, and $8 million for organizations and programs to protect human rights inColombia. The House did not maintain language from previous years conditioning the funding for aerialspraying in Colombia on a certification from the Secretary of State on the health and environmentaleffects of the herbicide used there. The House also did not maintain FY2005 language requiring thatthe Administrator of USAID, in consultation with the Assistant Secretary of State for InternationalNarcotics and Law Enforcement Affairs, have responsibility for the use of ACI funds that are directlyapportioned to USAID. House report language stated the expectation that the Appropriations Committee would beconsulted on a follow-up program to Plan Colombia, that will expire at the end of 2005. TheSecretary of State, in consultation with the Secretary of Defense and the Administrator of USAID,is directed to report to the Committee no later than 60 days after enactment on "the future, multi-yearstrategy of the United States assistance program to Colombia." The report is to include all aspectsof current and future assistance, and an explanation of how the Colombian government will assumeresponsibility for maintaining more of Plan Colombia's assets. Report language also expressed theCommittee's concern with the Colombian government's ability to assume the operational andmaintenance functions of Plan Colombia, and required a report from the Secretary of State on whatactions both Defense and State are taking to transfer responsibilities to Colombian nationals that arecurrently being carried out by U.S. contractors. Report language also noted concern with the increased cost of oil and fuel contributing tohigher U.S. operating costs in Colombia, and expressed the expectation that Colombia oil revenuesbe used to offset some of the increased costs. It directed the Secretary of State to report on the levelsof revenue the Colombian government is devoting to offsetting increased fuel prices borne by theUnited States in its support for Plan Colombia. The House directed that $5 million in ACI funds be transferred to the State Department'sBureau for Population, Refugees, and Migration for programs benefitting internally displacedpersons in Colombia. The Report also expressed support for alternative development programs inColombia, and that alternative development, with the presence of an official state presence in theform of law enforcement and security, are fundamental to long term peace and security. TheCommittee directed USAID to report back to the Committee with detailed steps the Colombiangovernment is taking to develop a comprehensive rural development strategy. With regard to Peru, the House report expressed alarm at the Administration's proposed cutto ACI programs in that country. The Committee directed that Peru receive no less than $114million, of which $61 million would be for eradication and interdiction, and $53 million foralternative development and institution building. The additional funding is to come from reductionsin the Air Bridge Denial program and the newly proposed Critical Flight Safety program. The Senateapproved the Administration's request for Peru. The House report expressed support for a pilotproject using voluntary eradication combined with community development projects to promotecooperation with counternarcotics objectives. The Committee urged USAID to work with The FieldMuseum of Chicago on the Cordillera Azul National Park on a project for alternative communitydevelopment and conservation education. Senate Provisions. For its part, the Senateincluded language not found in the House version. The Senate limited the amount of funds availableto the Colombian Armed Forces and National Police at $287.45 million, and for alternativedevelopment and institution building in Colombia to $149.76 million. The bill also includedlanguage conditioning the release of assistance to Bolivia on the Secretary of State certifying thatthe Bolivian military is respecting human rights and cooperating with human rights investigationsand prosecutions. With regard to the demobilization of illegally armed groups in Colombia, the House did notprovide funding for the demobilization process and required that the Committee be consulted priorto any funds being obligated for this purpose. The Senate included bill language making any fundsfor the demobilization process subject to prior consultation and notification to the Committees onAppropriations. Section 6110 of the bill prohibits funds for demobilization unless they are forlimited activities that are determined by the Justice Department to be consistent with U.S.anti-terrorism laws. Additionally, the Secretary of State must certify that Colombian law isconsistent with obligations under the U.S.-Colombia extradition treaty and that Colombia iscontinuing to extradite Colombian citizens in accordance with the treaty. The certification must alsofind that Colombian law provides for the effective investigation, prosecution and punishment ofmembers of foreign terrorist organizations (FTO) charged with gross violations of humanitarian lawand drug trafficking, and that sentence reductions for those members are contingent on a full andtruthful confession of criminal activity, including knowledge of the FTO's structure, financingsources, and illegal assets, and the turnover of those assets. Additionally, the law must conditionsentence reductions for FTO commanders on a cessation of illegal activities of the troops under hiscommand and the turnover of all the group's illegal assets. The law must further provide thatdemobilized fighters will lose all sentence reductions if they are subsequently found to have withheldassets, lied to authorities about their criminal activities, rejoined an FTO, or engaged in new illegalactivities. Bill language also required that an inter-agency working group composed of representativesfrom the DEA, Department of Justice, Department of State, Department of Defense has consultedwith local and national Colombian law enforcement and military authorities, representatives fromthe U.N. High Commissioner's Office for Human Rights in Colombia, and representatives ofColombian civil society, and has issued a report to the Committees on Appropriation. The Senatecalled for the report to include whether: the FTO is violating any cease-fire and commitments tostop illegal activities, including drug trafficking, extortion, and violations of internationalhumanitarian law; the FTO's criminal and financial structure is being destroyed and is not regroupingto continue illegal activities; the Colombian government is conducting effective investigations andprosecutions of FTO commanders, and when appropriate, extraditing them to the United States; theColombian government is aggressively trying to locate and confiscate illegal assets of FTOs; and theColombian government is enforcing FTO cease fires by barring individuals who are credibly accusedof crimes in breach of any cease fire from receiving benefits under the demobilization process. The Senate also included conditions similar to previous years on the aerial fumigationprogram, making the release of 20% of the funds contingent on a certification from the Secretary ofState on the health and environmental safety of the herbicide. Differing from current law, reportlanguage directed the Secretary of State, in consultation with the EPA, and Colombian authorities,to report no later than 180 days after enactment, on the results of an analysis of the proximity ofsmall bodies of water to coca and poppy fields; and of tests to determine the toxicity of the herbicidespray mixture to Colombian amphibians; and to assess the potential impacts of the spray programon threatened species, including those found in Colombia's national parks. The Senate maintained a provision from previous years requiring the Secretary of State tocertify that human rights conditions have been met prior to the obligation of 25% of assistance forthe Colombian military, and added a provision directing the Secretary of State to consult with theOffice of the U.N. High Commissioner for Human Rights in Colombia and congressionalcommittees prior to making a certification. In other report language, the Committee approved $21 million provided for the Air BridgeDenial program, and recommended that the program be consolidated under a single aviationoperation and maintenance account. Report language noted that no funding was being provided forthe proposed Critical Flight Safety program, and stated that a lack of oversight of contract costs andexecution related to the acquisition, lease, and operation and maintenance of aircraft has resulted inannual price and program growth of more than 10% from 2001 to 2006. Report language recommended $90 million for Colombia in FMF funding. The Committeealso expressed concern that the aerial eradication program is falling short of predictions and that cocacultivation is shifting to new areas. The Committee stated its awareness of poverty anddiscrimination faced by Afro-Colombians, and recommended assistance, especially for thoseinternally displaced in the Choco region, through the Afro-Latino Development Alliance. The reportrecommended that $5 million in ACI funds be made available for technology related to themonitoring of web-based communications to combat extortion, kidnaping, narcotics trafficking, andterrorism in Colombia. Foreign Operations Conference Report. TheHouse passed the conference report ( H.Rept. 109-265 ) on November 4, 2005, and the Senatefollowed suit on November 10. The President signed it into law on November 14, 2005 ( P.L.109-102 ). The agreement fully funds the ACI at $734.5, but provides a different mix on how thatmoney should be spent than did either the House or Senate bills. (See section on CongressionalConditions on Assistance for provisions provided in the final bill.) The conference report makes ACI funds available until September 30, 2008 as proposed bythe House. It adopted alternative language with regard to demobilization than that provided in theSenate bill, and appropriated $20 million to assist Colombia carry out the demobilization process. (See page 10 of this report for conditions on demobilization assistance.) The conference reportremoved the Senate provision requiring the Secretary of State to consult with the U.N. HighCommissioner for Human Rights in Colombia before making a certification that Colombia ismeeting human rights conditions. Instead, the conference report states the expectation that theSecretary will consider the opinion of the High Commissioner and the Committees onAppropriations prior to making the certification. It also increased funding for alternativedevelopment and rule of law programs in Colombia from $149.76 million, as provided by the Senate,to $158.6 million. The House International Relations Committee reported H.R. 2601 , the ForeignRelations Authorization Act, with a provision making U.S. assistance to Colombia contingent on acertification from the Secretary of State that Colombia has a workable framework in place for thedemobilization and dismantling of former combatants, and that Colombia is cooperating with theUnited States on extradition requests. The bill also calls for a report from the Secretary of State thatdetails tax code enforcement in Colombia. In floor action, the House approved a Burton amendmentto authorize the transfer of two tactical, unpressurized marine patrol aircraft for use by theColombian Navy for interdiction purposes. The Senate has had under consideration its version of the foreign relations authorization bill, S. 600 . The bill authorizes funding for ACI and includes a number of conditions onassistance consistent with current law. The bill would authorize a unified campaign against narcoticstrafficking and terrorist activities; maintains the existing cap on military and civilian personnelallowed to be stationed in Colombia; prohibits U.S. military and civilian personnel fromparticipating in combat operations; and maintains reporting requirements relating to human rightsand the conduct of U.S. operations. The FY2006 National Defense Authorization Act ( H.R. 1815 ) was passed bythe House and Senate on December 19, 2005 and signed by the President on January 6, 2006 ( P.L.109-163 ). It authorized $901.7 million for DOD-wide global drug interdiction activities. Unlike theFY2005 authorization, it did not include provisions relating to Colombia or the Andean CounterdrugInitiative. Figure 1. Andean Counterdrug Initiative Countries | In 2005, Congress considered a number of issues relating to the Andean region and drugtrafficking, including continued funding for the Andean Counterdrug Initiative (ACI) and conditionson U.S. assistance. In addition to ACI, Andean countries benefit from Foreign Military Financing(FMF), International Military Education and Training (IMET) funds, and other types of economicaid. Congress continues to express concern with the volume of drugs readily available in the UnitedStates and elsewhere in the world. The three largest producers of cocaine are Colombia, Bolivia, andPeru. Ninety percent of the cocaine in the United States originates in, or passes through, Colombia. The United States has made a significant commitment of funds and material support to helpColombia and the Andean region fight drug trafficking since the development of Plan Colombia in1999. From FY2000 through FY2005, the United States has provided a total of about $5.4 billionfor the region in both State Department and Defense Department counternarcotics funds. The UnitedStates also provides funding for Development Assistance (DA), Child Survival and Health (CSH),and Economic Support Funds (ESF) to some countries in the region. Since 2002, Congress hasgranted expanded authority to use counternarcotics funds for a unified campaign to fight both drugtrafficking and terrorist organizations in Colombia. Three illegally armed groups in Colombiaparticipate in drug production and trafficking, and have been designated foreign terroristorganizations by the State Department. In 2004, Congress also increased the level of U.S. militaryand civilian contractor personnel allowed to be deployed in Colombia, in response to anAdministration request. For FY2006, Congress approved the Administration's request for $734.5 million for ACI inthe Foreign Operations Appropriations Act ( H.R. 3057 / P.L. 109-102 ). As part of therequested amount for ACI, the Administration had requested $21 million for the Air Bridge DenialProgram; Congress provided $14 million. The request also included $40 million for a Critical FlightSafety Program that is described as the first installment of a multi-year program to upgrade andrefurbish aircraft used for eradication and interdiction missions. Congress provided $30 million. In the House, the Foreign Relations Authorization Act ( H.R. 2601 ) was passedwith provisions relating to the demobilization process, tax code enforcement in Colombia, and thetransfer of aircraft to the Colombian Navy. The Senate did not finish consideration of its version( S. 600 ). It would authorize funding for the Andean Counterdrug Initiative and includesa number of conditions on assistance consistent with current law. The FY2006 National DefenseAuthorization Act ( H.R. 1815 , P.L. 109-163 ) authorized funds for Defense Departmentinterdiction activities. This report will not be updated. For further information, see CRS Report RL32774 , PlanColombia: A Progress Report ; CRS Report RL32250 , Colombia: Issues for Congress ; and CRS Report RL32337 , Andean Counterdrug Initiative (ACI) and Related Funding Programs: FY2005Assistance. |
On June 27, ICC judges issued arrest warrants for Libyan leader Muammar al Qadhafi, his son Sayf al Islam al Qadhafi, and intelligence chief Abdullah al Senussi, having found "reasonable grounds" to believe that they are responsible for crimes against humanity, including murder and "persecution." (See " Libya ," below.) The trial of Congolese militia leader Thomas Lubanga Dyilo, in ICC custody since 2006, is expected to bring the Court's first final verdict before year's end. The six Kenyan suspects sought by the ICC, most of them senior government officials, appeared voluntarily before the Court in April 2011. Charges against them have not yet been confirmed by ICC judges. In March 2011, ICC judges confirmed war crimes charges sought by the Prosecutor against two Darfur rebel commanders, paving the way for a trial (see " Darfur Rebel Commanders ," below). On June 23, 2011, the ICC Prosecutor requested authorization from ICC judges to open a formal investigation into war crimes and crimes against humanity following Côte d'Ivoire's disputed presidential run-off vote in November 2010. A U.N. investigation concluded in June that "serious violations of human rights and international humanitarian law were committed by different actors," potentially amounting to crimes under ICC jurisdiction. Côte d'Ivoire is not a state party, but its government submitted it to ICC jurisdiction in 2003. The government of newly inaugurated President Alassane Ouattara has also accepted ICC jurisdiction, and signed a cooperation agreement with the ICC on June 28. The Statute of the ICC, also known as the Rome Statute (the Statute), entered into force on July 1, 2002, and established a permanent, independent Court to investigate and bring to justice individuals who commit war crimes, crimes against humanity, and genocide. The ICC's jurisdiction extends over crimes committed since the entry into force of the Statute. The ICC is headquartered in The Hague, Netherlands. As of March 2010, 111 countries were parties to the Statute. The United States is not a party to the ICC. The ICC's Assembly of States Parties provides administrative oversight and other support for the Court, including adoption of the budget and election of 18 judges, a Prosecutor (currently Luis Moreno-Ocampo from Argentina), and a Registrar (currently Bruno Cathala from France). As outlined in the Statute, situations may be referred to the ICC in one of three ways: by a state party to the Statute, the ICC Prosecutor, or the United Nations (U.N.) Security Council. Currently, four situations have been publicly referred to the Prosecutor. The governments of three countries (all parties to the ICC)—Uganda, the Democratic Republic of Congo, and the Central African Republic—have referred situations to the Prosecutor. The U.N. Security Council has referred one situation (Darfur, Sudan) to the Prosecutor. One situation, Kenya, is under investigation following an application by the ICC Prosecutor. At least six others remain under consideration. The ICC is considered a court of last resort—it will only investigate or prosecute cases of the most serious crimes perpetrated by individuals (not organizations or governments), and then, only when national judicial systems are unwilling or unable to handle them. This principle of admissibility before the Court is known as "complementarity." Although many domestic legal systems grant sitting heads of state immunity from criminal prosecution, the Statute grants the ICC jurisdiction over any individual, regardless of official capacity. The United States is not a party to the Rome Statute. The United States signed the Statute on December 31, 2000, but at the time, the Clinton Administration had objections to it and said it would not submit it to the Senate for its advice and consent to ratification. The Statute was never submitted to the Senate. In May 2002, the Bush Administration notified the United Nations that it did not intend to become a party to the ICC, and that there were therefore no legal obligations arising from the signature. The Bush Administration opposed the Court and renounced any U.S. obligations under the treaty. Objections to the Court were based on a number of factors, including the Court's assertion of jurisdiction (in certain circumstances) over citizens, including military personnel, of countries that are not parties to the treaty; the perceived lack of adequate checks and balances on the powers of the ICC prosecutors and judges; the perceived dilution of the role of the U.N. Security Council in maintaining peace and security; and the ICC's potentially chilling effect on America's willingness to project power in the defense of its interests. The Bush Administration concluded bilateral immunity agreements (BIAs), known as "Article 98 agreements," with most states parties to exempt U.S. citizens from possible surrender to the ICC. These agreements are named for Article 98(2) of the Statute, which bars the ICC from asking for surrender of persons from a state party that would require it to act contrary to its international obligations. The U.S. government is prohibited by law from providing material assistance to the ICC in its investigations, arrests, detentions, extraditions, or prosecutions of war crimes, under the American Servicemembers' Protection Act of 2002, or ASPA ( P.L. 107-206 , Title II). The prohibition covers, among other things, the obligation of appropriated funds, assistance in investigations on U.S. territory, participation in U.N. peacekeeping operations unless certain protections from ICC actions are provided to specific categories of personnel, and the sharing of classified and law enforcement information. Section 2015 of ASPA (22 U.S.C. 7433, known as the "Dodd Amendment"), however, provides an exception to these provisions: Nothing in this title shall prohibit the United States from rendering assistance to international efforts to bring to justice Saddam Hussein, Slobodan Milosevic, Osama bin Laden, other members of Al Qaeda, leaders of Islamic Jihad, and other foreign nationals accused of genocide, war crimes or crimes against humanity. In her confirmation hearing as Secretary of State before the Senate Foreign Relations Committee in January 2009, Hillary Clinton said, "Whether we work toward joining or not, we will end hostility toward the ICC and look for opportunities to encourage effective ICC action in ways that promote U.S. interests by bringing war criminals to justice." Speaking in Nairobi, Kenya, in August 2009, Secretary of State Clinton said that it was a "great regret" that the United States was not a party to the ICC, but that the United States has supported the Court and "continue[s] to do so." Obama Administration officials have recently indicated, amid a wider review of U.S. policy toward the Court, that the Administration is "considering ways in which we may be able to assist the ICC, consistent with our law, in investigations involving atrocities." A January 2010 review by the Department of Justice concluded that diplomatic or "informational" support for "particular investigations or prosecutions" by the ICC would not violate existing laws. In November 2009, the United States began formally attending meetings of the ICC's Assembly of States Parties as an observer nation, and in May 2010 sent a delegation led by Ambassador-at-Large for War Crimes Issues Stephen Rapp and State Department Legal Advisor Harold Koh to the Review Conference of the Rome Statute in Kampala, Uganda. Administration officials reiterated at the Conference the United States' intention to support current cases before the ICC. In addition, Rapp stated that Administration officials had "renewed our commitment to the rule of law and capacity-building projects in which we have ongoing in each" African country in which ICC prosecutions are taking place. At the same time, Rapp averred that the Administration was "nowhere near that point" of submitting the Rome Statute for ratification. The United States voted in favor of U.N. Security Council Resolution 1970, referring the situation in Libya to the ICC, the first time it has done so. The post-World War II Nuremberg and Tokyo tribunals to prosecute Nazi and Japanese leaders for crimes against peace, war crimes, and crimes against humanity established precedent for other ad hoc international courts and tribunals, such as the International Criminal Tribunals for the former Yugoslavia and for Rwanda. In addition, the United Nations authorized the creation of a Special Court for Sierra Leone (SC-SL) to prosecute those with the greatest responsibility for serious violations of international humanitarian law and domestic law committed in the territory of Sierra Leone since November 30, 1996. Separate judicial mechanisms have also been set up for cases involving East Timor (Timor-Leste) and Cambodia. Further, the U.N. Security Council authorized establishment of a Special International Tribunal for Lebanon in 2007, which began functioning in March 2009. These courts and tribunals are distinct from the ICC. While established by the U.N. Security Council to address allegations of crimes against humanity in various countries, these tribunals were case-specific, limited in jurisdiction, and temporary. By contrast, the ICC was established by multilateral treaty and is a permanent, international criminal tribunal. It is not a U.N. body. The International Court of Justice (ICJ), also located in The Hague, is the principal judicial organ of the United Nations. The ICJ does not prosecute individuals; its role is to settle, in accordance with international law, legal disputes submitted to it by states. Only states may submit cases for consideration, although the ICJ will also give advisory opinions on legal questions when requested to do so by authorized international organizations. Members of Congress have taken a range of positions on the ICC with regard to Africa. Many in Congress are concerned about massive human rights violations on the continent, and some see the ICC as a possible means of redress for these crimes. At the same time, many Members oppose the Court on jurisdictional and other grounds. For example, several pieces of draft legislation introduced during the 111 th Congress, such as H.R. 5351 (Ros-Lehtinen), S.Con.Res. 59 (Vitter), and H.Con.Res. 265 (Lamborn), expressed broad objections to the ICC and to U.S. cooperation with it. S.Con.Res. 71 (Feingold) stated that it is in "the United States national interest" to help "prevent and mitigate acts of genocide and other mass atrocities against civilians," but did not explicitly reference the ICC. In the 112 th Congress, S.Res. 85 (Menendez), agreed to in the Senate on March 1, 2011, welcomes the U.N. Security Council referral of Libya to the ICC. Draft legislation introduced during the 111 th Congress referenced the ICC in connection with human rights abuses committed in the Democratic Republic of Congo and by the Lord's Resistance Army in central Africa, and in connection with the global use of child soldiers. Additionally, there has been particular congressional interest in the ICC's work related to Darfur. The ICC Prosecutor has opened cases against 26 individuals in connection with five African countries. Twenty-five of these remain open; the 26 th , against Darfur rebel leader Bahar Idriss Abu Garda, was dismissed by judges, though the prosecutor may attempt to submit new evidence in an attempt to re-open it. The cases stem from investigations into violence in Libya, Kenya's post-election unrest in 2007-2008, rebellion and counter-insurgency in the Darfur region of Sudan, the Lord's Resistance Army insurgency in central Africa, civil conflict in eastern Democratic Republic of Congo (DRC), and a 2002-2003 conflict in the Central African Republic. The Prosecutor is also examining 2010-2011 violence in Côte d'Ivoire, a 2009 military crackdown on opposition supporters in Guinea, and inter-communal violence in central Nigeria, but has not opened formal investigations or opened cases with regard to these situations. Uganda, DRC, CAR, Kenya, Nigeria, and Guinea are states parties to the ICC. Sudan, Libya, and Côte d'Ivoire are not. ICC jurisdiction in Sudan and Libya stems from U.N. Security Council actions, while jurisdiction in Côte d'Ivoire was granted by virtue of a declaration submitted by the Ivorian Government on October 1, 2003, which accepted the jurisdiction of the Court as of September 19, 2002. Five suspects—four Congolese nationals and one Rwandan—are currently in ICC custody. The ICC Prosecutor has sought summonses, rather than arrest warrants, in connection with attempted prosecutions of Darfur rebel commanders and of Kenyan suspects. The Prosecutor has not secured any convictions to date. On June 27, ICC judges issued arrest warrants for Libyan leader Muammar al Qadhafi, his son Sayf al Islam al Qadhafi, and intelligence chief Abdullah al Senussi, having found "reasonable grounds" to believe that they are responsible for crimes against humanity, including murder and "persecution." In his application for the warrants, filed on May 16, the Prosecutor alleged that Qadhafi "conceived and implemented, through persons of his inner circle" such as Sayf al Islam and Al Senussi, "a plan to suppress any challenge to his absolute authority through killings and other acts of persecution executed by Libyan Security Forces. They implemented a State policy of widespread and systematic attacks against a civilian population, in particular demonstrators and alleged dissidents." The ICC Prosecutor has subsequently suggested he may seek additional charges related to sexual assault. Some observers have argued that the warrants make it less likely that Qadhafi will agree to relinquish power, while others argue that they could deter further abuses. The Qadhafi government has denied accusations of rights abuses. On February 26, 2011, U.N. Security Council Resolution 1970 referred the situation in Libya since February 15, 2011, to the ICC. This action provides the ICC with jurisdiction over war crimes, crimes against humanity, and genocide occurring in Libya since that date, even though Libya is not a state party to the Court. The United States voted in favor of the resolution, the first time it has done so in referring an issue to the ICC. The Prosecutor indicated in opening a formal investigation in March that he would focus on the role of the government and security forces in ongoing violence, but warned that members of armed opposition groups could also be held criminally liable for abuses. ICC President Sang-Hyun Song suggested in April that the Libya investigation had placed significant pressure on the Court's budget, which could potentially impede the Court's ability to advance its existing prosecutions or examinations of new situations. The Prosecutor's request to open an investigation in Kenya was approved by ICC judges in March 2010. Kenya is a party to the ICC, but it was the first instance in which ICC judges authorized an investigation based on a recommendation from the Prosecutor, as opposed to a state referral or U.N. Security Council directive. The investigation was related to post-election violence in Kenya in 2007-2008, in which over 1,000 individuals were killed, hundreds of thousands displaced, and a range of other abuses, including sexual violence, allegedly committed. A government of national unity was formed following the disputed elections, and the issue of accountability for abuses has remained a sensitive one in Kenyan politics. The Prosecutor contends that high-ranking officials planned and instigated large-scale abuses, a view supported by independent investigations into the violence. On December 15, 2010, the Prosecutor presented two cases, against a total of six individuals, for alleged crimes against humanity. The Prosecutor applied to ICC judges for summonses, rather than arrest warrants, stating that summonses would sufficient to ensure the suspects' appearance before the Court. Judges issued the summonses in March 2011, and in April the six suspects appeared voluntarily before the court, where they each denied the accusations against them. The suspects named in the first case are William Ruto, Member of Parliament and former Minister of Education; Henry Kosgey, Minister of Industrialization; and Joshua Arap Sang, a radio journalist. They are each accused of three counts of crimes against humanity, related to murder, forcible population transfers, and "persecution." Those named in the second case are Francis Muthaura, head of the public service, secretary to the Cabinet, and chairman of the National Security Advisory Committee; Uhuru Kenyatta, deputy prime minister and minister of finance (and the son of Kenya's founding leader Jomo Kenyatta); and Mohamed Hussein Ali, former commissioner of the Kenyan police. They are each accused of five counts of crimes against humanity, related to murder, forcible population transfers, rape, "persecution," and "other inhumane acts." The suspects in the first case are associated with Prime Minister Raila Odinga, while those in the second case are associated with President Mwai Kibaki. The prosecutions, which have targeted the upper echelons of political power, are an extremely sensitive issue in Kenya with potential implications for the country's stability, inter-ethnic relations, and elections scheduled for 2012. The ICC Prosecutor appeared to acknowledge this sensitivity by naming suspects of different ethnic groups and political loyalties. Polls indicate that a majority of Kenyans support ICC prosecutions over domestic trials. Still, the case has sparked a backlash within Kenya's political class despite earlier support for ICC involvement. Although Odinga has repeatedly encouraged the ICC to pursue its cases (which are widely viewed as more detrimental to his potential political rivals than to him), President Kibaki has criticized the ICC cases and called for trials to be held within Kenya instead. To date, none of the suspects targeted by the ICC have been charged in Kenya, though they were reportedly questioned by public prosecutors in July 2011. In December 2010, parliamentarians passed legislation urging Kenya to withdraw from the Court. (According to some legal analysts, a withdrawal would not necessarily preclude ICC jurisdiction over crimes committed during the period when Kenya was a state party.) Efforts by Kenya's government and the African Union (AU) to push for a deferral of ICC prosecutions by the U.N. Security Council in the interest of peace and security have been unsuccessful to date. Kenyan government legal filings to ICC judges that challenge the cases' admissibility have been similarly unsuccessful. The Kenyan government initially pledged to cooperate with ICC actions, although senior officials have been accused by some observers and the ICC Prosecutor as attempting to stonewall investigations. Some Kenyans are reportedly concerned that prosecutions could stir up the same ethnic tensions that led to the post-election turmoil, while others fear that a lack of prosecutions could lead to future electoral violence. Other concerns center around the protection and relocation of witnesses and victims, who have already reportedly been subjected to intimidation and threats. In August 2010, Kenya was criticized by ICC advocates when it welcomed Sudanese President Bashir (see " The Case Against Bashir ," below) to a celebration of the country's adoption of a new constitution. ICC involvement in Kenya follows protracted domestic wrangling over how to ensure justice for victims of the electoral violence without upsetting the government's fragile power-sharing agreement. An official investigation into the post-election violence, known as the Waki Commission, identified potential suspects and recommended the establishment of an independent Kenyan tribunal with international participation. In December 2008, the government accepted the Waki Commission's findings and agreed that it would refer the situation to the ICC if the Commission's recommendations were not implemented. Donors, including the United States and the European Union, expressed support for an independent domestic tribunal, and the Kenyan parliament was expected to pass legislation establishing such a tribunal by March 2009. In July 2009, however, legislation had yet to be passed, prompting chief mediator Koffi Annan, the former U.N. Secretary-General, to submit a list of individuals suspected of orchestrating the violence to the ICC. The Kenyan Cabinet subsequently announced that it would not establish a special tribunal, but would instead convene a Truth, Justice and Reconciliation Commission (TJRC) which would not prosecute suspects but rather to oversee reforms in the judiciary, police, and other investigatory bodies that may, in turn, deal with the issue. The United States initially expressed support for domestic prosecutions of suspects in post-election violence, but has supported ICC involvement in the absence of domestic action. Upon the Prosecutor's announcement of six suspects, President Obama stated, "I urge all of Kenya's leaders, and the people whom they serve, to cooperate fully with the ICC investigation and remain focused on implementation of the reform agenda and the future of your nation." In February, U.S. Deputy Secretary of State James Steinberg said, "We are very committed to the principle of accountability and the avoidance of impunity and right now the only mechanism to pursue that is through the ICC." He added, "That is the choice the Kenyan government made when both the executive branch and the legislature chose not to pursue a domestic approach." The United States opposed U.N. Security Council deferral of the ICC prosecutions in Kenya. ICC jurisdiction in Sudan was conferred by the U.N. Security Council, as Sudan is not a party to the Court. U.N. Security Council Resolution 1593, in 2005, referred the situation in Darfur, dating back to July 1, 2002, to the ICC Prosecutor. The Resolution was adopted by a vote of 11 in favor, none against, and with four abstentions—the United States, China, Algeria, and Brazil. While Sudan is not a party to the ICC and has not consented to its jurisdiction, the Court argues that the Resolution is binding on all U.N. member states, including Sudan. Under the ICC Statute, the ICC was authorized, but not required, to accept the case. The Security Council had previously, in September 2004, established an International Commission of Inquiry on Darfur under Resolution 1564, maintaining that the Sudanese government had not met its obligations under previous Resolutions. In January 2005, the Commission reported that it had compiled a confidential list of potential war crimes suspects and "strongly recommend[ed]" that the Security Council refer the situation to the ICC. Following the Council's referral, the ICC Prosecutor received the document archive of the Commission of Inquiry and the Commission's sealed list of individuals suspected of committing serious abuses in Darfur, though this list is not binding on the selection of suspects. The Office of the Prosecutor initiated its own investigation in June 2005. The Sudanese government also created its own special courts for Darfur in an apparent effort to stave off the ICC's jurisdiction; however, the courts' efforts were widely criticized as insufficient. In statements made in July and September 2004, respectively, Congress and the Bush Administration declared that genocide was taking place in Darfur. The Administration supported the formation of the International Commission of Inquiry for Darfur. However, the Bush Administration preferred a special tribunal in Africa to be the mechanism of accountability for those who committed crimes in Darfur. It objected to the U.N. Security Council referral to the ICC because of its stated objections to the ICC's jurisdiction over nationals of states not party to the Rome Statute. Still, the United States had at one time supported a version of the Rome Statute that would have allowed the U.N. Security Council to refer cases involving non-states parties to the ICC, but would not have allowed other states or the Prosecutor to refer cases. The United States abstained on Resolution 1593 (which is not equivalent to a veto in the Security Council) because the Resolution included language that dealt with the sovereignty questions of concern and essentially protected U.S. nationals and other persons of non-party States other than Sudan from prosecution. The abstention did not change the fundamental objections of the Bush Administration to the ICC. At the same time, the Bush Administration supported international cooperation to stop atrocities occurring in Darfur. In May 2007, the ICC publicly issued arrest warrants for former Interior Minister Ahmad Muhammad Harun and Ali Muhammad Ali Abd-Al-Rahman (Ali Kushayb), an alleged former Janjaweed leader in Darfur. They were each accused of over 40 counts of war crimes and crimes against humanity in connection with abuses allegedly committed in Darfur in 2003 and 2004. The Sudanese government refused to comply with either warrant. Although news reports suggest Sudanese authorities arrested Kushayb in October 2008, Sudanese officials stated they would conduct their own investigation into his alleged crimes in Darfur, and did not indicate that they planned to turn him over to the ICC. In May 2009, Harun was appointed governor of South Kordofan State. In June 2010, the ICC Pre-Trial Chamber informed the U.N. Security Council that "the Republic of Sudan is failing to comply with its cooperation obligations stemming from Resolution 1593 (2005) in relation to the enforcement of the warrants of arrest issued by the Chamber against Ahmad Harun and Ali Kushayb." In December 2007, the ICC Prosecutor announced the opening of a new investigation into the targeting of peacekeepers and aid workers in Darfur. In November 2008, the Prosecutor submitted a sealed case against three alleged rebel commanders in Darfur whom he accused of committing war crimes during an attack on the town of Haskanita on September 29, 2007. Twelve African Union peacekeepers were allegedly killed and eight injured in the attack. In May 2009, ICC pretrial judges issued a summons to one of the three suspects, Bahar Idriss Abu Garda, to appear before the Court. Abu Garda reported to The Hague voluntarily, where he denied the accusations of involvement in the Haskanita incident. In February 2010, ICC judges declined to confirm the Prosecutor's case against Abu Garda, contending that there was insufficient evidence to establish that he could be held criminally responsible for the attack on peacekeepers. In June 2010, two other rebel commanders sought by the Prosecutor, Abdallah Banda Abakaer Nourain and Saleh Mohammed Jerbo Jamus, voluntarily surrendered to the Court. Their names had not previously been made public. Banda, a former military commander in the rebel Justice and Equality Movement (JEM), and Jerbo, a former leader in the Sudan Liberation Movement (SLM)-Unity faction, each face three counts of war crimes related to "violence to life," intentionally directing attacks against a peacekeeping mission, and pillaging. On March 7, 2010, ICC judges confirmed the charges against Banda and Jerbo, paving the way for a trial. On March 4, 2009, ICC judges issued an arrest warrant for Sudanese President Omar Hassan al Bashir. The warrant holds that there are "reasonable grounds" to believe Bashir is criminally responsible for five counts of crimes against humanity and two counts of war crimes, referring to alleged attacks by Sudanese security forces and pro-government militia in the Darfur region of Sudan during the government's six-year counter-insurgency campaign. The ICC warrant states that there are reasonable grounds to believe attacks against civilians in Darfur were a "core component" of the Sudanese government's military strategy, that such attacks were widespread and systematic, and that Bashir acted "as an indirect perpetrator, or as an indirect co-perpetrator." In his application for an arrest warrant, filed in July 2008, the ICC Prosecutor affirmed that while Bashir did not "physically or directly" carry out abuses, "he committed these crimes through members of the state apparatus, the army, and the Militia/Janjaweed" as president and commander-in-chief of the Sudanese armed forces. The arrest warrant is not an indictment; under ICC procedures, charges must be confirmed at a pre-trial hearing. The decision to issue a warrant is expected to take into account whether there are reasonable grounds to believe that a suspect committed crimes as alleged by the Prosecutor and whether a warrant is necessary to ensure the suspect's appearance in court. Although many domestic legal systems grant sitting heads of state immunity from criminal prosecution, the Rome Statute grants the ICC jurisdiction regardless of official capacity. Human rights organizations hailed the warrant, the first issued by the ICC against a sitting head of state, as an important step against impunity. Many governments, including France, Germany, Canada, the United Kingdom, and Denmark, and the European Union, called on Sudan to cooperate. Reactions by African and Middle Eastern governments were more critical, with many condemning the ICC or calling for the prosecution to be deferred. The governments of Russia and China also expressed opposition. The ICC urged "all States, whether party or not to the Rome Statute, as well as international and regional organizations," to "cooperate fully" with the warrant. However, most observers agree that there is little chance of Bashir being arrested in Sudan. One analysis noted that while Bashir may risk arrest if he travels overseas, "no one expects Sudan to hand over Bashir, who has been executive ruler of the country for more than 15 years, absent major political changes in the country." Sudanese government officials have rejected the ICC's jurisdiction, though some legal experts argue that Sudan is obligated as a U.N. member state to cooperate because the warrant stems from a U.N. Security Council resolution under Chapter VII. In June 2011, the ICC Prosecutor argued in an appearance before the Security Council that "crimes against humanity and genocide continue unabated in Darfur" at Bashir's behest. In his application for an arrest warrant in July 2008, the ICC Prosecutor accused Bashir of three counts of genocide, making the Sudanese president the first individual to be accused of this crime before the Court. The Prosecutor alleged that Bashir "intends to destroy in substantial part the Fur, Masalit and Zaghawa ethnic groups as such" through coordinated attacks by government troops and Janjaweed militia. In 2009, ICC judges found, by a ruling of two-to-one, that the Prosecutor had "failed to provide reasonable grounds to believe that the Government of Sudan acted with specific intent" to destroy these groups. The Prosecutor appealed, and on July 12, 2010, ICC judges issued a second warrant for Bashir, this time citing three counts of genocide. The second warrant does not replace, revoke, or otherwise alter the first warrant, which also remains in effect. Many human rights advocates welcomed the attempt to bring genocide charges. However, the formulation of the Prosecutor's accusation has drawn some criticism. The U.N. Commission of Inquiry concluded in its January 2005 report that the violence in Darfur did not amount to genocide, although "international offences such as the crimes against humanity and war crimes that have been committed in Darfur may be no less serious and heinous than genocide." Some Darfur activists accused the Commission of allowing political considerations to affect its conclusions. However, some critics contend that the Prosecutor's application concerning genocide did not sufficiently establish intent or Bashir's alleged role. The Bashir Administration has rejected ICC jurisdiction over Darfur as a violation of its sovereignty and an instrument of Western pressure for regime change, and accused the Court of being part of a neocolonialist plot against a sovereign African and Muslim state. The Bashir administration has repeatedly denied that genocide or ethnic cleansing is taking place in Darfur and has accused the Prosecutor of basing his investigation on testimony by rebel leaders and "spies" posing as humanitarian workers. The government has barred ICC personnel from speaking to Sudanese officials, and authorities have taken a hard-line stance against Sudanese suspected of sympathizing with the ICC prosecution attempt. The government also responded by expelling over a dozen international aid organizations that it accused of collaborating with the ICC. In July 2010, when a second ICC warrant was issued for Bashir, Sudan expelled two senior humanitarian officials from Darfur. In November, Sudanese security forces attempted to shut down an independent radio station operating in Darfur whose staff they accused of working for the ICC and Darfur rebels. A New York Times analysis noted that while many advocates hope the arrest warrant will weaken Bashir's hold in power, "Sudanese resentment of the court's actions could have the reverse effect and rally the nation to his side. After the court's prosecutor first announced that he was seeking a warrant for Mr. Bashir, some of the president's political enemies closed ranks behind him." Analysts disagree over whether the warrant has intensified Bashir's international isolation. The Sudanese leader has engaged in aggressive diplomatic outreach to allied states, traveling to multiple friendly countries in the weeks following the warrant's issuance. The Sudanese government has rallied support from many Arab and African leaders, and among regional organizations such as the African Union (AU), the Arab League, the Community of Sahel-Saharan States (CEN-SAD), and the Organization of the Islamic Conference (OIC), all of which have criticized the ICC and called (unsuccessfully to date) for a deferral of prosecution by the U.N. Security Council. The decision to prosecute an African head of state has notably sparked a backlash among African governments, and the African Union has resolved not to cooperate wiht the ICC in carrying out the arrest warrant (see "African Union Objections," below). Some African and Middle Eastern commentators and civil society groups have praised the decision to pursue Bashir as a step against impunity in the region, while others expressed concern that the move displayed bias or a neocolonial attitude toward Africa. In October 2009, an AU panel on Darfur led by former South African President Thabo Mbeki concluded that a special "hybrid" court, consisting of Sudanese and international judges, should try the gravest crimes committed in Darfur, but did not take a position on whether such a court would seek to try cases currently before the ICC. (This proposal has not been carried out to date.) Bashir has traveled to numerous countries in the region since the first ICC warrant was issued in 2009, including Egypt, Ethiopia, Libya, Qatar, Saudi Arabia, and Zimbabwe, none of which are parties to the ICC. He also traveled to China, not a party to the court, in June 2011. In July 2010, Bashir traveled to neighboring Chad, his first trip to an ICC state party; although Chad had previously publicly supported the ICC prosecution, authorities declined to arrest him amid a broader attempt to improve historically strained bilateral relations between the two states. In August 2010, Bashir traveled to Kenya—also an ICC state party, and one in which prosecutions have been initiated—and Kenyan authorities likewise declined to effect an arrest. In May 2011, Bashir traveled to Djibouti, also a state party. Still, the warrants appear to have had some impact on Bashir's international movements, and reports suggest that he has chosen not to visit the Central African Republic, Libya, and Malaysia at various times due to diplomatic pressures. The Obama Administration has expressed support for the ICC investigation and prosecution of war crimes in Sudan, and Administration officials have repeatedly stated that those responsible for serious crimes in Darfur should be held accountable. In July 2009, the Obama Administration's Special Envoy on Sudan, retired General J. Scott Gration, stated that U.S. engagement with Sudan in the context of peace negotiations "does not mean that [Bashir] does not need to do what's right in terms of facing the International Criminal Court and those charges." In response to a question at an August 2009 press conference in Nairobi, Kenya, Secretary of State Hillary Clinton said, "The actions by the ICC sent a clear message that the behavior of Bashir and his government were outside the bounds of accepted standards and that there would no longer be impunity.... The United States and others have continued to support the need to eventually bring President Bashir to justice." In July 2010, Gration nonetheless suggested that the ICC's decision to issue a second arrest warrant for Bashir "will make my mission more difficult and challenging." President Obama subsequently stated in an interview that "it is a balance that has to be struck. We want to move forward in a constructive fashion in Sudan, but we also think that there has to be accountability, and so we are fully supportive of the ICC." In August, Obama expressed "disappointment" that Kenya had hosted Bashir "in defiance of International Criminal Court arrest warrants." Following Bashir's trip to China in June 2011, Secretary of State Hillary Clinton stated that "countries should not be welcoming the Sudanese president because of outstanding charges against him from the international criminal court... I hope that other countries will not offer the opportunity for a visit." Administration officials have at times appeared to express divergent characterizations of the situation in Darfur. In June 2009, Special Envoy Gration suggested at a press briefing that the Sudanese government was no longer engaged in a "coordinated" genocidal campaign in Darfur, contending that ongoing violence represented "the remnants of genocide" and ongoing fighting between rebel groups, the Sudanese government, and Chadian actors. Previously, U.N. Ambassador Susan Rice had characterized Darfur as a "genocide." In response to questions following Gration's remarks, a State Department spokesman stated, "I think there is no question that genocide has taken place in Darfur. We continue to characterize the circumstances in Darfur as genocide." In July 2009, President Obama referred to Darfur as a "genocide," calling it a "millstone around Africa's neck." Members of the 111 th Congress expressed a range of positions with regard to the warrant for Bashir. Senator Russell Feingold urged the Administration not to defer the ICC prosecution, stating, "If there is significant progress made toward ending violence on the ground in Darfur, it may be appropriate to consider a suspension at that time." Senator John Kerry stated the warrant "complicates matters," but should not stop U.S. efforts to resolve the conflict in Darfur. In remarks on behalf of the Congressional Black Caucus, Congresswoman Barbara Lee commented, "it's so important to do the right thing now, which is to support the International Criminal Court in its efforts to hold Sudan's President Bashir accountable for his crimes against humanity." Several pieces of draft legislation introduced during the 111 th Congress expressed support for ICC prosecutions in connection with Darfur. The ICC Prosecutor's request for an arrest warrant for Bashir on July 14, 2008, occurred during the time that the U.N. Security Council was considering extension of the Council mandate for the African Union-United Nations Hybrid Operation in Darfur (UNAMID). The Council had before it the report of the U.N. Secretary-General on the deployment of the operation, dated July 7 and covering the period April to June 2008. It was expected that this mandate, which was to expire July 31, would be extended, albeit with some discussion of UNAMID-related issues. Council considerations were significantly impacted by the ICC Prosecutor's announcement. Among the issues engaging Council members after the July 14 action was the suggestion that the Council include in its resolution a request, under Article 16 of the Rome Statute, for a deferral or suspension of further ICC action on the case for up to 12 months in the interest of facilitating efforts toward a peaceful settlement of the situations in Darfur and South Sudan. Some governments expressed concerns that a positive ICC response to the Prosecutor's request for an arrest warrant would exacerbate the situation on the ground in Darfur, making both peacekeepers and humanitarian workers subject to further attacks. Article 16 of the ICC Statute is entitled Deferral of investigation or prosecution and provides that No investigation or prosecution can be commenced or proceeded with under this Statute for a period of 12 months after the Security Council, in a resolution adopted under Chapter VII of the Charter of the United Nations, has requested the Court to that effect; that request may be renewed by the Council under the same conditions. Thus, if the U.N. Security Council, acting under Chapter VII of the Charter, adopts a resolution requesting the ICC to suspend or defer any further investigation or prosecution of the case against Bashir, the ICC, including the Prosecutor, would be obliged to cease its investigation in that particular situation and the Pre-Trial Chamber, before which the warrant request is pending, would have to suspend its considerations. The Council request would be applicable for 12 months and would be renewable. David Scheffer, who headed the U.S. delegation to the conference that drafted the ICC Statute, in an August 20, 2008, Op-ed in Jurist , noted that the "negotiating history of Article 16 should be instructive to how the Council currently examines the Darfur situation." Scheffer alleged that Article 16 was drafted and adopted to enable the U.N. Security Council to suspend or defer an ICC investigation or prosecution of a situation " before either is launched if priorities of peace and security compelled a delay of international justice." He stated that "the original intent behind Article 16 was for the Security Council to act pre-emptively to delay the application of international justice for atrocity crimes in a particular situation in order to focus exclusively on performing the Council's mandated responsibilities for international peace and security objectives." This was a tool to be employed by the Council in instances of "premature State Party or Prosecutor referrals." In addition, Scheffer claimed that if the current proposals for Council suspension of further ICC action on a situation referred to the ICC by the Council had been foreseen, "Article 16 never would have been approved by the ... majority of governments attending the U.N. talks on the Rome Statute for it would have been viewed as creating rights for the Security Council far beyond the original intent of the Singapore compromise." Scheffer noted, "Nonetheless, one plausibly may argue that the language of Article 16 of the Rome Statute technically empowers the Security Council to intervene at this late date and block approval of an arrest warrant against President Bashir or even suspend its execution following any approval of it by the judges." U.N. Security Council Resolution 1828 (2008), adopted on July 31, 2008, by a vote of 14 in favor and with the United States abstaining, extended UNAMID for a further 12 months. In abstaining on the vote rather than voting against it, the United States supported renewal of the UNAMID mandate but noted that the language in preambular paragraph 9 "would send the wrong signal to President Bashir and undermine efforts to bring him and others to justice." The paragraph referred to the July 14 arrest warrant application by the ICC prosecutor and the possibility of a Council request for deferral of further consideration of ICC consideration of that case. In remarks with the press following the vote, U.S. Deputy Permanent Representative Alejandro Wolff stated: The reason for our abstention ... had to do with one paragraph that would send the wrong signal at a very important time when we are trying to eliminate the climate of impunity, to deal with justice, and to address crimes in Darfur, by suggesting that there might be a way out. There is no compromise on the issue of justice. The ... United States felt it was time to stand up on this point of moral clarity and make clear that this Permanent Member of the Security Council will not compromise on the issue of justice. Some observers maintain that under the Bush Administration, the United States moved toward a policy that recognized that under certain circumstances, the ICC might have a role, as evidenced in its abstentions in the 2005 and 2008 Council votes. Others have pointed out, however, that any perceived moderation in U.S. views toward the Court did not affect its overall position not to become a party to the ICC Statute. The government of Uganda, a party to the ICC, referred "the situation concerning the Lord's Resistance Army" to the ICC in 2003. The Lord's Resistance Army (LRA) is a rebel group that has fought for over two decades in northern Uganda. In October 2005, the ICC unsealed arrest warrants—the first issued by the Court—for LRA leader Joseph Kony and commanders Vincent Otti, Okot Odhiambo, Dominic Ongwen, and Raska Lukwiya. The LRA is accused of establishing "a pattern of brutalization of civilians," including murder, forced abduction, sexual enslavement, and mutilation, amounting to crimes against humanity and war crimes. None of the suspects are in custody. Lukwiya and Otti have reportedly been killed since the warrants were issued, while other LRA commanders are thought to be in neighboring countries. Ugandan military operations, supported by the United States, to kill or capture senior LRA leaders in Congo, South Sudan, and Central African Republic are ongoing. The Prosecutor is also reportedly investigating actions by the Ugandan military in northern Uganda. Although LRA atrocities have been widely documented, ICC actions in Uganda have met with some domestic and international opposition due to debates over what would constitute justice for the war-torn communities of northern Uganda and whether the ICC has helped or hindered the pursuit of a peace agreement. Some observers argue that ICC arrest warrants were a crucial factor in bringing the LRA to the negotiating table in 2006 for peace talks brokered by the Government of South Sudan. In August 2006, rebel and government representatives signed a landmark cessation of hostilities agreement; in February 2008, the government and the LRA reached several significant further agreements, including a permanent cease-fire. However, the LRA has demanded that ICC arrest warrants be annulled as a prerequisite to a final agreement, and threats of ICC prosecution are considered by many to be a stumbling block to achieving an elusive final peace deal. The Ugandan government has offered a combination of amnesty and domestic prosecutions for lower-and mid-ranking LRA fighters, and is reportedly willing to prosecute LRA leaders in domestic courts if the rebels accept a peace agreement. In March 2010, the Ugandan parliament passed legislation known as the International Criminal Court Bill, which creates provisions in domestic law for the punishment of genocide, crimes against humanity, and war crimes. Ugandan attempts to prosecute the LRA leaders domestically could entail challenging the LRA cases' admissibility before the ICC under the principle of complementarity; however, only the ICC's Pre-Trial Chamber has the authority to make a decision on admissibility, and only the ICC Prosecutor can move to drop the case. The DRC government referred "the situation of crimes within the jurisdiction of the Court allegedly committed anywhere in the territory of the DRC" to the Prosecutor in April 2004. Despite the end of a five-year civil war in 2003 and the holding of national elections in 2006, DRC continues to suffer from armed conflict, particularly in the volatile eastern regions bordering Rwanda, Uganda, and Burundi. The ICC has issued four arrest warrants in its first DRC investigation, which focuses on the eastern Congolese district of Ituri, where an inter-ethnic war erupted in June 2003 with reported involvement by neighboring governments. Three suspects are in custody, while a fourth remains at large. A second investigation focuses on sexual crimes and other abuses committed in the eastern provinces of North and South Kivu. One case has been made public in connection with the Kivus investigation; the suspect was arrested in France in October 2010 and transferred to ICC custody. The ICC issued a sealed arrest warrant in February 2006 for Thomas Lubanga Dyilo, the alleged founder and leader of the Union of Congolese Patriots (UPC, after its French acronym) in Ituri and its military wing, the Patriotic Forces for the Liberation of Congo (FPLC). At the time, Lubanga was in Congolese custody and had been charged in the domestic justice system. After a determination of admissibility by the ICC, Lubanga was transferred to ICC custody in March 2006. The ICC has charged Lubanga with three counts of war crimes related to the recruitment and use of child soldiers. Following a lengthy delay due to a procedural challenge, Lubanga's trial began in January 2009. The trial is expected to conclude in August 2011 and to bring the ICC's first final verdict before year's end. Lubanga has pleaded not guilty: his defense team maintains that Lubanga was only a political leader who tried to demobilize children fighting in his group, and that he is a scapegoat for other, more senior militant leaders. The trial has been beset by procedural challenges. Judges have several times halted proceedings and ordered Lubanga's release, contending that a fair trial was impossible because prosecutors had erred in handling evidence and refused to disclose sources' identities to judges and the defense. In each instance, prosecutors successfully appealed to overturn the judges' decision, allowing the trial to resume. Germain Katanga, the alleged commander of the Force de Résistance Patriotique en Ituri (FRPI) and Ngudjolo, the alleged highest-ranking commander of the Front des Nationalistes et Intégrationnistes (FNI), are being prosecuted as co-perpetrators for allegedly having "acted in concert to mount an attack targeted mainly at Hema civilians" in Ituri in 2003. The ICC issued sealed arrest warrants for Katanga and Ngudjolo in July 2007, and they were transferred by Congolese authorities to ICC custody in October 2007 and February 2008, respectively. The Prosecutor has accused them jointly of four counts of crimes against humanity and nine counts of war crimes related to murder, "inhumane acts," sexual crimes, the use of child soldiers, rape, and other abuses. In November 2009, the joint trial of Katanga and Ngudjolo opened. The ICC issued a sealed warrant for the arrest of Bosco Ntaganda, the alleged former deputy military commander in Lubanga's FPLC militia, in August 2006. The warrant was unsealed in April 2008, but Ntaganda remains at large. Ntaganda is accused of three counts of war crimes related to the recruitment and use of child soldiers in 2002 and 2003. His nationality is disputed: the ICC arrest warrant states that he is "believed to be a Rwandan national," but other sources state that he is an ethnic Tutsi from DRC's North Kivu province. At the time the warrant was unsealed, Ntaganda was a commander in a different rebel group, the National Congress for the People's Defense (CNDP), in North Kivu. Ntaganda later agreed to be integrated into the Congolese armed forces as part of a January 2009 peace deal, and he was reportedly promoted to the rank of military general. The Congolese government has since refused to pursue Ntaganda on behalf of the ICC, arguing that to do so would jeopardize peace efforts in the Kivu region. Foreign diplomats and human rights advocates allege that Ntaganda is living openly in the North Kivu city of Goma; that he has played a command role in a high-profile DRC military offensive in the east since early 2009, contrary to statements by the U.N. peacekeeping mission in Congo, which supported the offensive; and that he has continued to orchestrate extra-judicial killings and disappearances of perceived opponents. Others have alleged that he is involved in illicit minerals smuggling. In November 2009, the Obama Administration's then-Special Advisor on the Great Lakes Region, Howard Wolpe, stated that the DRC's protection of Ntaganda was "inexcusable" and said that the United States would press Congolese authorities to allow Ntaganda's transfer to the ICC. ICC judges issued a sealed warrant for the arrest of Callixte Mbarushimana, a Rwandan national and the alleged political leader in exile of the Democratic Forces for the Liberation of Rwanda (FDLR) militia, on September 28, 2010. The warrant cites "reasonable grounds" to believe Mbarushimana is criminally responsible for six counts of war crimes and five counts of crimes against humanity. On October 12, Mbarushimana was arrested in France, where he was living as a political refugee. A French court verdict on November 3 paved the way for his transfer to ICC custody on January 25, 2011. The FDLR is based in the conflict-ridden Kivu provinces of eastern DRC but is primarily led by Rwandan Hutu extremists, including individuals who fled to DRC during the aftermath of the 1994 Rwandan genocide as well as members of the diaspora. The Prosecutor's case against Mbarushimana alleges that he commanded FDLR attacks against civilians in the Kivus, including murder, torture, rape, and the destruction of property. The United States welcomed the arrest, noting that Mbarushimana has been the target of U.N. and U.S. sanctions since 2008, and indicating U.S. support for the ICC's "ongoing investigations into atrocities that have been committed in the Democratic Republic of the Congo." The government of Rwanda, previously a vocal opponent of the Court, has welcomed the prosecution but stated that it would have preferred to try Mbarushimana within Rwanda on charges related to the 1994 genocide. The government of CAR, a party to the ICC, referred "the situation of crimes within the jurisdiction of the Court committed anywhere on [CAR] territory" to the ICC Prosecutor in January 2005. In May 2008, the ICC issued a sealed warrant of arrest for Jean-Pierre Bemba Gombo. A former DRC rebel leader turned politician and successful businessman, Bemba had been the leading challenger to incumbent President Joseph Kabila in DRC's 2006 presidential election, and was elected to the Congolese legislature in January 2007. He subsequently went into exile in Europe following armed clashes with security forces loyal to Kabila. The warrant alleged that as commander of the Movement for the Liberation of Congo (MLC), one of two main DRC rebel groups during that country's civil war (1998-2003), Bemba had overseen systematic attacks on civilians in CAR territory between October 2002 and March 2003. Bemba's MLC, based in the DRC's north, allegedly committed these abuses after it was invited into CAR by then-President Ange-Félix Patassé to help quell a rebellion. Bemba was arrested in Belgium in May 2008 and turned over to the ICC in July 2008. In June 2009, a panel of ICC judges confirmed three charges of war crimes and two charges of crimes against humanity for alleged rape, murder, and pillaging. The charges hinge on the question of command responsibility: the Prosecutor contends that Bemba personally managed the MLC, stayed in constant contact with combatants, and was well informed about the group's activities in CAR. Bemba's trial opened on November 22, 2010, after ICC judges dismissed various legal appeals. The prosecution has been controversial in the DRC, where Bemba's MLC continues to function as an opposition party. The Office of the Prosecutor has denied that political considerations played a role in the case, and the government of DRC has denied involvement in the prosecution. Some observers have praised the ICC's investigations in Africa as a crucial step against impunity on the continent, but ICC actions have also provoked debates over the court's potential impact, its perceived prioritization of Africa over other regions, its selection of cases, and the potential effect of prosecutions on peace processes. Notably, critics have accused the ICC of potentially jeopardizing political settlements that may keep the peace in the pursuit of an often abstract "justice." Supporters of the Court reject these criticisms, and hope that ICC investigations will contribute to Africa's long-term peace and stability. The African Union (AU) has strongly objected to certain ICC actions, causing some backers of the Court to be concerned that it could lose the support of its largest regional block. In particular, the AU objects to ICC attempts to prosecute sitting heads of state in Sudan and Libya, and has decided not to enforce arrest warrants for Bashir or Qadhafi. Indeed, the Sudanese president has visited Chad, Kenya, and Djibouti, all ICC states parties, since the first warrant for his arrest was issued in 2009. At least one AU member, Botswana, has indicated, however, that it intends to enforce the warrants, and other AU states may quietly hold the same position. At an AU summit in January 2011, the AU Assembly additionally endorsed Kenya's request for a deferral of prosecutions there. Such a deferral could only be enacted through action by ICC judges or at the U.N. Security Council, and neither has moved to do so. AU Commission chairman Jean Ping has repeatedly accused the ICC Prosecutor of relying on "double standards" with regard to Africa (see " Accusations of Bias ," below). At the same time, African parties to the ICC have refrained from withdrawing from the Court. The ICC's founders anticipated that by ending impunity, the ICC would deter future atrocities. Indeed, some observers argue that the ICC's success should be evaluated not just based on the punishment of past atrocities, but also in terms of "the effect its investigations have on reducing abysmal conduct in the present and future." (The Office of the Prosecutor maintains that the choice of cases is not based on calculations of deterrent effect, though the Office acknowledges that strategic communications related to ICC prosecutions may play a role in deterrence. ) The goal of deterrence has been particularly salient in the ICC's investigations in Africa, which have focused on regions where atrocities are ongoing or have only recently ended. However, difficulties encountered in enforcing ICC arrest warrants and the fact that the Court has yet to convict any suspects have led some to question whether the threat of ICC prosecution is credible. Some observers suggest that the Court's failure to apprehend suspects in Sudan, in particular, has bared tensions between the ICC's universal mandate and its reliance on the enforcement power of states. Others maintain that deterrence is difficult to evaluate and that changes in perpetrators' behavior may be visible only over the long run. Some argue that the Court's compilation of evidence, including transcribed interviews with witnesses, may serve future prosecutions or reconciliation processes even if they do not immediately lead to convictions. Some commentators have raised the possibility that transitional countries in the Middle East—such as Tunisia and Egypt—might submit to the ICC to investigate past abuses by authoritarian regimes. The ICC's investigations in Africa have stirred concerns over African sovereignty, in part due to the long history of foreign intervention on the continent. For example, President Paul Kagame of Rwanda, a country which is not a party to the Court, has portrayed the ICC as a form of "imperialism" that seeks to "undermine people from poor and African countries, and other powerless countries in terms of economic development and politics." Some commentators allege that the Prosecutor has limited investigations to Africa because of geopolitical pressures, either out of a desire to avoid confrontation with major powers or as a tool of Western foreign policy. The attempt to prosecute Bashir has been particularly controversial, drawing rebuke from African governments and regional organizations. Jean Ping, president of the AU Commission, has accused the ICC of hypocrisy, contending that "we are not against the ICC, but there are two systems of measurement … the ICC seems to exist solely for judging Africans." Supporters of the Court respond that most investigations to-date have been determined by referrals, either by African states or the Security Council, and that the Prosecutor continues to analyze situations outside of Africa. The Office of the Prosecutor maintains that its choice of cases is based on the relative gravity of abuses, and that crimes committed in Africa are among the world's most serious. A prominent South African jurist, Constitutional Court Chief Justice Sandile Ngcobo, recently expressed a similar interpretation, stating that "abuses committed in Sub-Saharan Africa have been among the most serious, and this is certainly a legitimate criterion for the selection of cases." ICC officials, including Deputy Prosecutor Fatou Bensouda—a national of The Gambia—contend that the Court is protecting Africans rather than "targeting" them. Supporters also contend that national legal systems in Africa are particularly weak, which has allowed the ICC to assert its jurisdiction under the principle of complementarity. These sentiments were echoed by former U.N. Secretary-General Kofi Annan, who stated, "In all of these cases, it is the culture of impunity, not African countries, which are the target. This is exactly the role of the I.C.C. It is a court of last resort." At the June 2010 meeting of ICC states parties in Kampala, Uganda, participants initiated mechanisms for increasing coordination between donors on strengthening national justice systems. The United States, which participated in the meeting as an observer, has expressed support for such efforts. The Prosecutor's selection of cases also has proven controversial. As one pair of authors has written, "perceptions of the ICC on the ground have at times been damaged by insufficient efforts by the Court to make clear the basis on which individuals have been the subject of warrants and of particular charges, while those of apparently equal culpability have not." For example, some have criticized ICC prosecutions in Uganda, the DRC, and CAR for focusing on alleged abuses by rebel fighters to the exclusion of those reportedly committed by government troops. The decision to pursue DRC opposition leader Jean-Pierre Bemba Gombo has provoked accusations that the Prosecutor was swayed by political bias or, potentially, excessive pragmatism, since other Congolese and CAR politicians accused of similar abuses have not been pursued to date. ICC supporters have responded that the Prosecutor is mandated to focus on particularly serious cases, and that investigations are ongoing in these countries. One of the most persistent criticisms of the ICC's actions in Africa has been that by prosecuting participants in ongoing or recently settled conflicts, the Court risks prolonging violence or endangering fragile peace processes. By removing the bargaining chip of amnesty from the negotiating table, critics allege, the ICC may remove incentives for peace settlements while encouraging perpetrators to remain in power in order to shield themselves from prosecution. Some analysts observe that in such cases, "it is difficult to tell victims of these conflicts that the prosecution of a small number of people should take precedence over a peace deal that may end the appalling conditions they endure and the daily risks they face." Concerns that the aims of "justice" and "peace" may conflict have been particularly prominent in connection with Sudan, Kenya, and the Lord's Resistance Army. Similar concerns have recently been voiced with regard to Libya, where Qadhafi has refused to cede power. As one commentator recently argued, "In the past, Africa's deposed heads of state could count on a comfortable exile in a friendly country... But since the International Criminal Court was established in 2002, rulers who have committed war crimes or human rights violations against their own people have found their exile options substantially diminished." In Sudan, some observers have argued that the attempt to prosecute President Bashir complicated implementation of the 2005 Comprehensive Peace Agreement for Southern Sudan and the peace process in Darfur, by providing an incentive to the ruling party's inner circle to cling to power. For example, according to former U.S. special envoy to Sudan Andrew Natsios, "the regime will now avoid any compromise or anything that would weaken their already weakened position, because if they are forced from office they face trials before the ICC.... [An ICC warrant for Bashir] may well shut off the last remaining hope for a peaceful settlement for the country." In Kenya, concerns persist that ICC prosecutions could destabilize the fragile political truce that has underpinned the post-2007 government of national unity, although some argue that a lack of accountability for human rights violations would also threaten future stability. Some argued that ICC arrest warrants against LRA commanders acted as an impediment to achieving a final peace agreement to that long-running conflict between 2006 and 2008. Ugandan critics included community elders who supported the use of traditional reconciliation mechanisms instead of international prosecution. Others contend that LRA leaders never seriously intended to negotiate a peace, and that the threat of ICC prosecution could serve as "an important ingredient in a political solution" for the conflict-plagued north. This discussion has been muted in recent years, as senior LRA commanders are no longer in northern Uganda and have sought refuge instead in neighboring countries. Criticisms connected to the case against Bashir in Sudan were reinforced when the Sudanese government responded to the ICC arrest warrant for Bashir by expelling aid agencies and threatening NGOs and peacekeeping troops. In March 2009 testimony before Congress, when asked about the impact of the ICC warrant on U.N. peacekeeping operations in Darfur, then-Director of National Intelligence Dennis C. Blair said that "the indictment and President Bashir's reaction have made him less cooperative than he was" and that the warrant would "make it harder" for peacekeeping operations in Darfur. In early August 2009, the outgoing commander of the hybrid U.N.-AU peacekeeping mission in Darfur (UNAMID), General Martin Luther Agwai, reportedly stated that the decision to pursue Bashir had been a "big blow" for UNAMID and the peace process, although it had not had as drastic an effect on the ground as he had feared. U.N. Secretary-General Ban Ki-moon, who has maintained a neutral position on the ICC's actions in Sudan, has nonetheless argued that the international community must seek to balance "peace" and "justice" in dealing with the conflict in Darfur and expressed concern that the expulsion of aid organizations was detrimental to relief and peacekeeping operations. Supporters of the Court maintain that the warrant against Bashir may open up new opportunities to secure peace in Darfur, as a credible threat of prosecution may serve as an important lever of pressure on actors in a conflict. For example, Priscilla Hayner of the International Center for Transitional Justice has written that "it would be wrong to suggest that pragmatism always trumps principle in matters of life and death, and thus that one must ease up on justice in order to achieve peace. In some cases, the interest of peace has been well served by strong, forthright efforts to advance justice." Some argue that "peace deals that sacrifice justice often fail to produce peace" in the long run. Many observers point out that discerning the effect of ICC actions on complex processes is extremely difficult. | The International Criminal Court (ICC) has, to date, opened cases exclusively in Africa. Cases concerning 25 individuals are open before the Court, pertaining to crimes allegedly committed in six African states: Libya, Kenya, Sudan (Darfur), Uganda (the Lord's Resistance Army, LRA), the Democratic Republic of Congo, and the Central African Republic. A 26th case, against a Darfur rebel commander, was dismissed. The ICC Prosecutor has yet to secure any convictions. In addition, the Prosecutor has initiated preliminary examinations—a potential precursor to a full investigation—in Côte d'Ivoire, Guinea, and Nigeria, along with several countries outside of Africa, such as Afghanistan, Colombia, Georgia, Honduras, and the Republic of Korea. The Statute of the ICC, also known as the Rome Statute, entered into force on July 1, 2002, and established a permanent, independent Court to investigate and bring to justice individuals who commit war crimes, crimes against humanity, and genocide. As of July 2011, 116 countries—including 32 African countries, the largest regional block—were parties to the Statute. Tunisia was the latest country to have become a party, in June 2011. The United States is not a party. ICC prosecutions have been praised by human rights advocates. At the same time, the ICC Prosecutor's choice of cases and the perception that the Court has disproportionately focused on Africa have been controversial. The Prosecutor's attempts to prosecute two sitting African heads of state, Sudan's Omar Hassan al Bashir and Libya's Muammar al Qadhafi, have been particularly contested, and the African Union has decided not to enforce ICC arrest warrants for either leader. Neither Sudan nor Libya is a party to the ICC; in both cases, jurisdiction was granted through a United Nations Security Council resolution. (The United States abstained from the former Security Council vote, in 2005, and voted in favor of the latter, in February 2011.) Controversy within Africa has also surfaced over ICC attempts to prosecute Kenyan officials in connection with post-election violence in 2007-2008. Although Kenya is a party to the Court, the government has recently objected to ICC involvement, which some contend could be destabilizing. Congressional interest in the work of the ICC in Africa has arisen in connection with concerns over gross human rights violations on the African continent and beyond, along with broader concerns over ICC jurisdiction and U.S. policy toward the Court. Obama Administration officials have expressed support for several ICC prosecutions. At the ICC's 2010 review conference in Kampala, Uganda, Obama Administration officials reiterated the United States' intention to provide diplomatic and informational support to ICC prosecutions on a case-by-case basis. The U.S. government is prohibited by law from providing material assistance to the ICC under the American Servicemembers' Protection Act of 2002, or ASPA (P.L. 107-206, Title II). Legislation introduced during the 111th Congress referenced the ICC in connection with several African conflicts and, more broadly, U.S. policy toward, and cooperation with, the Court. S.Res. 85 (Menendez) welcomes the U.N. Security Council referral of Libya to the ICC. This report provides background on current ICC cases and examines issues raised by the ICC's actions in Africa. Further analysis can be found in CRS Report R41116, The International Criminal Court (ICC): Jurisdiction, Extradition, and U.S. Policy, by [author name scrubbed] and [author name scrubbed], and CRS Report R41682, International Criminal Court and the Rome Statute: 2010 Review Conference, by [author name scrubbed]. |
RS20553 -- Air Quality and Electricity: Initiatives to Increase Pollution Controls Updated October 25, 2002 Since the mid-1990s, the U.S. Environmental Protection Agency (EPA) has initiated actions that have resulted in regulatorymandates and enforcement actions that would, if implemented, substantially reduce air pollutants (particularlynitrogenoxides - NOx) emitted by some electric generating facilities. An Ozone Transport Assessment Group (OTAG),formed byEPA in May 1995, laid the groundwork for the regulatory initiatives; it directly led to the Ozone Transport Rule(also calledthe NOx SIP Call). In a supplementary action, 12 states petitioned EPA under Section 126 of the CAA, concerninginterstate pollution, alleging that NOx originating in upwind states prevented their attainment of ozone standards. An EPAOffice of Enforcement & Compliance Assurance audit of New Source Review (NSR) applications requiredunderprovisions of the Clean Air Act (CAA) that began in late 1996 was the precursor to the enforcement initiative; itled inNovember 1999 to lawsuits against seven utilities in the Midwest and South and an administrative order against theTennessee Valley Authority alleging violations of NSR requirements of the CAA. (1) The first two initiatives, the Ozone Transport Rule and the Section 126 petitions, are related to each other substantively. (2) These initiatives would further control NOx to assist states in the Northeast in meeting the existing, statutory 1-hourozoneNational Ambient Air Quality Standard (NAAQS). The Ozone Transport Rule includes all or part of 19 easternstates andthe District of Columbia. Based on the eight petitions EPA has ruled on, EPA's Section 126 determinations wouldinvolvea subset of the NOx SIP Call's 19 states - 12 states and the District of Columbia. The enforcement initiative is not legally or procedurally related to the above initiatives; however, the NSR enforcementaction by EPA has substantive associations with them in that NOx is a primary (but not sole) focus, and many oftheutilities named as defendants in these cases would also have to reduce emissions under the NOx SIP Call andSection 126determinations. Unlike the other actions, the NSR action does not involve new regulatory action, but enforcementofexisting law and regulations. As such, it is handled by the EPA's Office of Enforcement & ComplianceAssurance, not aregulatory office, and involves other pollutants electric generators emit besides NOx (specifically sulfur dioxide(SO 2 ) andparticulates). The primary focus of the regulatory initiatives and a primary effect of EPA's enforcement action is to reduce NOxemissions in the eastern part of the United States. The environmental purpose for doing so is to reduce the interstatetransportation of this ozone precursor, thus assisting localities along the eastern seaboard in attaining the ozoneNAAQS. The actions would also mitigate acid rain. The initiatives and enforcement action by EPA focus on coal-firedelectricgenerating facilities both because they are major sources of emissions - in 1997 they emitted 24% of the country'sNOx(and also 62% of its SO 2 , 31% of its carbon dioxide (CO 2 ), and approximately one-thirdof the country's mercury (Hg)) -and because they represent the most cost-effective sources of large emission reductions for NOx andSO 2 . In the case of the Section 126 determinations and the NSR enforcement action, coal-fired powerplants are explicitlytargeted for emissions reductions. In the case of the NOx SIP Call, EPA cannot explicitly target sources (that is theresponsibility of each affected state), but the allocation scheme used by EPA to determine the allowable emissionsbudgetfor individual states is based primarily on substantial reductions from coal-fired powerplants. In general, theinitiativesidentified here would require affected powerplants to reduce their NOx emissions by about 75%-85%. AlthoughtheSection 126 determinations and the NSR enforcement action target individual sources, EPA provides flexibility forutilitiesto achieve the mandated reduction by means other than simply installing NOx control equipment on affected units. Asindicated by EPA's NSR settlement with Tampa Electric discussed later, the consent decree involves severaldifferent NOxcontrol strategies to reduce NOx emissions by over 85%, as well as controls to reduce SO 2 emissionsby almost 80%, by theyear 2010. Figure 1 indicates the states affected by the initiatives identified here. In line with the initiatives' focus on coal-firedelectric generating facilities, the Midwest is the primary location of affected powerplants. Five states - Indiana,Kentucky,North Carolina, Ohio, and West Virginia - would be affected by all three initiatives. In contrast, Mississippi andFloridahave utilities targeted only under the NSR enforcement initiatives; Missouri, Connecticut, Rhode Island, andMassachusettsare targeted only under the Ozone Transport Rule. The other states have utilities targeted under the Ozone TransportRuleand either a Section 126 determination or NSR enforcement. PDF version The costs and benefits of these initiatives could be substantial, as indicated by Table 1. The NOx SIP Call is the most wideranging of the initiatives, with estimated costs of $1.7 billion annually and estimated quantifiable benefits of$1.1-$4.2billion annually. Because EPA's methodology uses cost-effectiveness for determining emission budgets, the lion'sshare ofthe costs would be borne by the utility industry. The smaller scope of the Section 126 determinations reducesemissionsabatement and benefits, but also costs. Of course, this scope could increase if additional petitions submitted to EPAresultin more states being implicated as sources of transported ozone. Finally, the evolving scope of EPA's NSR actionmakesestimates of its costs and benefits difficult, if not impossible, at this time. Table 1. Estimated Costs and Benefits of Initiatives n/a = not available Source: CRS Report 98-236. Since January 2000 significant actions have occurred with all three of the initiatives. The status of these initiatives as ofJanuary 22, 2002, is summarized in Table 2. Perhaps the most significant action has been the decision of a 3-judgepanel ofthe D.C. Circuit Court of Appeals to uphold EPA's Ozone Transport Rule with respect to the 1-hour ozone NAAQS( Michigan v. EPA , No. 98-1497 (D.C. Cir. March 3, 2000)), and to lift the stay on implementation. In upholding EPA'sauthority and methodology in developing the NOx SIP Call, the court did make some modifications; in particular,thatEPA's methodology did not support the inclusion of Wisconsin or all of Missouri and Georgia in the Rule (adecisionreflected in Figure 1). In lifting the stay, the court ordered affected states to submit revised State ImplementationPlans(SIPs) within 4 months of its June 22, 2000, order. In a subsequent ruling issued August 30, 2000, the court orderedEPAto move its original May 2003, compliance deadline to May 31, 2004. In March 2001, the Supreme Court denieda hearingto opponents of the SIP Call, effectively affirming the appeals court decision. In December 2000, EPA declaredthat 11states and the District of Columbia failed to submit revised SIPs by the extended October 30, 2000 deadline. ByNovember2002, all the affected states had submitted revised SIPs except Michigan, which has submitted a draft SIP revision. None of these proceedings, however, affect the indefinite stay of EPA findings with respect to the 8-hour ozone standard. In February 2001, the Supreme Court ruled that although EPA has the authority to set a new 8-hour ozone standard,itsinterpretation of the relationship between the 1-hour standard's statutory implementation strategy and its new 8-hourstandard implementation strategy was unreasonable and unlawful. The Court left it to EPA to "develop a reasonableinterpretation" of the statutory provisions as they relate to the implementing the new 8-hour standard( Whitman v. AmericanTrucking Associations , 531 U.S. 457 (2001) decided February 27, 2001). Table 2. Status of Initiatives With respect to the Section 126 petitions, EPA announced its 1-hour ozone findings on the 8 original petitions on January18, 2000. (3) EPA granted four of the eight petitionsfor the 1-hour ozone standard: Connecticut, Massachusetts, New York,and Pennsylvania. Petitions from four other states were denied as these states no longer had areas that were not inattainment with the 1-hour standard. The rule specifies NOx allocations for 392 facilities in 12 states and theDistrict ofColumbia, and implemented through a cap-and-trade program. The D.C. Circuit Court of Appeals upheld EPA'sauthorityto issue the rule on May 15, 2001, but ordered EPA to reconsider factors used in setting emission limits( AppalachianPower Co. v. EPA ). EPA responded to the court's order on August 3, 2001. On January 15, 2002, the EPAannounced itwould delay the compliance deadline for the Section 126 rule from May 1, 2003, to May 31, 2004, in line with thedeadlinefor the NOx SIP Call. EPA argues that a court order issued August 24, 2001, had already suspended the compliancedeadline for powerplants, and it would be unfair to make other emission sources meet an earlier deadline. In January 2000, EPA decided to indefinitely stay its original final determinations with respect to the 8-hour standard, givenlitigation regarding that standard. It also announced that findings with respect to petitions by the District ofColumbia,Delaware, Maryland, and New Jersey would be determined in the future. Since the filing of the NSR lawsuits in November 1999 (and subsequent lawsuits filed in 2000), several significant actionshave occurred. First, in February 2000, EPA announced that it had come to an agreement with Tampa ElectricCompany ona consent decree that will settle the NSR lawsuit against that utility. The agreement will reduce NOx emissions byover85% (and SO 2 emissions by almost 80%) through a combination of fuel switching to natural gas,pollution controlequipment optimization, and other techniques. The estimated $1 billion program is expected by Tampa Electric tohave a"small" impact on its customers' bills. (4) Second, on November 16, 2000, EPA and Virginia Power announced that an "agreement in principle" had been reach tosettle EPA's NSR suit against Virginia Power. Over 12 years, Virginia will spend $1.2 billion to reduce NOx andSO2emissions by about 70% through a combination of pollution control equipment and fuel switching. Thisannouncement wasfollowed on December 21, 2000 by a similar agreement in principle between EPA and Cinergy involving a $1.4billioninvestment in control technology. Third, on January 24, 2002, EPA and the State of New Jersey announced the filing and settlement of an NSR suit againstPSEG Fossil LLC. PSEG agreed to reduce its SO2 emissions by 90% and its NOx emissions by 83% from 2000levels by2012 at an estimated cost of $337 million. In addition, PSEG agreed to reduce CO2 emissions by 15% from 1990levels. Litigation on these cases has slowed as participants assess the impact of the Bush Administration's June 2002 recommendations to revise the New Source Review process. Of particular interest is an EPA recommendation thata newrulemaking be commenced on the definition of "routine maintenance," a key point of contention in the abovelawsuits. Asof October 2002, no formal rulemaking has been proposed by EPA as the drafting process has not beencompleted. (5) The continuing difficulties in the Northeast both in meeting the ozone NAAQS and in reducing acid precipitation havefocused attention on emissions from fossil fuel-fired utilities, particularly of NOx - and on the potential costs ofreducingthose emissions. Concerned about the piecemeal nature of these initiatives, some in Congress have been workingoncomprehensive, multi-pollutant alternative strategies to reduce emissions. In June 2002, the Senate EnvironmentandPublic Works Committee reported out S. 556 - a comprehensive, multi-pollutant bill that would incorporatemarket-oriented mechanisms to control NOx, SO2, and CO2, and tonnage limitations on Hg. (6) No floor action has beenscheduled. | Since the mid-1990s, EPA has initiated actions resulting in regulatory mandatesand enforcement actions directed primarily at coal-fired electric generating utilities. These actions would, ifimplemented,substantially reduce air pollutants, particularly nitrogen oxides (NOx). These initiatives include the OzoneTransport Rule(also called the NOx SIP Call); a set of "Section 126 petitions" in which 12 states allege under Section 126 of theClean AirAct (CAA) that pollutants originating in upwind states prevent their attainment of clean air standards; and a set ofenforcement actions based on New Source Review (NSR) requirements of the CAA that have resulted in lawsuitsagainstseveral utilities and an administrative order against the Tennessee Valley Authority. Although these are separateinitiatives,they are related in that each ultimately focuses on emissions from utilities in the Midwest and South. As of January22,2001, the EPA has declared 11 states and the District of Columbia as failing to submit revised SIPs required undertheOzone Transport Rule; the EPA has approved four section 126 petitions; and two of the NSR lawsuits have resultedinconsent decrees (Tampa Electric Co. and PSEG), and two others have been settled in principle (Virginia Power andCinergy). In June 2002, the Bush Administration recommended new rulemaking be commenced on the definitionof"routine maintenance": a key point of contention in the lawsuits. Legislative activity focuses on multi-pollutantstrategiesas an alternative to these piecemeal initiatives. In June 2002, the Senate Environment and Public Works Committeereported out S. 556 - a comprehensive, multi-pollutant reduction bill. This report will be updated as eventswarrant. |
The Missing and Exploited Children's (MEC) program—administered by the Department of Justice's (DOJ's) Office of Juvenile Justice and Delinquency Prevention (OJJDP) in the Office of Justice Programs (OJP)—seeks to prevent cases of missing and sexually exploited children and to support communities in responding to such cases. The program is composed of activities that are authorized under multiple laws, and includes the following components: The National Center for Missing and Exploited Children (NCMEC) is a nonprofit organization in Alexandria, VA, that serves as a resource center for law enforcement agencies working on cases of missing and exploited children, the families of child victims, and the public more broadly. NCMEC personnel take reports of missing and exploited children through a hotline and online portal. NCMEC also provides technical assistance to locate abductors and recover missing children, and help with identifying child victims of sexual exploitation. In recent years, funding for NCMEC has been approximately $28 million annually. The Internet Crimes Against Children (ICAC) Task Force program funds state and local law enforcement units in investigating online child sexual exploitation. The program also includes the National ICAC Data System (NIDS), which is used by law enforcement agencies to coordinate information about perpetrators who sexually abuse children on the Internet and to recover these children. Recent funding for the ICAC program has been approximately $27 million annually. Under the AMBER Alert (America's Missing: Broadcast Emergency Response) program, DOJ supports a grantee that provides technical assistance to states in alerting the public when children are abducted and believed to be in imminent danger. AMBER Alert technical assistance has been funded at approximately $2 million annually in recent years. The MEC program also provides grants for training and technical assistance on child victimization and related supports. Training and technical assistance is delivered via a grantee that provides assistance through classroom instruction, web-based learning, and in-person support. These grants can vary from year to year, and recent funding has been approximately $4 million annually. This report covers selected aspects of research and policy concerning missing and exploited children. It begins with background on federal involvement in missing children's issues. The next section includes definitions and approximate numbers of children who are missing and sexually exploited. The report then provides information about each component of the MEC program. Congress has long been concerned about missing children. In the early 1970s, Congress held hearings about a subset of these children—those who had run away from home. Testimony focused on the interaction that runaway youth had with police and their increasing reliance on social service agencies for support. These hearings and related activity led to the passage of the Runaway Youth Act of 1974 as Title III of the Juvenile Justice and Delinquency Prevention Act ( P.L. 93-415 ). The act, as amended, authorizes assistance to runaway and homeless youth through shelters and other services. Beginning in the late 1970s, highly publicized cases of children who were abducted, sexually abused, and sometimes murdered prompted policymakers and child advocates to declare a missing children problem. At that time, many of the victims' families and communities perceived that kidnappings were becoming more commonplace. Prominent cases of missing children were highly publicized and a docudrama, "Adam," depicted the story of abducted six-year-old Adam Walsh, son of John and Revé Walsh. Testimony at congressional hearings about missing children further reinforced the perception of a missing children problem. Witnesses testified that as many as 1.8 million children were missing. They also highlighted the accompanying sexual exploitation that children often experienced during missing episodes. In some parts of the country, nonprofit organizations formed by the parents of missing children were often the only entities that organized recovery efforts and provided counseling for victimized families. Congress responded by passing two bills, both of which were enacted. The Missing Children Act of 1982 ( P.L. 97-292 ) directed the Attorney General to keep records on missing children in the National Crime Information Center's (NCIC's) Missing Persons File, maintained by the Federal Bureau of Investigation (FBI), and to disseminate those records to state and local agencies. That law neither created new federal jurisdiction over missing children's programs nor required federal law enforcement officials to coordinate missing children efforts. Two years later, the Missing Children's Assistance Act ( P.L. 98-473 ) was enacted. It directed OJJDP to lead federal efforts to recover missing children and establish a national resource center on missing children. NCMEC has served as the resource center since 1984. The Missing Children's Assistance Act has been amended multiple times to further specify the responsibilities of OJJDP and NCMEC in responding to missing and exploited children. For example, OJJDP supports training and technical assistance to strengthen community responses to child victimization cases, among other activities. Current funding authorization under the Missing Children's Assistance Act is $40 million for each of FY2014 through FY2018. Of this amount, up to $32.2 million is to be allotted to NCMEC. (The Appendix provides a description of the original act and its amendments.) The federal government has since provided additional resources in support of missing and exploited children. Selected activities have been subsumed under the MEC program. DOJ first funded the ICAC Task Force program in 2008 to support state and local law enforcement agencies in combatting online enticement of children and the proliferation of pornography. The PROTECT Our Children Act of 2008 ( P.L. 110-401 ) formally authorized the program. This law provided two authorizations for the ICAC Task Force program—one for $60 million for FY2009-FY2013 for ICAC activities generally, including grants for ICAC task forces, and one for $2 million for each of FY2009-FY2016 for the National ICAC Data System, which facilitates online law enforcement investigations of child exploitation. The Child Protection Act of 2012 ( P.L. 112-206 ), signed into law on December 7, 2012, authorized annual appropriations of $60 million for the ICAC Task Force program generally (including the data system and the National Strategy for Child Exploitation Prevention and Interdiction, discussed later in this report) through FY2018. The Providing Resources, Officers, and Technology to Eradicate Cyber Threats to Our Children Act of 2017 (PROTECT Our Children Act of 2017, P.L. 115-82 ) extended annual authorizations of $60 million for the ICAC Task Force program generally through FY2022. Separately, OJP first provided funding ($10 million in discretionary appropriations) in 2002 for states and localities to develop AMBER Alert programs. The Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today Act of 2003 (PROTECT Act, P.L. 108-21 ), enacted in 2003, directed the Attorney General to create a national AMBER Alert program, including appointing a coordinator and developing standards for issuing an alert. P.L. 108-21 also authorized funding in FY2004 for activities to support states in developing AMBER Alert communication plans and technologies. As discussed in more detail later in this report, the MEC program has used continuous appropriations since FY2004 to provide technical assistance to states' AMBER Alert plans and in responding to child abductions. Children who go missing—as well as children who are not missing—may be sexually exploited. Missing children and sexually exploited children are distinct but overlapping populations. The term "missing child" is defined under the Missing Children's Assistance Act as an individual under age 18 whose whereabouts are unknown to that individual's legal custodian. Although the Missing Children's Assistance Act does not define child sexual exploitation, both criminal and civil federal statutes specify acts of sexual exploitation for purposes of prosecuting offenders and providing minimum standards of child abuse for states to use in their own definitions of child abuse. The actual number of children who are currently missing or sexually exploited is unknown; however, studies have estimated the rate of children who are missing or sexually exploited (as discussed in more detail below). The Missing Children's Assistance Act requires OJJDP to conduct incidence studies of the number of missing children, the number of children missing due to a stranger abduction or parental abduction, and the number of missing children who are recovered. Since the act's passage in 1984, DOJ has supported three national incidence studies, known as the National Incidence Studies of Missing, Abducted, Runaway, and Thrownaway Children (NISMART- 1, 2, and 3). NISMART-1 was conducted in 1988, NISMART-2 was conducted in 1999, and NISMART-3 was conducted primarily in 2013. DOJ has issued findings from NISMART- 3 in two reports. One of the reports includes findings from a telephone and online survey of households. As with NISMART-2, NISMART-3 includes five categories of missing children: abductions by a family member; adductions by a nonfamily member perpetrator; run away or thrown away children; missing because they were lost, stranded, or injured; or missing for benign reasons (e.g., misunderstanding about a child's schedule). The study classifies missing children cases as "caretaker missing" and "reported missing." For an episode to qualify as "caretaker missing," the child's whereabouts must have been unknown to the primary caretaker, with the result that the caretaker was alarmed for at least one hour and tried to locate the child. A "caretaker missing" child was considered "reported missing" if a caretaker additionally contacted the police or a missing children's agency to locate the child. The NISMART-3 household survey indicates that the rates of children who were caretaker missing and reported missing declined since the NISMART-2 study. There was a decrease of 32% for caretaker missing cases (from 9.2 per 1,000 in 1999 to 6.3 per 1,000 in 2013) and a decrease of 52% for reported missing cases (from 6.5 per 1,000 in 1999 to 3.1 per 1,000 in 2013). The drop was largely driven by the decline in the rate of children who were missing due to benign reasons. One of the NISMART-3 reports speculates that the increased use of cell phones has improved communication between parents and their children, and therefore fewer children were perceived or reported as missing. The report raises concerns about the methodological challenges with the survey, including that households were difficult to reach because many now only have cell phones. As a result, the overall sample was smaller than the NISMART-2 sample. A second NISMART-3 report, which focuses on stereotypical kidnappings, was based on cases known to law enforcement in 2011. Such kidnappings refer to nonfamily abduction in which a slight acquaintance or stranger moves the child at least 20 feet or holds the child at least one hour. In addition to these criteria, the child has to be detained overnight, transported at least 50 miles, held for ransom, abducted with the intent to keep the child permanently, or killed. The report indicates that 105 children were victims of stereotypical kidnappings in 2011. The true number of sexual exploitation incidents—whether they accompany missing children cases or not—is unknown because this type of abuse often goes undetected. In addition, studies of child sexual exploitation report varying numbers because of differences in their methodology, the time periods over which the data were collected, and how exploitation is defined. Nonetheless, one federal study, the National Survey of Children's Exposure to Violence, provides some insight into the prevalence of sexual exploitation. The study shows that a significant number and share of children under age 18 have been sexually victimized. The National Survey of Children's Exposure to Violence, conducted by the University of New Hampshire with support from OJJDP, examined the incidence and prevalence of children's exposure to violence in 2008. Researchers interviewed a nationally representative sample of children under age 18 and their caretakers by phone. They asked whether children had experienced certain forms of violence and victimization, including sexual victimization, within the past year and over their lifetime. The sexual victimization category encompasses seven types of victimization: sexual conduct or fondling by an adult the child knew, sexual conduct or fondling by an adult stranger, sexual contact or fondling by another child or teenager, attempted or completed intercourse, exposure or "flashing," sexual harassment, and consensual sexual conduct with an adult. The study found that 1 in 16 (6.1%) surveyed children and youth were sexually victimized in the past year and nearly 1 in 10 (9.8%) were sexually victimized at some point over their lifetimes. Girls were more likely than boys to report that they had been sexually victimized, with 7.4% of girls reporting sexual victimization within the past year and 12.2% reporting victimization over their lifetimes. Female adolescents ages 14 to 17 had the highest rate of victimization. Nearly 8% had been sexually victimized within the past year and 18.7% had been sexually victimized over their lifetimes. The MEC program was initially funded at $4 million in FY1985 and has received funding increases in most years since 1991. Funding more than doubled from $6.0 million in FY1997 to $12.3 million in FY1998, when the ICAC Task Force program was implemented. Another funding peak, from FY2003 to FY2004, was the result of increased funds for the AMBER Alert program and NCMEC. Funding increased again—from $50 million in FY2008 to $70 million in FY2009—following reauthorization of the program. Also in FY2009, Congress appropriated funding for the program under the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ). ARRA provided funding for myriad federal programs and initiatives to address the economic recession that began in December 2007 and extended through June 2009. Specifically, the law appropriated $50 million for the ICAC Task Force program. Table 1 shows total funding and funding for each of the program's components from FY2006 through FY2017. NCMEC has received the most funding in each of these years, followed by the ICAC Task Force program. The next highest level of funding support went to activities including program administration, training and technical assistance on missing and exploited children, support services for missing children's organizations, and grant programs that can vary from year to year. The FY2017 appropriation for the MEC program was $72.5 million. As with prior appropriations legislation, the FY2017 appropriations law ( P.L. 115-31 ) did not specify the level of funds for each of the program's components. DOJ allocated $63.1 million for the program, with the remaining $9.3 million allocated for other expenses within the OJP and OJJDP programs; approximately $58,000 was not obligated. NCMEC is a primary component of the MEC program and employs more than 300 people at its Alexandria, VA, headquarters and regional offices in California, Florida, New York, and Texas. These regional offices provide case management and technical support in their geographic areas. NCMEC provides multiple activities and services pertaining to missing children, including those abducted to or from the United States; exploited children; training and technical assistance; families of missing children; and partnerships with state missing children's clearinghouses and other stakeholders. These activities and services are detailed further in this section. Note that some missing children and exploited children programs are not mutually exclusive, and this report does not provide an exhaustive discussion of all services provided by NCMEC. In addition to funding through the MEC program, NCMEC is also funded through private contributions, other DOJ grants, and the United States Secret Service (USSS) in the Department of Homeland Security (DHS). Pursuant to the Violent Crime Control and Law Enforcement Act of 1994 ( P.L. 103-322 ), Congress has mandated that the USSS provide forensic and technical assistance to NCMEC and federal, state, and local law enforcement agencies in matters involving missing and exploited children. In recent years, funding provided by the USSS has been transferred to OJP to be provided directly to NCMEC. NCMEC's Call Center receives calls on its 24-hour toll-free hotline (1-800-THE-LOST), primarily from parents and law enforcement officials. In FY2017, the center responded to over 224,600 calls reporting missing children; sightings of missing children; and requests for assistance, information, and technical assistance from families of missing children, law enforcement agencies, and others. Since 1987, reports of child sexual exploitation received through the CyberTipline are routed to the Call Center. Assistance activities range from sending publications or educational materials to providing technical support to law enforcement and families about missing children cases. The Call Center also provides information to families of missing children about free or low-cost transportation services or requests transportation for families needing assistance with reunification. NCMEC is the only nonprofit, non-law enforcement entity to have access to the FBI's National Crime Information Center (NCIC) Missing Person File, which is reviewed by Call Center staff for records of missing children added by local and state law enforcement agencies and updates of these records. Law enforcement agencies submitting information to NCIC on a missing child are to notify NCMEC of each report that relates to a child reportedly missing from foster care, and they must maintain close liaison with NCMEC (and child welfare agencies) to exchange information and technical assistance about missing children cases generally. Cases of children who are believed to be seriously at risk are flagged in NCIC for NCMEC. NCMEC is permitted to search the Missing Person File to assist with long-term missing children who would be over age 18. Each missing child case is entered into NCMEC's nationwide database, and a case manager in the Missing Children's Division is assigned. NCMEC case managers serve as the single point of contact for the searching family and provide technical assistance to locate abductors and recover missing children. In FY2017, case managers handled 26,956 cases (i.e., individual children). Of these, about 9 out of 10 involved runaways. The Project ALERT program was established in 1992 to assist law enforcement agencies with the recovery of missing children—particularly long-term cases—at no cost to the agencies. Project ALERT members include approximately 150 retired federal, state, and local law enforcement officials who have recent and relevant investigative experience. Project ALERT services include case review, organization, recommendation of investigative strategies, assistance with case interviews, and liaison efforts with the family of a missing child. Representatives also conduct outreach to the community through public speaking and attending conferences. Team Adam, created in 2003, is designed to be a rapid, onsite response and support system that provides investigative and technical assistance to local law enforcement agencies at no cost to them. The team is staffed by approximately 90 retired federal, state, and local investigators, and is chosen by a committee with representatives from the FBI and state and local law enforcement executives experienced in crimes-against-children investigations. Team Adam consultants determine the additional resources or assistance that would assist in the search for the victim, the investigation of the crime, and family crisis management. The Forensic Services Unit is composed of the Forensic Imaging Unit and a Biometrics Team. The teams assist in the recovery of long-term missing children and work to identify the remains of deceased children and young adults believed to have gone missing. The Forensic Imaging Unit was created in 1990 to "age-progress" images of missing children through software programs using the most recent picture of the child. The image is stretched to approximate normal cranial and facial growth, and the resultant image is merged and blended with a photograph of an immediate biological family member. The age-progressed image appears in clothing and with a hairstyle consistent with the child's current age. Missing children photos are age-progressed every two years, and adult photos are age-progressed in five-year increments. Age-progressed images are distributed to the local police, searching families, and media, and posted on the NCMEC website. The Forensic Unit also creates age-regressed images. These are produced at the request of law enforcement agents posing as youth in online communication with adults who seek to engage in sexual acts with children. Staff in the Biometric Team provide support and resources for long-term missing child cases and cases of unidentified human remains of victims believed to be children and young adults. They assist law enforcement and medical examiners/coroners in identifying unknown children, either deceased or living, by facilitating the collection of DNA, dental information, fingerprints, facial reconstructions, photo enhancements, and documentation of personal belongings found with the child. Once collected, the information is uploaded to the National Missing and Unidentified Persons System (NamUs), so it can be compared directly against the information collected from unidentified persons. NamUs is a program created by OJP to serve as a central repository and resource center for missing persons and unidentified decedent records. It contains databases storing detailed information about missing people and unidentified remains and may be searched for possible matches among cases. NCMEC assists with cases of children abducted to and from the United States. From 1995 through May 2008, NCMEC had a Cooperative Agreement with the State Department and OJJDP to handle incoming cases of international abduction to the United States under The Hague Convention on the Civil Aspects of International Child Abduction (the "Hague Convention"). The State Department is now responsible for handling these cases. NCMEC assists the State Department with developing and distributing posters for missing children. Signatories to the Hague Convention pledge to work toward the prompt return of abducted children. Of the 195 officially recognized countries in the world, however, 120 do not have formal civil mechanisms in place with the United States to facilitate the return of a parentally abducted child. NCMEC also coordinates cases of American children abducted abroad, or outgoing cases. NCMEC provides technical assistance to law enforcement in support of federal statute that criminalizes removing a child from the United States "with the intent to obstruct the lawful exercise of parental rights." NCMEC handles hundreds of prevention and abduction-in-progress matters each year that involve international abduction. It also coordinates the provision of pro-bono legal assistance to victim families and provides technical support, including legal technical assistance to parents, lawyers, court officers, law enforcement officials, and others. Pursuant to the Violent Crime Control and Law Enforcement Act of 1994 ( P.L. 103-322 ), Congress mandated that the United States Secret Service provide forensic and technical assistance to NCMEC and federal, state, and local law enforcement agencies in matters involving missing and exploited children. NCMEC's Exploited Children's Division (ECD) was established in January 1997 with a grant from USSS received pursuant to P.L. 103-322 . The USSS continues to provide funding for this purpose. The ECD administers the Child Victim ID Program (CVIP) and CyberTipline. The unit also analyzes data and forwards requests to appropriate NCMEC divisions and departments and monitors online services, news reports, and other sources each day for new cases and information relative to the issues of child sexual exploitation. The ECD follows up with law enforcement agencies about cases of exploited children. In addition to the ECD, two separate units in NCMEC—the Sex Offender Tracking Team and the Child Sex Trafficking Team within the Case Analysis Division—also work on exploited children's issues. CVIP formally began in 2002 in response to the decision in Ashcroft v. Free Speech Coalition (2002), in which the Supreme Court held that federal laws prohibiting pornography are enforceable when they involve identified children, not images that appear to be children. CVIP analysts assist law enforcement officers and prosecutors with child pornography cases throughout the country using their knowledge of child pornography series and relevant computer software. Law enforcement agencies may submit seized images to federal law enforcement agents detailed to NCMEC and request that CVIP examine the images. CVIP analysts use computer software and visual analysis to determine whether any of the images contain identified child victims. In addition, NCMEC has a secure website (the Victim Identification Lab) for law enforcement officers, prosecutors, and social service workers to examine sanitized images that contain clues about a child's whereabouts. Authorized users can examine the images and post comments and suggestions for both NCMEC and other authorized users. The CyberTipline, created in March 1998, serves as the national clearinghouse for tips and leads about child sexual exploitation, and is available 24 hours a day, seven days a week. The tipline allows the public to report online incidents involving child sexual exploitation, and electronic communication services or remote computing service providers (collectively known as electronic service providers or ESPs) are required by law to report such incidents. Although the CyberTipline began operating in 1998, NCMEC's role as its administrator was formally authorized by the Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today (PROTECT) Act of 2003 ( P.L. 108-21 ). The authorizing statute for the MEC program states that the CyberTipline is intended to take reports of "Internet-related child sexual exploitation," but in practice, such incidents do not have to be facilitated by the Internet. After evaluating the reports and rating them based on risk to the child, NCMEC makes reports to the CyberTipline (along with accompanying analysis) available to select federal, state, and local law enforcement agencies through a secure web-based system. The Adam Walsh Child Protection and Safety Act of 2006 ( P.L. 109-248 ) expanded the requirements for state law enforcement and prison officials to track and register sex offenders. NCMEC's Sex Offender Tracking Team, in its Case Analysis Division, provides assistance to federal, state, and local law enforcement in their efforts to locate and apprehend noncompliant sex offenders by providing technical assistance and analysis. The team developed a standard protocol in response to law enforcement requests for assistance in locating fugitive sex offenders, which generally includes information obtained through public databases and search tools routinely used by NCMEC analysts. The team participates in the National Sex Offender Targeting Center, an interagency intelligence and operations center created by the U.S. Marshals Service. The Child Sex Trafficking Team compares reports of suspected child sex trafficking victims submitted to the CyberTipline with reports of missing children received by the Missing Children's Division. It also provides technical support and analysis to the FBI's Innocence Lost National Initiative. The team provides technical assistance to law enforcement agencies working to identify and recover children in the United States who have been victimized by sex trafficking, including those involved in the FBI's Innocence Lost National Initiative. Analysts in the unit provide reports about offenders who sexually exploited children through sex trafficking, and they provide information to law enforcement officials about known missing child cases possibly linked to sex trafficking. NCMEC's Family Advocacy Division provides support, crisis intervention, and technical assistance to families, law enforcement, and family-advocacy agencies. Team HOPE (Help Offering Parents Empowerment), a component of the division, consists of trained volunteers who have experienced the disappearance of a child in their family. These volunteers mentor other parents and families of missing children to help them cope during and after the incident. NCMEC trainers provide on- and offsite training and technical assistance to law enforcement, criminal and juvenile justice professionals, and healthcare professionals nationwide and in Canada. Training involves issues relating to child sexual exploitation and missing-child case detection, identification of victims, investigation, prevention, and forensic imaging. NCMEC provides nationally accredited training about infant security for healthcare professionals and law enforcement. NCMEC works closely with federal agencies, some of which have detailed agents and analysts to work at NCMEC part-time or full-time. These analysts follow CyberTipline leads and work with NCMEC to develop policy and procedures around children missing internationally, among other activities. NCMEC also works with missing children's clearinghouses in each state, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, and Canada. These clearinghouses disseminate information and collect data about missing individuals, provide technical assistance in cases of missing and exploited children, and network with other clearinghouses. NCMEC provides the clearinghouses with training, technical assistance, and information to assist them in handling missing-children cases. Further, NCMEC serves as the national clearinghouse for AMBER Alert information about abducted children and their perpetrators, and employs a full-time AMBER Alert law enforcement liaison. (See " AMBER Alert Program " for more information.) NCMEC verifies AMBER Alerts and disseminates information about an abduction to authorized secondary distributors that can target messages to their customers in a specific geographic region. Only law enforcement can initiate and release AMBER Alerts for primary distribution. In 2006, NCMEC and the International Centre for Missing and Exploited Children joined with 34 international financial institutions and Internet industry leaders to combat commercial online child pornography. The purpose of the coalition is to prevent the purchase and sale of child pornography over the Internet and to engage in prevention efforts. NCMEC, law enforcement agencies, and financial institutions share information pertaining to commercial child pornography websites, with the goal of eliminating the ability of users to pay for access to them. The ICAC Task Force program is authorized under the PROTECT Our Children Act of 2008 ( P.L. 110-401 ), as amended. The program supports state and local law enforcement task forces in responding to online enticement of children by sexual perpetrators, child exploitation, and child obscenity and pornography cases. The program serves multiple purposes, including increasing the capabilities of state and local law enforcement officers to detect Internet crimes against children and apprehend offenders; conducting proactive and reactive Internet crimes against children investigations; providing training and technical assistance to ICAC task forces and other law enforcement agencies in the areas of investigation, forensics, prosecution, community outreach, and capacity-building, using recognized experts to assist in the development and delivery of training programs; increasing the number of Internet crimes against children offenses being investigated and prosecuted; and delivering Internet crimes against children public awareness and prevention programs. An ICAC task force is formed when a state or local law enforcement agency enters into a grant contract with OJJDP, and then into a memorandum of understanding with other federal, state, and local agencies. Currently, 61 regional task forces are in operation, each of which is composed of multiple affiliated organizations (most of which are city and county law enforcement agencies). The task forces receive leads from CyberTipline analysts at NCMEC and concerned citizens or develop leads through proactive investigations and undercover operations. The Attorney General is to award grants to state and local ICAC task forces using a formula established by DOJ to distribute 75% of the funds; the remaining 25% is to be distributed based on need. In establishing any formula, DOJ must ensure that each state or local ICAC receives at least 0.5% of the funds available. In addition, DOJ is to take into consideration factors such as each state's population; the number of investigative leads within the task force's jurisdiction; the number of criminal cases related to Internet crimes against children referred to a task force for federal, state, or local prosecution; the number of successful prosecutions of child exploitation cases by a task force; the amount of training, technical assistance, and public education or outreach conducted by a task force on child exploitation offenses; and other criteria established by DOJ to demonstrate the level of need for additional resources. Pursuant to the law, DOJ established the ICAC Training and Technical Assistance program to provide assistance to ICAC task forces. Multiple entities have been awarded funds to provide training on improving investigation, technologies, and prosecutorial capabilities. The authorizing law for ICAC directs the Attorney General to establish the National ICAC Data System (NIDS). As discussed in the law, the intent of Congress in authorizing the data system was to build upon Operation Fairplay, developed by the Wyoming Attorney General's office. Operation Fairplay established a secure, undercover infrastructure that has facilitated online law enforcement investigations of child exploitation, information sharing, and the capacity to collect and aggregate data on the extent of the problem of child exploitation. The law specified that the system is to be housed and maintained within DOJ or a credentialed law enforcement agency and is to be available for a nominal charge to support law enforcement agencies' efforts to combat child exploitation. It must also collect and report real-time data; provide an undercover infrastructure for users; identify high-priority suspects; and include a network that provides for secure, online data storage and analysis, among other items. DOJ issued a grant solicitation in March 2009 for constructing, maintaining, and housing NIDS; however, grant applicants were notified in January 2010 that DOJ would not make an award under that solicitation and instead would pursue a different system for "deconfliction" and investigation than was described in the solicitation. DOJ issued another solicitation in June 2010 to select a grantee to conduct a national needs assessment and perform other tasks to support the future development of NIDS. In September 2011, DOJ awarded funds to the West Virginia State Police to develop and implement the ICAC Deconfliction System (IDS), which was launched in December 2014. It is used by all ICAC task forces and other registered law enforcement users. IDS enables users to contribute and access data (e.g., name, alias, email address, IP address of perpetrator and related information) to resolve case conflicts. Information about a potential perpetrator is compared against other databases that store information about crimes committed against children. IDS alerts the user if information has been collected on the potential perpetrator in these other systems, and informs the user of other law enforcement agencies working on a case involving the perpetrator. The ICAC authorizing law directs the Attorney General to create and implement a National Strategy for Child Exploitation Prevention and Interdiction. The law specifies that the strategy is to involve establishing long-range, comprehensive goals concerning child exploitation and that DOJ is to coordinate its programs to combat child exploitation with other federal programs, as well as with international, state, local, and tribal law enforcement agencies and the private sector. As part of this strategy, DOJ is directed to assess the ICAC program, including an evaluation of how entities that comprise each task force coordinate on investigations, and the success of task forces in leveraging state and local resources and matching funds. The law also directs the Attorney General to conduct periodic reviews of the effectiveness of each ICAC task force, and to submit a report on the strategy to Congress every other year. Two reports have been issued, one in August 2010 and another in April 2016. Both reports discuss the ICAC Task Force program, an assessment of threats to children, and the work of federal agencies to combat child sexual exploitation. AMBER (America's Missing: Broadcast Emergency Response) Alert systems are state-administered communication systems to inform the public about children who are abducted. AMBER systems are voluntary partnerships—between law enforcement agencies, broadcasters, and transportation agencies—to activate messages in a targeted area when a child is abducted and believed to be in grave danger. The first system began locally in 1996 when fourth-grader Amber Hagerman was abducted and murdered near her home in the Dallas-Fort Worth area. After the abduction, law enforcement agencies in North Texas and the Dallas-Fort Worth Association of Radio Managers developed a plan to send out an emergency alert about a missing child to the public through the Emergency Alert System (EAS), which interrupts broadcasting. Soon after, jurisdictions in Texas and other states began to create regional alert programs. OJP first provided funding ($10 million in discretionary appropriations) in 2002 for states and localities to develop AMBER Alert programs. The PROTECT Act ( P.L. 108-21 ), enacted in 2003, directed the Attorney General to create a national AMBER Alert program, including appointing a coordinator and developing standards for issuing an alert. P.L. 108-21 also authorized funding for activities to support states in developing AMBER Alert communication plans and technologies. P.L. 108-21 provided that the Attorney General appoint an AMBER Alert coordinator to (1) work with states to encourage the development of additional regional and local AMBER Alert plans; (2) serve as the regional coordinator for abducted children throughout the AMBER Alert network; (3) create voluntary standards for the issuance of alerts, including minimum standards that address the special needs of the child (such as health care needs), and limit the alerts to a geographic area most likely to facilitate the abduction of the child, without interfering with the current system of voluntary coordination between local broadcasters and law enforcement; (4) submit a report to Congress by March 1, 2005, on the activities of the coordinator and the effectiveness and status of the AMBER plans of each state that has implemented one; and (5) consult with the FBI and cooperate with the Federal Communications Commission in implementing the program. In 2003, the DOJ AMBER Alert coordinator was appointed. The coordinator convened a national advisory group to oversee the national initiative and make recommendations on the AMBER Alert criteria, examine new technologies, identify best practices, and identify issues with implementation. On the basis of the group's recommendations, the department issued guidelines for issuing an alert: law enforcement officials have a reasonable belief that an abduction has occurred, law enforcement officials believe that the child is in imminent danger of serious bodily injury or death, enough descriptive information exists about the victim and the abductor for law enforcement to issue an alert, the victim is age 17 or younger, and the child's name and other critical data elements have been entered into the NCIC. A new AMBER Alert "flag" was created within the NCIC's Missing Person File for abducted children for whom an alert has been issued. DOJ submitted a report to Congress in 2005 that provided an overview of its strategy to facilitate a national AMBER Alert plan and the criteria developed for issuing an alert. P.L. 108-21 provides three authorizations to support states in implementing AMBER Alert communication plans and technologies: (1) an authorization of $4 million in FY2004 to DOJ for grants to states to develop and implement AMBER Alert communication programs, which allows states to pursue activities specified in the law; (2) an additional $5 million in FY2004 to DOJ to provide funding to states to develop and implement new technologies to improve Amber Alert communications; and (3) $20 million to the Department of Transportation (DOT) in FY2004 for grants to states to develop and enhance notification or communication systems along highways. With regard to the DOJ authorization, the law specifies that the department is to provide grants to states, on a geographically equitable basis if possible, for developing and enhancing their AMBER Alert communications plans. The federal government is to provide no more than 50% of the costs for carrying out the activities specified in the law related to communication plans. DOJ determined that funds would be most efficiently spent providing training and technical assistance to law enforcement and state officials on abducted children, including providing assessments of AMBER Alert communication plans. This is instead of funding that is awarded to states to implement communication plans, including the more narrow activity of developing and implementing new technologies. Every five years, OJJDP issues a competitive solicitation seeking bids to provide technical assistance, and it has awarded funding under this solicitation to Fox Valley Technical College in Wisconsin. As noted, P.L. 108-21 authorized $20 million in FY2004 for DOT to fund states in developing and enhancing communications systems along highways for alerts and other information to assist in the recovery of abducted children. States are eligible to receive funding (up to $400,000 each) to be used for the implementation of a communications program that employs changeable message signs or other motorist information systems—if DOT determines that the state has already developed the program. The federal share of the cost of these activities is not to exceed 80%, and federal funds are available until expended. As of the end of FY2017 (September 30, 2016), 40 states and the District of Columbia had received funding, and approximately $3.1 million was still available. The MEC program provides funding to support other activities related to missing and exploited children, including training and technical assistance for public and private nonprofit organizations. OJJDP contracts with Fox Valley Technical College in Wisconsin to provide technical assistance, which focuses on strengthening multi-disciplinary responses in child victimization cases. Assistance is provided through distance learning, webinars, onsite technical assistance, or classroom formats. The program additionally supports program administration, printing of publications for Missing Children's Day, and grant programs that vary from year to year. For example, the program contributed funding to a DOJ mentoring grant in FY2017 that focuses on mentoring for child victims of commercial sexual exploitation and domestic trafficking. This grant was administered as part of the DOJ Mentoring program. | Beginning in the late 1970s, highly publicized cases of children who were abducted, sexually abused, and sometimes murdered prompted policymakers and child advocates to declare a missing children problem. At that time, about 1.8 million children annually were reported to the police as missing. More recent data indicate that the number and rate at which children go missing has declined. A survey from 2013 provides the most recent and comprehensive information on missing children. The data show that about 238,000 children (3.1 per 1,000 children) were reported to law enforcement by their caretakers that year as missing due to a family or nonfamily abduction; running away or being forced to leave home; becoming lost or injured; or for benign reasons, such as a miscommunication about schedules. As a policy issue, missing children are often included in discussions of sexual victimization. Children who go missing—as well as children who are not missing—may be sexually exploited. A study that examined the prevalence of children's exposure to violence in 2008 found that 1 in 16 (6.1%) surveyed children were sexually victimized in the past year and nearly 1 in 10 (9.8%) were sexually victimized at some point over their lifetimes. Recognizing the need for greater federal coordination of local and state efforts to recover missing and exploited children, Congress passed the Missing Children's Assistance Act (P.L. 98-473) in 1984. The act directed the U.S. Department of Justice's (DOJ's) Office of Juvenile Justice and Delinquency Prevention (OJJDP) to establish a national resource center for missing and exploited children, among other related activities. The Missing Children's Assistance Act has been amended multiple times, most recently in 2013 (P.L. 113-38). Activities authorized under the Missing Children's Assistance Act and selected other laws are collectively referred to as the Missing and Exploited Children's (MEC) program. The program includes the following components: The National Center for Missing and Exploited Children (NCMEC): Since 1984, NCMEC has served as the national resource center and has carried out many of the objectives of the Missing Children's Assistance Act in collaboration with OJJDP. The Internet Crimes Against Children (ICAC) Task Force program: This program assists state and local enforcement cyber units in investigating online child sexual exploitation. It was authorized under the PROTECT Our Children Act of 2008 (P.L. 110-401), as amended. Training and technical assistance for state AMBER (America's Missing: Broadcast Emergency Response) Alert systems: AMBER Alerts publicly broadcast bulletins in the most serious child abduction cases. The AMBER Alert program is authorized under the PROTECT Act (P.L. 108-21). Other initiatives: These include training and technical assistance on investigating and preventing child victimization. They also include support to membership-based nonprofit missing and exploited children's organizations. These initiatives are authorized by the Missing Children's Assistance Act. FY2017 appropriations to DOJ for the MEC program were $72.5 million, of which $28.3 million was for NCMEC, $27.6 million was for the ICAC Task Force program, $2.4 million was for the AMBER Alert program, and $4.2 million was for other initiatives. The remaining amount was allocated for other DOJ activities. |
Some observers asserted that leading up to the financial crisis of 2007-2009 banks did not have sufficient credit loss reserves or capital to absorb the losses and as a consequence supported additional government intervention to stabilize the financ ial system. In an effort to prevent future government intervention and to avoid putting taxpayers at risk, Congress has passed legislation and maintained oversight of rulemaking by regulatory agencies to help mitigate the risk to taxpayers. In its legislative capacity, Congress has devoted attention to strengthening the financial system in an effort to prevent another financial crisis by passing legislation. Congress approved the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act; P.L. 111-203 ) to address some of the weaknesses in regulation that contributed to the financial system's instability. Subsequently, the Economic Growth, Regulatory Relief, and Consumer Protection Act ( P.L. 115-174 ) was enacted in part to provide relief to financial firms from regulations that Congress believed to be excessively burdensome. In its oversight capacity, while maintaining oversight of reforms implemented through the regulatory agencies, Congress has delegated authority to the bank regulators and the Financial Accounting Standards Board (FASB) to determine minimum credit loss reserves and the current expected credit loss (CECL) implementation. Credit loss reserves help mitigate the overstatement of income on loans and other assets by adjusting for potential future losses on related loans and other assets. According to FASB, evidence from historical credit loss experience indicates that credit losses are not realized evenly throughout the life of a loan. Credit losses are often very low shortly after origination; subsequently, they rise in the early years of a loan, and then taper to a lower rate of credit loss until maturity. Consequently, a firm's financial statements might not accurately reflect the potential credit losses at loan inception. U.S. Generally Accepted Accounting Principles (GAAP), currently, require an incurred loss methodology to recognize credit losses on financial statements. Under the incurred loss method, (1) a bank must have a reason to believe that a loss is probable and (2) the bank must be able to reasonably estimate the loss. Any credit loss reserves set aside to absorb loan losses are, generally, estimated based on historical information and current economic events. The loss incurred on a loan cannot be recognized until the loss on a loan is probable, and the amount is estimable. In June 2016, FASB replaced the incurred loss methodology with the more forward-looking CECL methodology to provide more useful information on financial statements. CECL requires "consideration of a broader range of reasonable and supportable information" to determine the expected credit loss, including expected loss over the life of a loan or financial instrument by considering current and future expected economic conditions. The expected losses over the life of the financial instrument are to be recognized at the time the financial instrument is created. In adherence to FASB, banking regulators have begun a rulemaking process on CECL implementation. This report primarily focuses on the effects of CECL on the banking industry, although CECL will also affect other financial institutions and sectors. The report first provides an overview of CECL, including a comparison between the incurred loss model and CECL, and then provides the CECL implementation timeline. The report concludes by discussing various policy issues surrounding CECL implementation and its effects on banks and other financial institutions. Although CECL will affect loans and other types of financial instruments, loans is used as a generic term to refer to all assets affected by CECL. Credit loss estimates based on CECL are projected to result in greater transparency of expected losses earlier in the life of the loan and improve a user's ability to understand changes to expected credit losses at each reporting period. Among other expected changes, FASB amended certain disclosure requirements but retained a significant portion of the previous disclosure requirements. CECL requirements are in effect beginning December 2019 for some companies; see Table 1 for the tiered implementation dates. CECL will affect firms that hold loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets that have a contractual right to receive cash payments. CECL will also apply to certain off-balance-sheet credit exposures. All Securities and Exchange Commission (SEC) filers, such as publicly traded companies and others required to be compliant with GAAP, must adopt the new CECL model for determining credit loss reserves. CECL will apply to all banking organizations, including national banks, state-member banks, state-nonmember banks of the Federal Reserve System, savings associations, foreign banking organizations, and top-tier banking holding companies, including U.S.-based savings and loan holding companies. The proposed changes are significant enough to affect the regulatory capital rules that the federal banking regulators—the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC), collectively, the regulators—have initiated a "notice of proposed rulemaking," to address bank capital requirements. The National Credit Union Administration (NCUA) did not join in the joint rulemaking proposal with other financial regulators, but NCUA was part of the joint frequently asked questions issued by the other financial regulators. In their October 2017 press release, the regulators referred to a December 2006 policy statement that provides examples as the source document for factors that could be considered for determining CECL. Because CECL-based credit loss estimates require consideration of the potential loss over the life of an asset, credit losses on all existing loans and certain other assets are likely to be reevaluated. Upon initial adoption of CECL, the earlier recognition of losses might cause a onetime reduction in earnings. CECL will likely affect banks in various ways depending on how they currently model the allowance for loan and lease losses and other offset accounts. Each bank may apply different estimation methods to different pools of financial assets, but only one estimation method needs to be applied to each pool of financial assets. Although the regulators provide guidance on how CECL is to be implemented, they do not provide specific forecasts or models. Currently, credit losses in the banking industry are referred to, generally, as Allowance for Loan and Lease Losses (ALLL), or sometimes referred to as allowance for loans. Although ALLL is reflected on the balance sheet as an offset (a contra-asset) to the underlying asset and reduces the asset's value, the related credit losses are first expensed on the income statement. As previously discussed, incurred loss methodology is currently based on the probable threshold and incurred loss, which delays the recognition of credit losses. Changing the probable threshold and incurred loss requirements is not expected to change how much the credit loss is actually recognized, but only the timing of credit loss recognition. CECL requires the potential losses to be recorded at the time a bank recognizes the assets on its balance sheet. There will be a onetime adjustment to banks' earnings for existing loan portfolios to recognize the potential additional credit loss reserves under CECL. Current U.S. GAAP is considered complex because it encompasses multiple credit impairment models. In contrast, CECL uses a single impairment measurement objective to be applied to all financial assets subject to credit loss estimates. Further, CECL does not specify a single method for measuring expected credit loss; instead, it allows any reasonable approach as long as it achieves the new GAAP objectives for credit loss estimates. As part of developing a CECL model, a firm is to consider reasonable and supportable forecasts to develop the lifetime expected credit losses while considering past events and current conditions. Early adopters of CECL may start issuing CECL-based financial statements for financial reporting periods after December 15, 2018. All public companies are required to issue financial statements that incorporate CECL for reporting periods after December 15, 2019. Table 1 lists the effective dates for CECL implementation. The regulators are not only proposing new rules; they have previously issued both a joint statement in support of CECL and a "Frequently Asked Questions on the New Accounting Standard on Financial Instruments – Credit Losses." This section discusses, specific policy issues related to the CECL implementation and how it affects the banking industry; how CECL compares with IFRS 9 (the international version of CECL); and the potential effects of CECL on government entities. In support of CECL, former Comptroller of the Currency, Thomas J. Curry, stated the current credit loss model (incurred loss model) used to make loss provisions for assets forces firms to make large loss provisions in the midst of a credit downturn when the earnings and lending capacity are already stressed. He also noted the current accounting standards preclude banks from recording the anticipated losses until incurred. A FASB board member also raised similar concerns stating that the loans in the U.S. commercial banking system increased by 85% in the seven years leading up to the financial crisis whereas the reserves to cover the losses increased by 21%. Since FASB's announcement of CECL, banking industry professionals have raised concerns about implementing CECL, including during congressional testimonies. One such congressional witness testified that CECL creates a "redundant regulatory environment," especially when risk-based capital requirements were designed to address similar concerns. Risk-based capital establishes minimum regulatory capital based on a bank's activity. Another witness stated that implementing CECL would be costly, and it will make credit loss calculations more complicated and potentially reduce the amount of credit available to borrowers. Director of the Federal Housing Finance Agency, Melvin L. Watt, stated that regulatory changes such as CECL will have an initial and ongoing impact on reported net income. Others have described the change in how credit losses are determined by adopting CECL "as the biggest bank accounting change in 40 years." FASB officials acknowledged concerns similar to the ones raised during congressional testimonies. One such acknowledged concern is that to comply with CECL, it "may require significant effort for many entities to gather the necessary data for estimating expected credit losses." FASB also acknowledged concerns surrounding limited credit availability, especially to less creditworthy borrowers or during an economically stressed environment. In response to these various concerns, FASB stated that CECL does not make a change to the economics of lending, but rather to the timing of when the losses are recorded. Despite FASB's acknowledgments, changing the timing of when losses are recorded does require developing new credit loss models to address the new standard and can lead to increased costs for banks and affect capital requirements. Under CECL, banks are required to take into consideration many unknowns that, in the case of some residential mortgages, may extend 30 years. A CECL model is supposed to take into consideration future economic conditions in determining potential losses on financial assets. For example, for a 30-year loan originated in 1988 it would be difficult to predict the appropriate amount to reserve for potential credit loss, as well as the timing and duration of each of the three recessions identified by the shaded bars in Figure 1 . Increases in the delinquency rate also varied during each of the three recessions. Similarly, the post-recession economic recovery would have been difficult to predict. Figure 1 illustrates the delinquency rates on all loans made by commercial banks in the United States from January 1988 to December 2017. The incurred loss methodology did not consider the substantial decreases in delinquency rates from more than 6% in early 1991 to less than 3% in early 1994 and the increase again in delinquency rates of more than 7% in late 2009 and subsequent decline. Although 30-year projections of credit losses might not be precise, banks can adjust the credit loss models periodically to capture credit deteriorations and recovery. Adjustments to credit losses that consider long-term and short-term trends might prevent banks from increasing credit loss reserves during economic downturns or limiting credit availability to borrowers. One the one hand, because CECL incorporates forward-looking information, it is possible that during economic downturns, banks might limit credit availability, especially if they have forecast a prolonged downturn and thus must maintain sufficient capital levels. Although the profit or repayment of principal on a loan is recognized over the life of a loan, CECL requires recognition of the possible loss on a loan at its inception, which could result in lower earnings than under incurred loss methodology (ALLL) at loan inception because it could lead to some lenders to increase their reserves. An increase in reserves is an expense that reduces the profitability of the bank. Reduced profitability for banks or limited credit availability could negatively affect businesses and consumers alike. On the other hand, setting aside sufficient credit loss reserves may enhance a bank's ability to absorb future loan losses and thus continue to lend at a higher rate than if it had not done so. If CECL better matches actual credit losses, then banks might be less likely to become distressed and ultimately fail. As a consequence of CECL's changes, the banking regulators are proposing to replace ALLL with a newly defined term in the capital rules—allowance for credit losses (ACL). If the proposed rules are adopted, ACL would be eligible for inclusion in a bank's tier 2 capital; subject to the current limits that include ALLL in tier 2 capital. Banks are required to maintain a certain level of capital (identified as tier 1, tier 2, and tier 3) based on the riskiness of the assets a bank holds. ALLL includes asset valuation allowances that have been established through a charge against earnings to cover estimated credit losses on loans or other extensions of credit. Credit loss allowances under CECL cover a broader range of financial assets than ALLL. However, not every loss in the value of an asset would be included in the definition of ACL. This section discusses some of the challenges and risks banks can expect to face to implement, including post-implementation challenges—costs, data retention, and training. Banks will incur onetime transition costs and ongoing costs to develop and implement the new standard. Regulators are encouraging banks to capture and maintain relevant historical data to model CECL, but they are not requiring banks to obtain or reconstruct data from previous periods at unreasonable costs. The additional data retention requirements may increase ongoing operating expenses for banks. It is, generally, not cost effective for smaller banks to periodically purchase hardware and software to stay current with emerging technology and changing regulatory requirements. Instead, to lower costs, smaller banks typically use a third-party vendor that provides service to multiple banks for a monthly or annual fee. To facilitate the data retention requirements, banks and third-party service providers might incur a onetime upgrade costs to purchase additional hardware and software. Some of the implementation costs might be offset as CECL uses a single impairment measurement objective as compared with U.S. GAAP, which requires multiple credit impairment models for different asset types. To determine credit losses, banks rely on qualitative and quantitative factors, including historical data. Under CECL, banks might need to capture additional data and retain that data longer than they might have in the past to determine loss reserves. To facilitate the additional data requirements, some banks might need to migrate to a newer system. Migrating to a new system could result in possible loss of some historical data due to system incompatibilities. Despite using third-party vendors for other data processing services, some smaller banks, currently, rely on legacy systems or even spreadsheets for determining credit losses. Banks that use spreadsheets or other internal models to determine credit losses might need to migrate to third-party vendor systems for CECL. To facilitate the additional data retention requirements, third-party vendors might also need to upgrade their systems. If smaller banks migrate from their own internal models to a vendor-based CECL model, similar CECL models across multiple banks could potentially either overestimate or underestimate the amount of credit loss reserves in aggregate, which could create systemic risks among smaller banks. Also, additional data retention requirements could increase cybersecurity risks for banks and third-party service providers. In addition to any technology upgrades, there might be additional training costs for stakeholders to implement CECL. All stakeholders including bank employees, financial regulator employees (bank examiners), public auditors, and vendors, must develop sufficient knowledge and train their workforce to transition from incurred loss methodology to CECL. To reflect the changes from ALLL to ACL, the regulators also plan to propose changes to the regulatory reporting forms and instructions, which will likely require additional training. Banks are to record a onetime adjustment to credit loss allowance when CECL is implemented to reflect the difference between the current incurred loss method and the amount of credit loss allowance required under CECL, with exceptions for certain types of assets. The onetime adjustment is to be recorded at the beginning of the year that CECL is implemented. Upon initial adoption, the recognition of lifetime credit losses for existing loans will likely reduce the income earned during the reporting period. An increase in credit loss reserves is an expense that reduces a bank's profitability. If a bank does not earn sufficient income to offset the increased credit loss reserves, then retained earnings will be declined. Retained earnings are part of bank's required Tier 1 capital. The primary function of bank capital is to act as a cushion to absorb unanticipated losses and declines in asset values that could otherwise cause a bank to fail. If retained earnings are affected, then banks might need to reduce their planned capital distributions if the decline caused their capital levels to be too close to the minimum requirements. Furthermore, because CECL is principles-based, neither FASB nor the financial regulators have prescribed a specific credit loss model; therefore, the effect on each bank will vary. According to one estimate, the transition to CECL will likely result in an upfront increase in ACL of between $50 billion and $100 billion. The increased reserves are expected to affect common equity ratios across the banking system by 25-50 basis points (.25%-.50%). The expected cost for loss reserves over the life of loans is not expected to change. As these projected adjustments are in aggregate across the banking industry, some banks might need to increase their reserves significantly more than the projected 25-50 basis points whereas others might need to adjust less. Some banks have begun to disclose the preliminary impact of implementing CECL. In one instance, the bank indicated it would need to increase its credit reserves by 10% to 20% based on 2017 preliminary analysis. Because CECL requires banks to consider current and future expected economic conditions to estimate credit losses, some banking organizations have expressed concerns about the difficulty in planning CECL's adoption due to uncertainty about the future economic conditions when CECL is adopted. Unexpected economic conditions could result in a higher than anticipated increase in credit loss recognition. In response to this uncertainty, the banking regulators are proposing to allow banks the option to phase in over a three-year period any adverse effects the adjustments would have on regulatory capital requirements. Banks that elect to phase in the regulatory capital requirements over three years would be required to disclose their three-year election. A bank cannot retrospectively elect the three-year phase-in option. The Regulatory Flexibility Act requires the regulators to consider the impact of proposed rules on small commercial banks and savings institutions with total assets of $550 million or less and trust companies with total revenues of $38.5 million or less. The regulators follow an established criterion on whether a new proposed rule would have a significant effect on these small banks. They estimated the proposed CECL rule would not generate any significant costs for the small banks. The Federal Reserve conducts annual stress tests of the largest U.S. bank holding companies and U.S. intermediate holding companies of foreign banking organizations. Stress tests are qualitative and quantitative assessments of banks' capital plans to determine whether a bank will pass or fail. Simply put, a stress test is an analysis of banks viability during a financial crisis. The Federal Reserve requires banks to have sufficient capital to withstand a severe adverse operating environment. Even under such conditions, banks are expected to continue lending, maintain normal operations and ready access to funding, and meet obligations to creditors and counterparties. For the 2018 and 2019 stress test cycles, the regulators propose that banking organizations continue to use ALLL as calculated under the incurred loss methodology. Using ALLL instead of ACL is expected to promote the comparability of stress tests results across banks even if banks adopt CECL in 2019. In 2021, not only will all banking organizations be required to adopt CECL, but also stress tests are to use ACL. Banks that adopt CECL before the 2021 reporting period will be required to calculate credit losses based on the incurred loss methodology and CECL, potentially increasing these banks' operational costs in the short run. Differences in the way that U.S. GAAP and international accounting standards treat credit loss estimates and credit loss reserves could potentially disadvantage U.S. banks. Some in the banking industry have suggested capital requirements and stress tests can be modified to alleviate some of these concerns. A future recession or banking crisis will likely determine any positive or negative effect of changing to CECL. Any future refinements to CECL are likely to depend on whether CECL helped determine the appropriate amount of credit loss reserves even during worsening economic conditions. FASB periodically updates the accounting standards in response to the capital markets. The International Accounting Standards Board (IASB) promulgates International Financial Reporting Standards (IFRS) that countries can adopt or modify to suit their needs. However, the United States has chosen to remain with U.S. GAAP. FASB created CECL and issued an Accounting Standards Update 326 (ASU 326) for financial instruments—credit losses. IASB independently issued IFRS 9, the international version of CECL. FASB and IASB jointly established a Financial Crisis Advisory Group to advise each respective board about the global regulatory environment after the financial crisis. They also jointly deliberated revisions to credit loss models through 2012. Initially, the boards intended to create a converged credit loss model, but based on separate stakeholder feedback, FASB and IASB created different credit loss models. Foreign banking organizations (FBOs) that operate in the United States will need to estimate credit losses under IFRS and U.S. GAAP. In addition to FBOs issuing their annual reports and domestic regulatory reports based on IFRS for their U.S. operations, they are required to prepare quarterly financial statements and regulatory reports based on U.S. GAAP. The multiple filing requirements mandate that FBOs create different credit loss estimates. Lastly, some experts in the financial industry believe that under similar circumstances, IASB's credit loss model is operationally more complex and might result in lower reserves than FASB's CECL model. IASB stakeholders showed a preference for a loss impairment model that uses a dual measurement approach. U.S. stakeholders showed a strong preference for more of a holistic lifetime credit loss measurement that, unlike IFRS 9, is dependent on credit deterioration factors. FASB concluded that convergence was unachievable between the two accounting standards for some key reasons Even before the new models were developed, the existing practice of accounting for credit losses was different between U.S. GAAP and IFRS preparers. The interaction between the roles of the prudential regulators in determining loss allowances is historically stronger in the United States. The users of financial statement prepared in accordance with U.S. GAAP places greater weight on the loss allowances reported on the balance sheet than the IFRS counterparts. As a consequence of the issues discussed above as to why the two regime's credit loss models could not be converged, certain similarities and differences between the CECL model and IFRS 9 became clear. Some selected ones are discussed below Both the CECL model and IFRS 9 are expected credit loss models. CECL requires that the full amount of the expected credit losses be recorded for all financial assets at amortized cost. IFRS 9 requires recognition of credit losses for a 12-month period. If there is a significant increase in credit risk, then lifetime expected credit losses are recognized. The amount of expected credit losses for assets with significantly increased credit risk might be similar under CECL and IFRS 9, because they both require credit losses over the life of the loan. FASB considers the time value of money to be implicit in CECL methodologies, whereas IFRS 9 requires explicit consideration of the time value of money. When similar characteristics exist among assets, CECL model requires the collective evaluation of credit losses. IFRS 9 allows collective evaluation of credit losses based on shared-risk characteristics, but IFRS 9 does not require a collective evaluation of credit losses. It requires that only the probability-weighted outcomes are given consideration. IFRS 9 has been effective for annual periods beginning on or after January 1, 2018, with earlier implementation allowed. The housing finance system has two major components, a primary market and a secondary market. Lenders make new loans in the primary market, and banks and other financial institutions buy and sell loans in the secondary market. The government-sponsored enterprises Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home loan Mortgage Association) play an active role in the secondary market. Both entities are in conservatorship, with the Federal Housing Finance Agency (FHFA) acting as the conservator. Both entities are still publicly listed and subject to GAAP as promulgated by FASB. Similar to banks, Fannie Mae and Freddie Mac are required to implement CECL. As a consequence of implementing CECL, their earnings and asset valuations are likely to be affected. By one estimate, Fannie Mae and Freddie Mac may each need an additional $7.5 billion and $5 billion credit loss reserves, respectively. Currently, they each have $3 billion in capital reserves. To facilitate the additional reserves both entities might need to borrow from the U.S. Treasury. Similar to certain banks being allowed to phase in the increased credit reserves over three years, Congress and FHFA can choose to allow Fannie Mae and Freddie Mac to accumulate the additional reserves over three years, potentially avoiding additional draws from the Treasury. Currently, federal government entities that lend or provide loan guarantees are not subject to CECL. The Federal Accounting Standards Advisory Board (FASAB) promulgates the accounting standards for federal government agencies. If FASAB adopts CECL, the credit loss reserves on certain assets held by the federal government, including outstanding loans of $1.3 trillion and loan guarantees of $3.9 trillion, could potentially increase. Currently, state and local governments that lend or provide loan guarantees are not subject to CECL. The Government Accounting Standards Board (GASB) promulgates the accounting standards for state and local governments. If GASB adopts CECL, the credit loss reserves on certain assets held by state and local governments could potentially increase. Each state and local government can choose to follow accounting standards promulgated by GASB. Some states have enacted laws that require the state and the local government to follow accounting standards issued by GASB. | Some observers asserted that leading up to the financial crisis of 2007-2009 banks did not have sufficient credit loss reserves or capital to absorb the resulting losses and as a consequence supported additional government intervention to stabilize the financial system. In its legislative oversight capacity, Congress has devoted attention to strengthening the financial system in an effort to prevent another financial crisis and avoid putting taxpayers at risk. However, some Members of Congress have expressed concern that financial reforms have been unduly burdensome, reducing the availability and affordability of credit. Congress has delegated authority to the bank regulators and the Financial Accounting Standards Board (FASB) to address credit loss reserves. FASB promulgates the U.S. Generally Accepted Accounting Principles (U.S. GAAP), which provides the framework for financial reporting by banks and other entities. Credit loss reserves help mitigate the overstatement of income on loans and other assets by accounting for future losses. Credit losses are often very low shortly after loan origination, subsequently rising in the early years of the loan, and then tapering to a lower rate of credit loss until maturity. Consequently, a firm's financial statements might not accurately reflect potential credit losses at loan inception. During the seven years leading up to the 2007-2009 financial crisis, the loan values held by the U.S. commercial banking system increased by 85%, whereas the credit loss reserves increased by only 21%. The ratio of loss reserves prior to the financial crisis was as low as 1.16% in 2006 and was more than 3.70% near the end of the crisis in early 2010. In response to banks' challenges during and after the crisis, in June 2016, FASB promulgated a new credit loss standard—Current Expected Credit Loss (CECL). The new standard is expected to result in greater transparency of expected losses at an earlier date during the life of a loan. Early recognition of expected losses might not only help investors, but might also create a more stable banking system. CECL requires consideration of a broader range of reasonable and supportable information in determining the expected credit loss, including current and future economic conditions. In addition to loans, CECL also applies to a broad range of other financial products. The expected lifetime losses of loans and certain other financial instruments are to be recognized at the time a loan or financial instrument is recorded. All public companies are required to issue financial statements that incorporate CECL for reporting periods beginning after December 15, 2019. Although adherence to CECL is required for all public companies, it is expected to have a more significant effect on the banking industry. The change to credit loss estimates under CECL is considered by some to be the most significant accounting change in the banking industry in 40 years. The banking regulators (Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency) have issued preliminary guidance on CECL implementation. Banking regulators have also proposed changing the Allowance for Loan and Lease Losses (ALLL) to Allowance for Credit Loss (ACL) as a newly defined term. The change to ACL is to reflect the broader range of financial products that will be subject to credit loss estimates under CECL. During congressional hearings, banking industry professionals have raised several concerns about CECL. According to one estimate, the transition to CECL will likely result in an increase in loan loss reserves of between $50 billion and $100 billion for banks. As these projections are in aggregate across the banking industry, some banks might need to significantly increase their credit reserves whereas others might need to adjust less. To mitigate the effect of CECL, regulators have given banks the option of phasing in the increased credit reserves over three years. In addition, the Federal Reserve has delayed stress tests that incorporate CECL for the largest banking organizations until 2021. Banks are expected to incur additional costs of developing new credit loss models and costs of implementation. Banks may need to retain historical information on more financial products to estimate credit losses under CECL. Adopting CECL may require upgrading existing hardware and software or paying higher fees to third-party vendors for such services. Participants in recent congressional hearings have raised concerns about CECL implementation issues. The difference in how credit loss estimates are calculated based on CECL and international accounting standards could potentially disadvantage U.S. banks, but CECL is considered less complex to implement. Fannie Mae and Freddie Mac, the government-sponsored enterprises, are also to be subject to CECL credit loss estimates as they are subject to private-sector GAAP requirements even though they are currently in conservatorship under the Federal Housing Financing Agency. |
Both the President and Congress play a role in forming federal spending and revenue policy: the President submits an annual budget proposal, and Congress typically adopts an annual budget resolution and then passes legislation, which must be signed by the President, within the parameters established by that budget resolution. These budgetary decisions, about overall federal spending and revenue, are currently made on an annual basis, and it has been argued that the process does not require or encourage the consideration of long-term concerns. Further, it has been argued that no uniform long-term goals exist for both the President and Congress to work toward when designing their respective annual proposals. Many groups and individuals, both inside and outside government, have been issuing recommendations to put the budget on a fiscal track that is sustainable over the long term. The budget is considered to be on a sustainable path if the resulting debt-to-GDP ratio is constant or falling. Some of these groups assert that to successfully make changes in spending and revenue policy, changes must be made to the budget process. They argue that the short-term focus of the current budget process has a dire effect on the long-term budget for several reasons: it allows difficult long-term decisions to be avoided; it hides the long-term effects of certain budgetary decisions; and it does not provide incentives or tangible goals for achieving long-term deficit reduction. To address these concerns, some have recommended modifying the budget process in various ways to focus on the long-term budgetary outlook. This report will provide information on (1) the current horizons used in the budget process, including already existing long-term components; (2) the rationale for increased focus on long-term budgeting; (3) general challenges to long-term budgeting; and (4) an analysis of general proposals that have been made to increase the focus of long-term budgeting in the budget process. This report will not discuss general budget process reform proposals except those related to long-term budgeting, nor will it address policy proposals to reduce spending or increase revenues in the long run. This report defines long-term budget process proposals to be those that affect the budget beyond the traditional five- or 10-year budget window. With some exceptions, the budget window, as currently used in the federal budget process, typically spans either a five- or 10-year period. The purpose of the budget window and baseline projections is to evaluate how proposed legislation affects the current budget outlook and to measure whether legislation adheres to rules established by the House and Senate. The use of the 10-year budget window also balances the importance of considering both the current and future implications of budgetary decisions within the limits of constructing accurate and timely budget projections. Programs that may be manageable within the 10-year window may become unmanageable over a longer period, however. The annual baseline projection provided by the Congressional Budget Office (CBO) to assist Congress in decision making and budget enforcement spans 10 years. The CBO baseline projects federal spending and receipts under existing law as a benchmark for informational purposes, and for evaluating proposed budgetary changes in spending or revenue. The CBO baseline has spanned a 10-year period since 1996; previously it spanned five years. The baseline is used by Congress as a starting point to construct the budget resolution. The annual budget resolution, an agreement between the House and Senate used as an enforceable framework for annual budgetary decisions, requires a budget window of five years. However, this requirement, from the Congressional Budget Act of 1974 (The Budget Act), is a minimum, and budget resolutions have occasionally spanned longer periods of time of up to 10 years. In some fiscal years, when Congress does not reach an agreement on a budget resolution, spending and revenue decisions are not explicitly laid out. In February of each year when the President submits his annual budget request encompassing his proposed policy changes, information is provided for a 10-year window. The Office of Management and Budget (OMB) prepares budget baselines that are included in the President's budget to illustrate the budgetary impact of his proposals. All of OMB's budget projections, the current law baseline, the current policy baseline, and the proposed policy projection, currently span a 10-year period. Within their respective budget proposals, both Congress and the President present budget goals they would like to achieve over the next five or 10 years. But since budget plans are revised annually, as a practical matter, the current budget process largely approaches spending and revenue decisions on an annual basis. The lack of a long-term focus in the budget process does not force action on already existing and well-known long-term fiscal issues. CBO and the Joint Committee on Taxation (JCT) prepare spending and revenue estimates showing the budgetary impact of individual legislation to assist Congress in weighing the merits of a bill and for budget enforcement purposes. The Congressional Budget Act of 1974 requires that estimates apply to a five-year period, to ensure the measure's compliance with the budget resolution. Estimates, however, frequently span other time periods to assist with enforcement of other budgetary rules. The House and Senate each have PAYGO rules with the parallel goal of ensuring deficit neutrality of any new direct spending or revenue legislation, based on the CBO or JCT score of the legislation. The House and Senate PAYGO rules cover a six-year and an 11-year period. To enforce PAYGO rules, a member must raise a point of order, which can be waived by a majority vote in the House or a three-fifths vote in the Senate. As with all House rules, the PAYGO rule in the House must be re-adopted in each new Congress; the Senate PAYGO rule is currently set to expire in 2017. Additionally, there is a statutory PAYGO requirement that applies to both a five-year and a 10-year period. Statutory PAYGO, as enacted in February 2010, seeks to enforce deficit neutrality on the net impact of new revenue and mandatory (direct) spending provisions by recording their budgetary effects on two scorecards maintained by OMB covering rolling five- and 10-year periods. After the conclusion of a congressional session, if a debit has been recorded for the budget year on either scorecard the President issues a sequestration order that implements across-the-board cuts in non-exempt direct spending programs by an amount sufficient to rectify the debit on the PAYGO scorecard. Amending statutory PAYGO would require the enactment of new legislation. Generally, House and Senate PAYGO rules seek to enforce deficit neutrality on individual legislation; statutory PAYGO seeks to enforce deficit neutrality on overall mandatory spending and revenue legislation enacted over the entire session. Some components of the budget process already deal with long-term budget issues. This means that data already exist, in publicly available formats, to assist in evaluating the country's long-term fiscal health. In some instances, data evaluating the long-term outlook of certain programs are currently available, including on those programs which are generally thought of as the most challenging to deal with going forward. Long-term components of the budget process can be separated into two general categories and are currently used for two distinct purposes: long-term budgetary data used for informational purposes and rules affecting long-term outcomes that are used for enforcement purposes. Generally, long-term informational components are used, not to enforce specific outcomes, but to provide budgetary information to assist with congressional decision making. Several government publications already provide long-term budget projections and options for reducing the budget deficit to a sustainable level. However, only OMB's long-term projections are included in the primary budget documents, and OMB's projections are presented in a different volume from the main proposal. Since 1996, the CBO has periodically published The Long-Term Budget Outlook , which "presents illustrative scenarios for federal spending and revenues and describes the implications of those scenarios for the economy." One goal of the report is to provide information on the long-term budgetary pressures associated with the aging of the baby-boom generation and the continued growth in healthcare costs. The current report mainly focuses on projections out to 2035, with additional data to 2084 available in the "Data Underlying Scenarios and Figures" posted on the CBO website. Projections of revenue, spending, and federal debt are made under several different scenarios because of the uncertainty related to budgetary and economic assumptions. The report also presents estimates of the "fiscal gap," which is the amount that spending must be permanently cut or revenues must be permanently raised to stabilize the debt as a share of GDP over the long run. Similarly, the "Long Term Budget Outlook" chapter of the Analytical Perspectives volume of the President's Budget includes 75-year projections for current programs. These projections are based on a variety of variables, including long-range cost projections from the Centers for Medicare and Medicaid Services. This section also incorporates demographic and economic assumptions and illustrates alternative spending, revenue, and growth scenarios. The Government Accountability Office (GAO) also produces a similar report on the long-term budget outlook using their own models and simulations. CBO, OMB, and GAO all agree that the budget is on an unsustainable path, largely driven by the projected long-term growth in Medicare, Medicaid, and Social Security, which is not matched by projected growth in revenues. Social Security and Medicare Trustees issue respective actuarial estimates of each trust fund for the upcoming 75-year period. These reports contain both short- and long-range projections of annual program expenditures and payroll tax receipts. There are also estimates of the actuarial deficits over the next 75 years that measure the solvency of the trust funds relative to dedicated revenues. These deficits represent the shortfall between the program's projected expenditures and income. The Trustees' reports do not address how these programs affect the sustainability of the overall budget. Finally, another comprehensive look at the financial outlook is contained in the Department of the Treasury report Financial Report of the United States Government . This report uses accrual-based accounting methods to present a balance sheet for the federal government. It includes certain liabilities of the government on a net present value basis, including federal employee and veteran benefits, and federal insurance and loan guarantee liabilities. This report does not treat the future projected shortfalls of Social Security and Medicare to be official liabilities of the government, but provides estimates of the long-term actuarial deficits of the programs nevertheless. The long-term reports discussed in the previous section do not play a role in current enforcement mechanisms. Most existing enforcement mechanisms, like PAYGO or the levels in the budget resolution, apply to shorter budget windows, with some exceptions. In the Senate, it is not in order to consider a reconciliation measure that would increase the deficit or reduce the surplus outside the budget window provided in the budget resolution. In addition, it is not in order to consider a measure that would cause a net increase in the deficit in excess of $5 billion in any of the four 10-year periods beginning in 2019 through 2058. Both of these rules can be waived by a three-fifths vote of all Senators duly chosen and sworn. In the House, it is not in order to consider legislation that would provide for a net increase in Social Security benefits or decrease in Social Security taxes in excess of 0.02% of the present value of future taxable payroll for a 75-year period, or in excess of $250 million for the first five-year period after it becomes effective. In addition, it is not in order in the House to consider legislation that would cause a net increase in mandatory spending in excess of $5 billion in any of the four consecutive 10-year periods following the budget window included in the latest congressional budget resolution. These points of order can be waived by a simple majority. Large budget deficits have persisted over the past several fiscal years. Federal debt held by the public as a percentage of gross domestic product (GDP) has risen from 36% in 2007, prior to the current economic downturn, to roughly 62% as of the end of 2010. Deficits at current levels are considered unsustainable because they are large enough to cause the debt to continually rise relative to GDP, and are projected to grow larger beyond the 10-year budget window. Under one set of policy assumptions, debt held by the public as a percentage of GDP is projected to rise to nearly 90% by 2020 and 185% by 2035. If this were to actually occur, the accumulating debt would lead to significant growth in net interest payments, crowding out of other types of investment, reduced national savings, increased interest rates, a reduction in the flexibility of policymakers to handle unexpected challenges, and an increased likelihood of a fiscal crisis. The short-term focus of the current process arguably obscures the long-term effects of the growth of certain programs, and it does not highlight potentially difficult long-term tradeoffs. Further, it does not provide incentives or tangible goals for achieving long-term deficit reduction. Since delay increases the size of the fiscal imbalance, critics argue that this exacerbates a long-term outlook that is already unsustainable, and that it is easier to solve long-term problems ahead of time than if decisions are postponed. Making changes earlier allows changes to be phased in more gradually and allows those that cannot adjust to changes to be exempted. For example, if policymakers decided to reduce entitlement benefits for the elderly, a longer phase-in period would make it easier to exempt from the changes those who are already retired (and cannot earn or save more to compensate). The 10-year window for scoring legislation, and its interaction with existing enforcement mechanisms, provides an incentive to make legislation less costly within the 10-year window than outside of it. This encourages the use of phased-in provisions or provisions that reduce the deficit in the short run but increase the deficit in the long run. For example, the creation of Roth Individual Retirement Accounts (IRAs) as an alternative to traditional IRAs raises revenues in the short run, because taxes on Roth IRAs are paid at the time of contribution, but loses revenues in the long run, when accumulated growth is exempt from tax. An alternative perspective on long-term budgeting posits that the nation's long-term fiscal problems are already well understood, potential solutions are already well chronicled, and the specific problems are unrelated to the long-term budget information. Nor has deficit reduction been ignored in the current budget—for example, a central goal in the President's budget proposal for the past two fiscal years has been to reduce the deficit over the budget window, and the Administration has made specific proposals on how to achieve that goal—although it has not yet been accomplished. A case can be made that the main problem with tackling fiscal sustainability is that current policy for revenue and mandatory spending (which comprises approximately three-fifths of total spending) is automatic and will continue at levels inconsistent with sustainability. A shift to long-term budgeting alone would not change this fact. From this perspective, changes in the budget process are secondary to the problem of arriving at consensus on the changes to revenues or spending necessary to provide sustainability. That is, budget process reform can not be a substitute for the tough decisions required on long-term spending and revenue policy in order to reach fiscal sustainability. Furthermore, since the current fiscal year's deficit is already large, addressing the budget deficit "problem" does not require detailed knowledge of the long-term budget outlook, nor does it require incorporation of the long-term budget into the budget process. Since the current five- to 10-year budget windows used for planning and enforcement mechanisms have been unsuccessful in reducing budget deficits over the next five to 10 years to sustainable levels, would a longer budget window be successful in solving long-term fiscal issues? Some feel that while many types of budget process reform could be useful, "the process is not the problem. The problem is the problem." If Congress were to adopt a budget process with an increased long-term focus, there are several challenges to address when shaping changes. These include addressing the automatic nature of most mandatory spending and revenue, projection uncertainty, unforeseen events, underlying projection assumptions, and the problem of trying to bind future Congresses or the President to Congress's current goals. In addition, determining how to integrate information for purposes of enforcing budgetary goals may be difficult. Mandatory spending currently makes up about three-fifths of total federal spending. Most of it is automatic, that is, it does not require congressional action to continue in the current form. Examples of mandatory programs include Medicare and Medicaid, where benefits are paid out if an individual meets the eligibility criteria, and interest paid on the federal debt. Further, these programs are the ones that are forecast to grow most rapidly in the long run. Because spending on these programs occurs unless new legislation changes the benefit structure or eligibility criteria, changes to the budget process to incorporate long-term decisions are unlikely to restore sustainability unless they incorporate a way to deal with the "autopilot" spending that occurs under these programs. Likewise, most components of the tax code are permanent, and there is no mechanism in place to require Congress to adjust them if current revenue levels are inconsistent with long-term goals. Some major provisions do have sunset provisions, but depending on these opportunities alone could lead to any needed revenue adjustments being concentrated in only those parts of the tax code that require extension. Of course, the fact that most mandatory spending and revenue laws are permanent could be seen as a form of long-term budgeting. But in the context of the current long-term fiscal imbalance, the problem with the permanent nature of these programs is that because the formulas that determine spending and revenue are fixed, so is the imbalance. Using long-term projections as a base for budgetary decisions can be problematic. Projections of any type contain a degree of uncertainty. The further out a projection is relative to when it is made, the more inaccurate it tends to be. Budget baseline estimates and projections are highly sensitive to small changes in underlying assumptions and economic factors, and changes to these assumptions grow in importance as the forecast is extended. Economic forecasts remain subject to substantial margins of error, even over short periods of time. Although cyclical factors even out over time, small errors in underlying structural factors can compound to cause large differences in long-term totals. Making programmatic changes to achieve fiscal goals based on these projections may result in changes that ultimately over- or under-shoot what is needed. For example, based on past forecast errors, CBO has estimated that there is a 50% chance that the budget deficit will be 0.5 percentage points of GDP higher or lower than their January projection for the current year, and 2.2 percentage points of GDP higher or lower for five years in the future. Most of the legislative spending increases relative to the baseline that occurred in the past decade were due to unforeseen events, including the terrorist attacks of September 11, 2001, military outlays in Afghanistan and Iraq, Hurricane Katrina and other natural disasters, and the 2008 financial crisis. Spending has increased significantly over the past several fiscal years due to the economic downturn and resulting legislation. At the same time, revenues have also declined, resulting in large budget deficits. Unexpected shocks like these, which led to the large increases in spending and declines in revenues, are unpredictable and would be difficult to account for in a long-term budget process. Over long periods of time, events are even harder to predict—75 years ago, the nation was in the midst of the Great Depression, had not yet fought World War II, and major federal programs such as Medicare and Medicaid did not exist. Inserting flexible mechanisms to deal with uncertain situations and "emergencies" as they occur may be necessary, but risk compromising the ability to achieve the overall goals of a long-term budget process. Budget projections are based on simple rules of thumb, where more sophisticated projections are impractical. In long-term budget projections, these rules of thumb include assuming discretionary spending remains constant as a share of GDP, revenues stay constant as a share of GDP (in some projections), and that health spending will initially grow faster than GDP based on historical rates, but gradually grow no faster than GDP. Small changes to these rules of thumb lead to large differences in outcomes over 75 years. For example, CBO projects that federal spending on healthcare will rise from 5.5% of GDP in 2010 to 10.9% of GDP in 2035. But if healthcare spending grows more closely to historical rates, federal healthcare spending would be 11.5% of GDP in 2035, and if healthcare spending grows at the same rates as GDP, federal healthcare spending would be 8.7% of GDP in 2035. Another challenge posed by incorporating long-term projections into official projections is that current rules of thumb in the official baseline are different than those used in long-term projections. This is because simple extrapolations of the 10-year baseline would lead to results that bear no relationship to current policy over 75 years. In the official 10-year baseline, these rules of thumb include adjusting discretionary spending for inflation, and allowing tax provisions to expire as scheduled, including the 2001 to 2003 tax cuts (popularly referred to as "Bush tax cuts") and the inflation adjustment to the alternative minimum tax (AMT). If those rules of thumb were used over 75 years, discretionary spending would fall to a share of GDP much smaller than historical levels and most taxpayers would fall under the AMT by the end of the projection period. Another challenge to long-term budgeting is the difficulty of the current Congress to bind future Congresses to its plans. Congress may set detailed plans for changes to be made to future spending programs and the tax code that restore solvency, but even if these changes are enacted into law, future Congresses would be free to change them. There is also no guarantee that Congress and the President will agree on overall goals, or specific ways to meet them, either now or in the future. Without uniform annual or long-term objectives in the budget process, both the President and Congress lack shared goals to work towards when designing the President's budget proposal or the congressional budget resolution. If the President and Congress disagree on goals, each side may lack the incentive to take steps necessary to meet their respective goals. Congressional interest in budget reform has grown in light of current and forecast budget deficits as well as increasing public concern over the long-term budget outlook. President Obama's National Commission on Fiscal Responsibility and Reform, several outside groups, and some members of Congress have released or are expected to release proposals with the goal of returning the federal budget to a more sustainable course. Some proposals contain options to reform the budget process with an emphasis on changing the budgetary focus to a more long-term outlook. To implement a viable long-term budget process, it would be important to incorporate both information and enforcement mechanisms into changes to budget procedure. As discussed above, the current budget process has been criticized on three grounds in relation to the current budget window. It allows difficult long-term decisions to be avoided, it hides the long-term effects of certain budgetary decisions, and it does not provide incentives or tangible goals for achieving long-term deficit reduction. The following sections evaluate proposals that attempt to address these issues. Those proposals include extending the current budget window, adopting a multi-year budget process, creating statutory deficit targets, switching from cash-flow accounting to accrual-basis accounting, and increasing the transparency of budget decisions. In many cases, these proposals have been discussed in general terms with limited detail. Certain proposals recommend extending the current five- or 10-year budget window, to encompass a greater period of time, such as 20 years. It has been asserted that this will not only provide greater detail about the fiscal challenges that lie ahead but also provide information on the effects that proposed legislation may have beyond the five- or 10-year budget period. As discussed earlier, the current budget window essentially ignores the effects of spending and revenue provisions on the fiscal outlook. This means that neither the impact of new legislation nor the performance of current programs beyond the 10-year period is generally available for consideration during votes. Further, programs like Social Security, whose finances are not necessarily out of balance in the short run, have well-discussed long-term imbalances. Currently, budget enforcement mechanisms, like statutory PAYGO, examine the effects of new provisions on the baseline over the next five or 10 years and evaluate whether or not they meet specific goals over that period. To improve the long-term fiscal outlook, it may be necessary to know how new legislation or programmatic changes, reforms, or modifications affect the budget beyond the current decade. This would require budget projections to extend into a second decade or beyond. Because there is a significant degree of uncertainty associated with projections, especially beyond the first 10 years, proposing to extend the budget window should proceed with some caution. Further, even if the budget window were to be extended to 20 or 30 years, it may still be possible to hide the costs of certain obligations or the long-term costs of certain programs even beyond that period of time. Incorporating projections beyond 10 years into the budget process could be useful for informational purposes, which may not necessarily be tied to enforcement. OMB, CBO, and Treasury already produce information out 75 years that could be used in an extended budget window. CBO could also include this information in their cost estimates of legislation. Budget reform advocates often include proposals for a multi-year budget plan that they assert would help reach long-term budgetary goals. The annual budget resolution already requires a budget window containing spending, revenue, and deficit levels for the upcoming fiscal year and the following four years. Similarly, the President already submits a budget proposal that covers multiple years. These budgets, however, are resubmitted annually with multi-year information revised each year. For instance, a budget resolution for FY2011 may include a spending level for FY2012, but the following year when the budget resolution for FY2012 is drafted, it need not adhere to the FY2012 levels set in the prior year's budget resolution. So while each budget includes outyears, those levels can be altered from year to year. In contrast to current practice, proposals for multi-year budget plans would require that budget levels remain consistent from year to year. It has been proposed that this be achieved by creating a multi-year budget process. (It has also been suggested that this be achieved by setting deficit or debt targets each year, as discussed in the next section.) According to a generic multi-year budget plan, the President would submit a multi-year budget proposal every two or more years and Congress would no longer adopt a budget resolution annually but instead adopt a budget resolution every few years. Under some proposals, appropriation bills could also cover multiple years. By doing this, it is argued that Congress would agree upon future year limits and be forced to adhere to them. Traditionally, advocates for biennial or multi-year budgeting assert that it would lighten the congressional workload because Congress would no longer need to make budgetary decisions annually, allowing more time to focus on other matters, such as executive branch oversight and budgetary planning. This argument was particularly prevalent in years when the budget resolution was not agreed to or was agreed to later than expected. More recently, multi-year budgeting has been viewed as a tool for setting and adhering to medium and long-term deficit goals. Some critics feel that it unrealistic to expect one Congress to agree to adhere to a budget set by a previous Congress, given that policy priorities change and unexpected contingencies arise. This applies not just to an overall budgetary goal, but also to individual components of the budget. Multi-year budgets could also reduce the effectiveness of program implementation. Under the current annual budget process, a significant period of time already elapses between when agencies request funding for specific activities, and when Congress actually considers such legislation. For example, work on the President's FY2012 budget began in the summer of 2010 as agencies began to develop their budget requests. Under proposed plans for multi-year budgeting, the budget resolution would give committees their allocations for the next few years and would require the executive agencies to assess their future needs even further in advance. Further, binding a Congress to previously agreed-to totals could result in avoidance and accounting gimmickry. For example, if a multi-year budget allowed emergency spending above the planned total, there would be incentive to classify any proposal as emergency to avoid budget caps. Reducing the frequency of aggregate budget decisions, as would occur under multi-year budgeting, may "raise the stakes" during decision making and may increase the likelihood of contention and delay—the opposite outcome of one traditional rationale for multi-year budgeting. One logistical issue to note with multi-year budgeting is that all rules in the House, including a budget resolution, must be re-affirmed as the House reconstitutes itself at the beginning of a new Congress. This would mean that a budget resolution agreed to in the prior Congress would have to be agreed to again by the new House. If a future House of Representatives did not agree with the budgetary goals set by the previous, there is no way to compel their adherence. This makes it difficult to switch to more than a biennial budget process. Many long-term budget reform proposals include budget deficit or debt targets that would reach into the long term. This would require Congress and the President to submit budget proposals that adhere to those targets. In designing a target, there are several features to consider. Perhaps the first question is whether targets should be set in dollar terms or as a percentage of GDP. Economically, GDP targets are more meaningful because a larger economy is less affected by any given dollar amount of debt. Further, if the target covers an extended period of time, projection error is more of a problem for a dollar target than a GDP target. For example, lower than expected inflation over an extended period of time would make a dollar target more onerous in real terms, and vice versa. Procedurally, the current budget system revolves around dollar totals, so a GDP target might add complexity to the current process. Another disadvantage to GDP targets is that data are frequently revised and available with a lag. The plan would need to take into account that a target that is met before a data revision could turn out to be missed after the revision. A hybrid system, where long-term goals are expressed as a percentage of GDP, but totals for the current year are converted into dollars each year, might address some of these issues. Second, should the target be set in terms of the publicly held debt or the unified budget deficit? In a broad sense, the distinction is not important, since deficits lead to nearly one-to-one changes in the publicly held debt. But if the plan contains only a final target, without interim targets, a debt target would require that higher than expected deficits in some years be negated by lower deficits in other years. Annual targets, in contrast, would presumably allow bygones to be bygones—a higher than expected deficit in the previous year would not change the deficit target for the current year. If debt is targeted as a share of GDP, it would also allow larger deficits relative to GDP when the economy is growing faster, for better or worse, since a larger GDP could accommodate a larger debt buildup along the way to the target. Third, should targets be agreed upon by both Congress and the Administration, perhaps through the enactment of legislation? Enacting statutory fiscal goals to guide these budgetary decisions may create a national coherence in budgetary decision making that would lead to a more forward-looking long-term budget outlook. Further, it would emphasize the expectation that both the President and Congress are working toward a long-term solution to address the expected growth in the national debt. Under such a proposal, Congress and the President could agree on just a deficit target, leaving both free in the future to advocate different ways to reach that target, or they could agree on more detailed spending and revenue proposals to meet that target up front. A drawback of this approach is that if Congress and the Administration reach an impasse in setting the goals, progress toward deficit reduction could cease. If Congress worked toward deficit reduction alone, the President could only stop it through the use of the veto. Fourth, how ambitious should the deficit or debt targets be? Some state that the targets should be modest and gradual so that they will be easier to achieve and therefore more effective over the long term. Advocates of modest targets state that more ambitious targets lead to the use of accounting gimmicks because they are otherwise impossible to meet. Additionally, it has been argued that the difficulty of reaching ambitious targets will require them to be modified later on. For instance, the deficit targets set under Gramm-Rudman-Hollings in 1985 were revised upward by the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 (1987 Reaffirmation Act). The 1987 Reaffirmation Act extended by two years the time frame set out in the 1985 act for achieving a balanced budget, requiring a balanced budget by FY1993 instead of FY1991. (In reality, the budget was not in surplus until 1998.) Advocates of more ambitious targets claim that they are needed given the size of the fiscal imbalance. They assert that smaller, more gradual changes are a disadvantage because they require only some programs to suffer, and without shared sacrifice, any changes in spending or revenue are less politically palatable. Another argument is that overly modest goals just lead to a patchwork of smaller legislative changes and that an accumulation of this creates complicated, incoherent policy. Instead, it is argued that comprehensive changes need to be made all at once to ensure significant savings and good policy. Finally, would Congress adopt a final target to be reached by the end of the budget window, or would there be interim targets that must be met in each year of the plan? A final target gives policymakers more flexibility to react to unforeseen contingencies and adjust the budget to take them into account. For example, in response to a natural disaster, policymakers might decide to raise the deficit that year, and then find additional savings in future years to ensure that the ultimate target is still met. On the other hand, annual targets make it more likely that the plan "stays on track," and policymakers do not procrastinate on changes until it is too late. That is, earlier Congresses may have little incentive to work toward a final target that applies only to later Congresses. Proposals to set statutory annual targets are discussed in more detail below. A proposal to create annual deficit targets would require the President to submit a budget consistent with these goals. Additionally, when crafting a budget resolution, the House and Senate budget committees would determine the amount of savings needed to reach the annual fiscal target based on the baseline projection provided by the CBO. The budget resolution would then set aggregate spending and revenue levels consistent with the savings needed, and would make committee allocations (referred to as 302(a) allocations) that would fulfill the requirements associated with spending. The targets could be enforced by creating a point of order in the House and Senate that would disallow the floor consideration of a budget resolution that did not adhere to the prescribed deficit levels. It is unclear how an annual target would be achieved in years when Congress does not adopt a budget resolution. Congress may also wish to consider under what circumstances the annual targets could be waived or modified. The target could be waived in specific circumstances designated ahead of time such as war or recession, or Congress could be given the discretion to waive it. Instead of mandating the use of precise deficit targets, setting a longer-term goal, with interim annual goals to be used as benchmarks to meet it, may be more flexible and easy to enforce. If, in any year, the annual goals are not reached due to incorrect economic or technical assumptions used to make projections, the next year's annual target could be revised to keep the budget on track to meet the longer-term target. If strong economic performance accelerates the time table whereby the longer-term target could be met, the target could be revised. Setting a longer-term target with somewhat flexible intermediate goals could be more accommodating in terms of handling the effects of the business cycle. On the other hand, flexibility on interim targets could undermine the ultimate goal if it is used as a way to avoid taking unpopular steps. Statutory deficit levels, such as those described above, could exist solely for informational and guidance purposes, or they could include enforcement mechanisms, which would require that specified goals be met. Enforcement could be viewed as a spectrum of severity. At the least severe end of the spectrum, the targets could be enacted as a way of agreeing on long-term national goals. Some believe that this type of enforcement mechanism would suffice because the public's expectations would compel the President and Congress to adhere to the set levels. On the other hand, others assert that without an explicit enforcement mechanism, levels will easily be ignored, particularly during difficult domestic periods. In a more severe form, these targets could either be enforced through congressional points of order on the floor, or they could be enforced by a statutory mechanism, such as sequestration, which would make automatic, across-the-board cuts to non-exempt spending programs when levels are breached. The sequestration process has been used historically in the budget process in several forms. Arguably, using only congressional points of order as enforcement mechanisms may not be adequate because points of order can be waived. In addition, future Congresses may choose to waive or modify the rules that create these points of order. Further, if adhering to the annual deficit targets would require new legislation to make changes in mandatory (direct) spending or revenue, there is no way to compel the creation of this legislation through points of order. Instead, additional provisions would need to be included, most likely as expedited congressional procedures, that would attempt to force Congress to vote on a package of legislative changes. However, forcing Congress to consider, and further, to agree by a certain time on the spending or revenue changes necessary to meet the targets is logistically difficult. The reconciliation process already exists to facilitate that process. The reconciliation process as established by the Budget Act facilitates the changing of existing spending, revenue, and debt-limit laws to bring them into compliance with current fiscal priorities established in the annual budget resolution. One of the many unique features of the reconciliation process is expedited floor procedures. Reconciliation has been used in the past to achieve significant deficit reduction. Some argue that congressional points of order and expedited procedures may be a safer enforcement mechanism because the levels could be waived by Congress when emergency situations occur and it is advantageous to have the option of breaching statutory levels. However, past enforcement mechanisms, like sequestration, have provided some flexibility for specific economic and domestic situations. For instance, the deficit reduction procedures included in The Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings; P.L. 99-177 ) allowed for suspension in wartime and in the event of a recession. If real economic growth was projected to be negative in two consecutive quarters, or if the Commerce Department reported that actual real growth was below 1% in two consecutive quarters, the deficit level provisions could be suspended. In such an event, Congress could consider a joint resolution under expedited procedures, that once enacted would suspend the deficit reduction provisions for the current fiscal year or for all fiscal years. Sequestration has existed as an enforcement mechanism in several forms in connection with budget and budget process reform. For instance, it was part of Gramm-Rudman-Hollings in 1985 and continued in some form until 2002 (as described below). Sequestration is currently used to enforce Statutory PAYGO. Within Statutory PAYGO, budgetary effects of new enacted direct spending and revenue provisions are recorded on two separate scorecards . 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, if 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. Although it has been widely asserted that the mere threat of a sequester forces action, that has been disputed by those who witnessed sequestration under Gramm-Rudman-Hollings. They state that the threat of across-the-board cuts is potentially less politically painful than having to vote on specific spending cuts. Further, many have argued that the threat of sequestration becomes less alarming if more prominent programs are exempt. More information about programs exempt from sequestration is included in the section below. As seen under previous budget process reforms, projection errors over the span of the year mean that good faith attempts to reach deficit targets can be undermined by events outside congressional control. In particular, only the levels of spending for discretionary programs are determined directly by Congress. Revenue and mandatory spending levels are determined by the interaction between the formulas laid out in statute and the changing circumstances that make individuals liable or eligible, respectively, under that formula. For example, it may be that significant legislation has been enacted to put the country on track to meet the annual deficit target based on certain projections and assumptions used at the time. However, by the end of the year, the original projections may end up being inaccurate, perhaps because the economy did not function as expected, leading to a deficit target that was not reached. In such cases, enforcement could be automatically applied once the projection has been revised, requiring additional actions when the deficit is larger than projected, or enforcement could be applied only to the levels contained in the original budget resolution (based on the original projection), allowing the target to be missed. If a deficit target applies to the budget as a whole, which includes the components of (1) discretionary spending, (2) mandatory spending, and (3) revenue, will the enforcement mechanism also apply to all components? And will it apply proportionately? Gramm-Rudman-Hollings included general deficit targets that applied to the budget as a whole and were enforced by sequestration, applying formulaic cuts to discretionary and direct spending programs. Controversy arose as many felt that the inability to achieve the deficit targets was caused by changing projections of the impact of revenues or direct spending on the deficit even when action had already been taken to reduce discretionary spending. These criticisms led to the Budget Enforcement Act of 1990 (BEA), which created a "firewall" between discretionary spending and direct spending. Caps were set for discretionary spending and were enforced by sequestration solely to discretionary spending programs. PAYGO was established to enforce deficit reductions achieved by changes to revenues and direct spending enacted through reconciliation by limiting the ability of Congress to enact new direct spending and revenue legislation and was enforced by sequestration. Budget enforcement mechanisms, such as sequestration, frequently focus only on spending and not on revenue. This characteristic of budgetary enforcement has also been criticized as being unattractive. For example, if revenue decreases occur over the course of a year, either due to changes in law or economic factors, some believe it is not fair that spending should absorb the resultant impact on the deficit. Therefore, proposals have been made that a sequester should be accompanied by an automatic revenue surcharge. A mechanism that would apply to all components of the budget, and do so proportionately, would need to be very sophisticated and would likely require alterations over the long term. Although across-the-board enforcement mechanisms have been criticized for their formulaic and indiscriminate manner of making cuts, they can be tailored to exempt or shield certain programs, making the process more discriminate but greatly reducing the effectiveness as a tool for deficit reduction. For example, under Statutory PAYGO, certain programs and activities are exempt from the PAYGO scorecards, including provisions deemed an emergency by Congress and provisions dealing with four specific "current policy" areas. The four specified areas are Medicare physicians' payments, the estate and gift tax, the alternative minimum tax (AMT), and extension of certain income tax cuts for the middle class enacted in 2001 and 2003. Without these exemptions, offsets of over $200 billion could be required in 2011 to finance them. Additionally, certain programs have been exempt from sequestration itself. Under Statutory PAYGO 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, Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Children's Health Insurance Program (CHIP), Temporary Assistance for Needy Families (TANF), veterans' programs, net interest, refundable income tax credits, Medicaid, and unemployment compensation. In 2010, these exemptions amounted to roughly half of total federal spending. In addition, sequestration, or any enforcement mechanism, can be tailored not only to exempt certain programs, but in some instances to at least shield non-exempt programs. For example, a previous form of sequestration limited reductions in Medicare to 4%. Outlays and revenues are primarily recorded in primary federal budget documents on a cash-flow basis: expenditures are recorded in the fiscal year they are paid out and revenues are recorded in the year they are received. For entitlement programs, this means that benefits that have already been promised are not recorded in the budget until the year they are paid out; and there is no record of benefits in the budget in the year they accrue. Critics argue that cash-flow budgeting hides the impact of entitlement programs for the elderly on long-term fiscal solvency (notably, Social Security, Medicare, and parts of Medicaid) since those programs currently have a cash-flow surplus but are projected to face much larger cash-flow deficits in the future. As discussed above, the primary source of the projected long-term fiscal imbalance is arguably the growth in elderly entitlement spending without a corresponding increase in overall revenues. One method for capturing the effects of future entitlement growth on the current budget would be to switch from cash-flow accounting to accrual-basis accounting. Instead of recording obligations as they are paid out, accrual-based accounting would record the net-present value of obligations as they are incurred. Under this method, the difference between the present value of newly accrued future benefits and the present value of newly collected receipts (in the case of Social Security and Medicare, payroll taxes) would be recorded as net expenditures. New benefit obligations accrue on an annual basis both because newly covered workers enter the entitlement systems and because existing covered workers accrue additional future benefits. As a comparison, accrual-basis accounting is generally used by private corporations to record future pension and health benefits legally promised to workers. The case for private corporations to use accrual-basis accounting is more clear cut, however, since private corporations cannot generally alter legally guaranteed benefits once they have been contracted. The government, on the other hand, can legislate changes to benefits at any time, and has done so in the past. Accrual-basis accounting requires corporations to hold financial assets to back future benefits that have accrued in order to maintain the solvency of corporate benefit plans. If deficits in corporate plans become too large (when benefits prove to be higher than forecast or asset returns prove to be lower than forecast), accounting rules require that these deficits be made up over a designated period of time by the corporation increasing the assets backing the plans. By contrast, a shift to accrual-basis accounting in the federal budget may—but need not—be accompanied by a requirement that the government begin to hold assets to back accrued future benefits. Therefore, a shift to accrual-basis budgeting alone, without any other changes to entitlement programs, would not change the government's current or future fiscal imbalance. Alternatively, the government could choose to begin to require that assets be held to back future benefits without adopting accrual-basis budgeting. Proponents of accrual-basis accounting would argue that it would make the fiscal imbalance more visible and may increase political pressure to address the imbalance. In particular, a shift to accrual-basis budgeting would shift the existing imbalance within entitlement programs for the elderly (between future promised benefits and future dedicated revenue from payroll taxes) from the future to the present budget. The shortfall between the income and expenditures of current and past participants in Social Security is $17.5 trillion in present value terms, according to the Social Security trustees. For Medicare Part A, the shortfall is $6.9 trillion in present value terms. For Medicare Part B, the shortfall is $10.6 trillion in present value terms, which under current law would be made up through general revenues. There are a number of drawbacks to a shift to accrual-basis accounting. First, from an economic perspective, cash-basis accounting arguably best reflects the effect of the current budget deficit on the current economy because it most closely matches the actual funds that the government must borrow at any given time. By contrast, under accrual-basis budgeting, the federal debt (excluding the intergovernmental debt) would no longer match the actual liabilities of the federal government held by the public, and the budget deficit would no longer match the incremental increase in that debt. This result may also reduce the transparency of the overall budget, even as it increases the transparency of the imbalance in future entitlements. Second, accrual-basis accounting is potentially more subject to manipulation because net expenditures depend heavily on what assumptions are made about demographic factors, such as life expectancy; discount rates; economic factors, such as the growth in future covered wages; and future rates of return on assets held (if any) to back future benefits. All of these factors are subject to uncertainty, yet if more favorable assumptions in any of these areas are used, it would make the current budget balance more favorable. An argument could be made that accrual-basis budgeting is unnecessary because the long-term fiscal imbalance is already well known, much debated, and captured in other official measures, such as the long-term budget projections prepared by CBO and OMB described above. In addition, accrual-based estimates are already available in the Financial Report of the United States Government , although it does not formally incorporate elderly entitlement programs as liabilities on the government balance sheet. As discussed, these long-term budget projections do not play a formal role in the congressional budget process and are not used in current enforcement mechanisms, however. A switch to accrual-basis accounting raises some technical questions. How would the transition from cash-basis accounting be accomplished? In order to make comparisons over time, would historical budgets be revised on an accrual basis? If not, how would future benefits that were accrued in past fiscal years be recorded? To deal with the shortcomings outlined above, would the government present two sets of books, one cash basis and one accrual basis? If so, how would this affect comprehension of budget issues for both policymakers and the public? Would the government switch to a system that was entirely accrual-basis, or a hybrid system where entitlement programs for the elderly are recorded on an accrual basis and the rest of the budget is calculated on a cash-flow basis? If so, how would this affect transparency? Increasing budget transparency does not directly lead to fiscal sustainability. It may, however, provide greater understanding of long-term challenges and greater incentives for Congress and the President to pursue and adhere to specific long-term debt reduction goals. According to this argument, if current budgetary information did not obscure the size and nature of the long-term fiscal imbalance, there would be greater public support for a solution and more public pressure on policymakers to reach a consensus on a solution. One option is to make existing long-term budget information more prominent or require it to be included in budget presentations. Many of the other long-term budget proposals discussed in this report, including a longer budget or scoring window, prominent debt or deficit targets agreed upon by the President and Congress, and a switch to accrual accounting, would help further transparency in terms of making information more prominent and central to the budget process. On the other hand, certain long-term budgeting concepts such as the fiscal gap and accrual accounting are highly complex, and could decrease transparency in terms of public understanding of the issue. Another option would be to require the President to address the nation in a public forum, such as an annual address to Congress, detailing the progress toward achieving fiscal targets or other long-term goals. Such an address could also lay out plans for how to continue to achieve these goals over the next several fiscal years. Currently budget projections made in budget baselines show declining deficits over the budget window. Many budget analysts agree that these projections give the misleading impression that there is not a long-term fiscal imbalance for two reasons. First, the gradual nature of the projected growth in elderly entitlement spending leads to small increases over short periods but significant increases over long periods. Second, it is argued that the baseline leads to deficit projections that are downward biased due to the way that it is calculated, as assumptions typically yield higher revenue estimates and slower growth of discretionary spending relative to current policy. Both OMB and CBO compute baseline projections using assumptions set out in budget enforcement legislation, and this legislation requires baselines to follow current law (as opposed to current policy). The legislative and macroeconomic assumptions used can greatly affect baseline estimates and projections. Specifically, CBO assumes that discretionary spending remains constant in inflation-adjusted terms, that the 2001 and 2003 tax cuts fully expire after 2010 (as current law specifies), and that one-year "patches" to the AMT will lapse. Depending on when military supplemental bills are enacted, the baseline can also sometimes partially omit those costs (because it only incorporates enacted legislation, not legislation that is likely to be enacted). If the baseline concept is well understood, then these assumptions are not misleading. If the public or policymakers interpret the baseline to be a "best guess" of future outcomes, however, then the baseline would arguably give a misleadingly rosy outlook of the fiscal situation. To make the budget more transparent, Congress could consider revising the statutory assumptions required to calculate the baseline in order to gain a more realistic picture of the budget deficit. An alternative perspective is that greater transparency is not needed because the long-term fiscal imbalance is already well known and understood by policymakers and the public. As this report has outlined, official government sources already release several detailed estimates of the long-term fiscal imbalance, the President's Fiscal Commission and several independent organizations are working on detailed proposals to rectify the imbalance, and many policymakers have highlighted the issue in various forums. In this view, the problem is not a lack of understanding but a lack of consensus as to how best solve the problem. Postponing a decision may be preferable to those directly affected since sacrifices, in the form of higher taxes or lower spending necessary to solve the problem, are likely to seem painful. | One criticism of the current budget process is that it does not encourage or require the consideration of long-term budgetary concerns. In this context, a long-term concern is one that affects the budget beyond the traditional five- or 10-year budget window as currently used in the congressional budget resolution and the President's budget. Some components of the budget process already deal with long-term budget issues. This means that data already exist, in publicly available formats, to assist in evaluating the country's long-term fiscal health. In some instances, data evaluating the long-term outlook of certain programs are currently available, including on those programs that are generally thought of as the most challenging to deal with going forward. Long-term components of the budget process can be separated into two general categories and are currently used for two distinct purposes: long-term budgetary data used for informational purposes and rules affecting long-term outcomes that are used for enforcement purposes. Proponents of more formal long-term budgeting have expressed concerns that the current process allows difficult long-term decisions to be avoided, hides the long-term effects of certain budgetary decisions, and does not provide incentives or tangible goals for achieving long-term deficit reduction. To address these concerns, some have recommended modifying the budget process in various ways to incorporate a long-term budgetary outlook. Some critics of this approach, however, suggest that information already exists to make long-term evaluations possible, so that a shift to longer-term budgeting alone would not improve the ability of Congress or the President to make the decisions necessary to achieve long-term sustainability of budget policies. Further, some have argued that there are fundamental issues that make successful longer-term budgeting impractical, such as projection uncertainty, unforeseen events, and the problem of trying to bind future Congresses to specific goals. President Obama's Commission on Fiscal Responsibility and Reform, several outside groups, and some members of Congress have released or are expected to release budget and budget process reform proposals. Many proposals contain reform options that focus on a longer-term outlook. Five major proposals are analyzed in this report: (1) extending the time period of the current budget window to provide greater detail about fiscal challenges ahead and the long-term effects of proposed legislation; (2) employing multi-year budget controls that would require the outyears of the President's budget proposal and the congressional budget resolution to be adhered to; (3) creating annual fiscal targets that could be used either for informational purposes or to enforce specific budgetary outcomes; (4) increasing budget transparency in various ways; and (5) switching from cash-flow accounting to accrual-basis accounting to capture the effects of future entitlements in the current budget. |
The distribution of income in the United States features heavily in congressional discussions about the middle class, program funding and effectiveness, new and existing target groups, government tax revenue, and social mobility, among other topics. Recently, the level and distribution of U.S. income have also been raised in the context of broader macroeconomic issues, such as economic growth. Recent congressional activity—committee hearings and reports, communication with major media outlets, and policy research discussions about income—reveals a heightened interest among some Members in the distribution of U.S. income. This report responds to that interest by providing a guide to various measures, indicators, and graphics commonly used to describe the U.S. income distribution. This report provides descriptive analysis of the U.S. income distribution to illustrate various concepts. This analysis reveals broad trends, but does not provide an exhaustive study of the distribution of income in the United States. Importantly, the report does not explore potential drivers and impacts of changes to the shape and span of the distribution. This report is organized as follows: first, it examines the complexities of income measurement and important definitional and data considerations to bear in mind when using and interpreting income statistics. Next, it describes two popular data sources used to study the U.S. income distribution, followed by sections on statistics commonly used to provide point-in-time analysis and to compare U.S. income across groups, time, and location. The report concludes with an explanation of the Gini index. An appendix presents information on the set of summary indicators of income dispersion reported annually by the U.S. Census Bureau. On the surface, measuring income is a simple concept. In practice, however, empirical analysis of the income distribution involves several choices about how income is defined and the level at which income data are examined. Income can be constructed narrowly (e.g., earnings only) or broadly (e.g., as the sum of earnings, capital gains, government transfers, and other sources). It can be presented in pre-tax status or reflect the taxes paid and tax credits received. Income can be measured at the individual level or represent pooled resources among households, families, or tax units. These choices about how to define and organize income are consequential, because the same data can present different pictures of the income distribution depending on how income is constructed. Among commonly used income definitions, movement from one income measure to another is unlikely to shift household rankings dramatically—that is, the poor are not likely to be characterized as rich, or vice versa—but poor households might not look quite as poor when the value of government transfers are included, and the level and movement in incomes at the top of the distribution will depend importantly on whether and how capital gains and personal income taxes are included. The level of income analysis—that is, whether income is measured at the individual, household, or family level—will also impact indicators used to characterize the income distribution. For example, average individual income will lie below average household income, simply because households can have multiple earners. For these reasons, disagreement over the interpretation of income levels and trends frequently centers on how income is defined. Income can be seen through many lenses. It can refer simply to earnings (i.e., wages, salaries, and self-employment earnings) or to more expansive measures that span several sources of cash income and in-kind benefits and account for taxes paid and tax credits. One income formulation is not necessarily superior, as there may be valid reasons for selecting one definition over another. For example, a restrictive measure may be preferred when assessing trends and outcomes for a particular family of income streams (e.g., how market income is distributed among households). A comprehensive measure, however, may make more sense when examining households' overall ability to use income to meet basic needs. Recognizing a lack of consensus on how to define income and the benefits of definitional flexibility for certain types of analyses, the Census Bureau makes several income formulations available to data users. In addition to the money income definition it uses to produce official income dispersion estimates, Census provides annual estimates of market income, post-social insurance income, disposable income, and an income measure recommended by the National Academies of Science. Census also allows data users to customize an income measure for certain statistics by specifying which of the 42 Census income components to include. Table 1 compares three Census-defined income measures and illustrates the variability of income concepts. The first column shows money income, the income definition used by Census to calculate annual income dispersion estimates. Money income represents pre-tax cash income received on a usual basis by households; notably, it excludes occasional income such as capital gains (and losses) and in-kind benefits. Market income (second column) is a somewhat narrower concept that reflects pre-tax income from market sources. Disposable income (column three) is the most expansive formulation in the table. In addition to all components in money and market income, it includes receipt of the Earned Income Tax Credit (EITC); Supplemental Nutritional Assistance Program (SNAP); free, reduced, and regular-price school lunches; public housing and rental subsidies; and economic stimulus payments (in 2009 only) and recovery payments (in 2010 only). It deducts federal and state income taxes that remain after receipt of refundable tax credits, payroll taxes, and property-taxes on owner-occupied housing. Table 1 highlights a few points that arise regularly in research and policy discussions around the U.S. income distribution. These include whether and how to account for capital gains and losses, tax deductions and credits, and government-supported health insurance. How these components are treated is consequential for income distribution analysis because they are experienced differently by low-, middle-, and high-income individuals and households. This means the difference between including these components in income and not including them in income is not a mere shift in the distribution, but potentially alters the shares of total income held by various income groups, and where an individual or household ranks in the distribution. One notable difference between the Census money income concept and the two alternative definitions presented in Table 1 is the treatment of capital gains. Money income, the definition used by Census to generate its annual income dispersion statistics, does not include capital gains and losses at all. This is frequently identified as a limitation of official Census income statistics in accurately characterizing U.S. income levels, distribution, and trends, because capital gains can be a significant source of income, particularly among households at the upper end of the distribution. The Internal Revenue Service (IRS) income tax return data record capital gains only when the gains are realized and reported as part of taxable income. For these data, capital gains may therefore be more visible among high-income households because they are more likely to hold (and sell) assets that produce taxable income. In addition, some contend that the standard one-time valuation of capital gains income in the year of realization (i.e., sale of asset) is misleading. This is because the value of assets can accrue over the course of several years, contributing incrementally to available resources. The counter perspective is that continuous accounting for capital gains is a purely theoretical exercise, noting that (1) living standards do not rise with asset value accrual, and (2) the view that available resources rise with asset appreciation rests on the assumption that households can obtain peak prices for their assets. The treatment of taxes (i.e., payments and credits) is another point of consideration highlighted in Table 1 . Unlike money income and market income, disposable income presents income in post-tax status, taking into account payment of personal income taxes and receipt of tax credits. It could be argued that this income formulation provides a more realistic representation of income available for consumption in a given year. It also affects the measurement of the income distribution because tax payments and credits are likely to be experienced differently by lower- and higher-income groups. Some low-income individuals and households may not meet the earnings threshold for taxable income or otherwise have a disproportionately lower tax bill than their middle- and high-income counterparts. Likewise, low-income individuals and households are more likely to qualify for certain tax credits, such as the EITC. For these reasons, post-tax income formulations are likely to raise incomes among low-earners and reduce incomes among high-earners when compared with similar pre-tax income definitions. The value of government-supported health insurance—such as Medicare and Medicaid—is a facet of income that is not reflected in any of the Census income definitions summarized in Table 1 . Given its potentially sizable impact on the availability of household resources, income estimates that do not account for government health insurance have been criticized for providing a misleading picture of the income distribution. One concern is that some government-supported health benefits (e.g., Medicaid) are received disproportionately by lower-income individuals and households. Excluding this component may therefore understate the full value of resources among the low-earner group relative to those in the middle and top of the distribution. Figure 1 presents the percentage of U.S. households with no income in 2007 (left side) and the percentage of households that earned $100,000 or more in 2007 (right side), when the three definitions in Table 1 are applied to Census data. The data year 2007 was selected for Figure 1 because that is the last year that Census produced estimates for capital gains and losses (see footnote 6 ). When the most restrictive measure—market income—is applied, Census estimates show that 4.0% of households had zero income in 2007. This measure falls to 1.2% when the money income definition is applied, reflecting the value of government cash transfers on incomes at the bottom of the distribution. The disposable income definition, which takes a fuller range of government benefits and federal and state taxes (payments and credits) into account, produces the fewest no-income households (0.5%). Movement from the most restrictive income definition (market income) to the most expansive income definition (disposable income) produced a smaller and smaller number of households with no income in 2007; that is, it appears to raise incomes at the bottom of the distribution. The opposite pattern is observed at the top of the distribution: the addition of income dimensions to the income definition appears to reduce the number of households with high incomes. The market income and money income definitions produce nearly identical percentages of households with $100,000 or more in 2007 (20.4% and 20.3%, respectively). The group of high-earning households is smallest at 11.8%, when the broadest definition, disposable income, is used. Income can be presented at the individual level or represent pooled resources among families, households, or tax units. Although synonymous in regular discourse, family and household concepts can have important distinctions for statistical purposes. The Census Bureau defines a family as two or more people with a direct familial relationship (i.e., related by birth, marriage, or adoption), and a household as one or more people who live together and may or may not be related. A household may be a single person, a collection of roommates, or one or more families living together. Tax units are an IRS concept and describe the person or persons filing a tax return (i.e., individual filer and dependents or married filers and their dependents). A tax unit can represent an individual, an entire household or family, or several tax units can reside within a household or family. The income distribution will look different depending on whether it is organized at the individual level or household (or other aggregate) level. Individuals (and single tax units) are more numerous and have lower average income levels than households and families, because the latter groups can have multiple earners. Individual income analysis will reveal more low-income persons—such as college students with summer jobs—who are otherwise aggregated into household or family income measures. For these reasons, income analyses that organize income at the individual level are not directly comparable with those that use data on multi-member units that may pool resources. Comparability issues affect income data organized at multi-member levels as well. For example, the number of members can vary considerably across households, families, and tax units, complicating comparisons of per-person resources. That is, a member of a four-person household with an income of $52,000 does not have the same access to resources as a two-person household earning $52,000 in the same year. The composition of units also matters to how resources are pooled and shared across members. For example, a mother-child household is likely to share resources differently than two adult unrelated roommates. Some researchers and organizations adjust data in response to these issues. The potential for meaningful income distribution analysis rests on the quality and coverage of the underlying data. Government sources often offer the best option, given the scale of effort, cost, and sensitive nature of collecting income information. Census Bureau household survey data and IRS tax return administrative data are two main sources of annual data used to characterize and study the U.S. income distribution. Both agencies publish official statistics on an annual basis and offer some public access—with restrictions—to the individual records. Census and IRS data have relative strengths and important individual limitations that affect their potential to fully characterize the U.S. income distribution. The U.S. Census Bureau collects income data annually from a random sample of households through the Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC). Data are collected from February to April of each year and measure income from the previous calendar year. Census compiles official income statistics based on these data and publishes them in the annual Income and Poverty in the United States report. Census reports statistics on money income, which represents pre-tax cash income received by households on a regular basis from market and nonmarket sources. In addition to regular market income, money income as defined by Census includes the value of all public cash transfers (e.g., Temporary Assistance for Needy Families [TANF]). It excludes periodic income, such as capital gains, and in-kind transfers (e.g., Supplemental Nutritional Assistance Program [SNAP] benefits and employer contributions to health insurance plans). (See Table 1 .) Some aspects of the Census Bureau CPS-ASEC data limit its usefulness in characterizing households at the top of the distribution. To start, Census income estimates are based on information collected from a random sample of households; survey responses are extrapolated to population estimates using sample weights. This method tends to be most effective for estimating the level and distribution of income among middle- and low-income households, where households are clustered together and income ranges are relatively narrow. Estimates at the top, however, where incomes are spread much farther apart, can be quite sensitive to sample composition. Data recording and internal processing procedures introduce further restrictions on top incomes in the CPS-ASEC data. Census limits the number of digits available to survey interviewers when recording individual responses to income questions, effectively capping the level of income that can be reported. This limit was raised from $299,999 to $9,999,999 for each of the four earned-income sources in 1994, when Census moved from a pen-and-paper data collection method to a computer-assisted interview. This means that during the interview, if an individual reports earned income of $10 million or more, it will be recorded by the enumerator as $9,999,999. Once collected, Census edits its income data to minimize the incidence of interviewer error or misreporting on the part of the individual interviewed. For the purposes of Census-published data tabulations and public-use data, the internal processing limit is $999,999 for each of the four individual earnings categories. Finally, Census has historically faced problems in capturing accurate information on interest and dividend income, which is disproportionately received by high-income households. In addition, the CPS-ASEC survey has undergone several methodological changes that compromise comparability of income estimates over time. These include the periodic update of Census weights, the addition of new income categories, and changes in recording limits. The Census Bureau is careful to note these changes for published statistics in detailed table footnotes. IRS records capture information on pre-tax, pre-transfer taxable income from a large sample of households, and are viewed as a superior data source for examining the top of the income distribution . Unlike the Census CPS-ASEC, IRS data are based on administrative records (i.e., tax returns filed by tax units) and do not represent a random sample. IRS systematically collects data on taxable income from all individuals who are required to file . Its sample is therefore individuals (or units) with taxable income who comply with federal tax law. IRS data provide a better view of incomes at the top, because this group is almost universally required to file . However, it has less coverage among low-income individuals and households since some low-income individuals and families are not required to file tax returns at all. It may also undercount income received by this group because certain types of government assistance provided predominantly to lower-income households are not reported on federal tax returns (e.g., SSI and TANF payments) . In addition, the types of capital gains realized most often by middle- and lower-income filers tend to be untaxed (e.g., from sale of residential property) and therefore unreported on tax returns. IRS data also do not offer perfect comparability over time . Changes to the federal tax code affect how income is reported (e.g., as personal versus business income), the types of income that are taxable, and who is required to file . Tax code changes can also stimulate household behavior with consequences for taxable income. This may include the strategic sell off of assets in anticipation of higher capital gains taxes. It may also affect labor supply decisions, and hence earnings, although the literature offers no clear guidance on how labor supply responds to tax code changes in practice. Analyses in subsequent sections of this report employ U.S. Census Bureau statistics on household money income, collected through the CPS-ASEC and published annually in the Census Bureau report Income and Poverty in the United States . The exception is Appendix Figure A-1 , which shows data compiled by the Congressional Budget Office (CBO). The Census definition of money income describes regular, pre-tax cash income from market and nonmarket sources. It excludes capital gains and in-kind forms of income (e.g., noncash government benefits, goods produced and consumed at home or farm, employer contributions). Income is observed and described at the household level. Data for 2013 are used to illustrate point-in-time measures. When indicators are considered over time, the report uses the time period 1993-2013. The base year for time series comparisons is set to 1993 because significant methodological changes affect the comparability of Census income measures before and after 1993. All data are reported in 2013 dollars . Income levels from 1993 to 2012 are adjusted (by Census) using the Consumer Price Index Research Series using Current Methods (CPI-U-RS),which applies various methodological improvement s to the Bureau of Labor Statistics (BLS) Consumer Price Index for all Urban Consumers (CPI-U). Even in their simplest forms, descriptive statistics can provide insight to the income of the "typical" household and characterize the full spread of incomes, offering a meaningful starting point to policy discussions about household income. The mean and median are the main measures used to describe the center of a distribution and are prime candidates for describing the experience of the typical household. Mean income is obtained by dividing total aggregate household income by the total number of households, that is, the simple average or the level of income that each household would have in hand if total income were distributed equally. It is particularly useful as a measure of central tendency when the distribution is symmetrical, but loses power as a measure of the typical household's income when the distribution is skewed and in the presence of outliers. The median is generally viewed as a better indicator of typical household income. It is the level of income that divides the population into two equal-sized groups: the lowest 50% of households (who earn less than the median value of income) and the top 50% of households (who earn more than the median value of income). For example, the Census Bureau estimates that median household income in the United States was $51,939 in 2013. This means that in 2013, approximately 50% of households had incomes above $51,939 and 50% of households earned less than $51,939. For reference, mean household income was $72,641 in 2013. To see the relative merits of the median as a measure of the typical household, consider the following example. Ten households line a street, each with an annual income of $52,000. Median and mean annual household income are therefore both $52,000 for this street. On January 1 of the next year, the 10 th house wins the lottery, paid through an annuity that raises its annual income to $200,000. In an instant, mean household income for this street has increased from $52,000 to $66,800, while the median remains $52,000. Despite this increase in mean household income, the situation of 90% of households is unchanged, because households on this street do not pool resources. Instead the median conveys more accurate information on typical household income for this population. Information on breadth of earnings and the placement and concentration of households along the income spectrum is interesting from a policy perspective. The distributional range, the difference between the highest and lowest value, is arguably the simplest measure of dispersion. In terms of household income, it is the difference between the income of the richest household and income of the poorest household. Despite the simplicity of the indictor, data collection methods and statutory privacy rules make calculating the range nearly impossible. Consequently, no official data are publicly available on the absolute highest and lowest income households in the United States. See Appendix A for a discussion of incomes at the top of the distribution. The shape of the income distribution reveals how households line up and cluster along the spectrum of incomes. The shape of a distribution can be described as symmetric, right-skewed or left-skewed. Symmetric distributions ( Figure 2 , Panel A) are balanced, with the center of the data in the center of the graph. Because the "tails" of the distribution (i.e., the few households at the very top and very bottom of the distribution) balance each other out, the mean and median values are identical or very close to each other. Skewed distributions are asymmetric and characterized by a mass of observations (e.g., households) to one side of the graph with either a long or thick tail to the other side. When the mass of households are found clustered toward the bottom of the distribution, with a tail to the right, the distribution is said to be right-skewed or positively skewed ( Figure 2 , Panel B). The group of relatively high incomes at the top pulls up the mean, so that it will exceed the median in right-skewed distributions. The distribution is left-skewed or negatively skewed when mass is concentrated among high values, with the tail leading to the left ( Figure 2 , Panel C). The mean in left-skewed distributions is pulled down by the relatively low-income households that form its tail, and it will lie below the median. Income distributions are typically right-skewed. Graphical representations of an income distribution, such as the frequency distribution in Figure 3 , can convey information about central tendency (mean and median), shape, and range in a concise and intuitive way. Figure 3 shows the distribution of U.S. household income in 2013. It plots income levels on the horizontal axis and the percentage of households on the vertical axis, and shows a right-skewed distribution. In 2013, median household income was $51,939 and average household income was $72,641. As noted earlier, Census does not provide a lot of detail on the income levels and the distribution of high-income households. This is reflected in Figure 3 , which divides U.S. households into several income "bins" based on their money income in 2013. Between $5,000 and $199,999, incomes are grouped in bins with a $5,000 range. At $200,000, the scale changes: the penultimate bin has a range of $200,000 to $249,999 and the final bin includes all incomes at $250,000 and over. The first bin (under $5,000) has a range in excess of $5,000 because it includes negative income values. All of the indicators presented so far can be used to examine how income varies across income groups, time, or location. This type of analysis can inform discussions around changing program participation patterns, differential access to resources across groups and locations, trends in the absolute and relative experience of U.S. households, and efforts to foster social mobility. Recent conversations about income in the United States tend to draw comparisons between income groups (e.g., top, middle, and bottom income households). Quantiles are a helpful tool for such cross-group analysis. They divide households—ordered by income from lowest to highest—into groups of equal size (i.e., equal number of households) and provide a means for defining the top, middle, and bottom of the income distribution. Once defined, incomes can be compared and contrasted across and within income groups. Commonly used quantiles include quartiles , which divide the population into quarters, quintiles , which divide the population into fifths, and deciles and percentiles , which divide the populations into tenths and hundredths, respectively. Quantiles divide the population into groups with the same number of members (e.g., households, individuals); however, they do not necessarily divide individuals or households into equally spaced income brackets. Where households are clustered together, traditionally at the bottom and middle of the distribution, the income range for quantiles is likely to be smaller (sometimes much smaller) than the income range at the very top of the distribution, where households are spread far apart. The Census Bureau publishes several quantile-based measures of income dispersion each year, including household income at selected percentile limits, income ratios of selected percentiles, mean income by quintile, and share of total household income held by quintiles. Table 2 provides selected Census measures for 2013. Income percentile limits ( Table 2 , Panel A) report the level of household income at various dividing points of the income distribution. For example, the 50 th percentile limit is the level of income that divides the population in half (i.e., the median). Income at the 90 th percentile limit indicates that the bottom 90% of households received less than $150,000 in 2013, while the top 10% of households received more than $150,000. A comparison of percentile limits at the 80 th and 20 th percentiles reveals that the 60% of households in the middle of the distribution received money income between $20,900 and $105,910 in 2013. An income ratio ( Table 2 , Panel B) is a relative measure that expresses income at one percentile limit as a multiple (or fraction) of income at another percentile limit. For example, the 90 th /10 th income ratio was 12.10 in 2013. This number is calculated by dividing the household income at the 90 th percentile ($150,000) by that at the 10 th percentile ($12,401). It indicates that the 90 th percentile household took in money income that was just over 12 times the money income received by the household at the 10 th percentile. Census reports two sets of statistics that describe household income quintiles ( Table 2 , Panel C). Quintile mean income is the average income of households within a given quintile, calculated by dividing total quintile income (i.e., the sum of all household income within a quintile) by the number of households in the quintile. As expected, quintile mean income rises throughout the distribution, with the largest jump in mean income between the 4 th and 5 th quintiles. The quintile share of total income describes the percentage of total income held in aggregate by members of a given quintile. It is the ratio of total quintile income to total income for all households . In 2013, the bottom 20% of households (i.e., the lowest quintile) received 3.2% of total household money income, the middle 60% (the sum of shares for the second, third, and fourth quintiles) received 45.8%, and the top 20% of households received 51%. For reference, because each quintile represents 20% of the population of households, a 20% income share in each quintile would represent a mathematically equal distribution of household income. This section provides several examples of how to present and interpret income comparisons over time. A common data source is used to calculate statistics compared over time, with minor year-to-year changes in data collection and processing methodology. However, a common source is not always available for certain comparisons. In these cases it is tremendously important to note any divergence in data source, level of data organization (e.g., household versus family), definitions, and relevant methodological chances. Without appropriate caveats, these methodological and definitional differences can be interpreted erroneously as changes (or lack of change) in actual income, and provide misleading information. Simple indicators like median income can be used to describe the experience of the typical household over time. Figure 4 shows the trend in median household income between 1993 and 2013. Overall, real median household income increased from $49,594 in 1993 to $51,939 in 2013, with notable fluctuation over this period. A pattern of declining median income during periods of economic recession can be observed for the 2001 and 2007-2009 recessions. Median household income in 2013 was slightly higher than median household income in 1995 ($51,719 in 2013 dollars). As noted in the discussion of Figure 2 , the shape of the distribution affects the relative position of mean and median. Drawing on this relationship, the mean-to-median ratio can be used to convey big picture information about the shape of distribution. When a distribution is symmetrical, mean and median will be the same (or very close), and the mean-to-median ratio will be one. The mean exceeds the median for a right-skewed distribution, characterized by a mass of observations on the left side of the graph and a tail to the right, yielding a mean-to-median ratio that exceeds one. Observed over time, the mean-to-median ratio provides information about the extent to which the mean is approaching or retreating from the median, and can be used to gauge changes to the shape of an income distribution. Figure 5 plots the mean-to-median ratio from 1993 to 2013. For all years, the mean-to-median ratio is greater than one, indicating a right-skewed distribution throughout the time period. Between 1993 and 2013, both mean and median income increased in real terms (not shown in Figure 5 ), but growth in average income outpaced growth for the median. This is captured by the rise in the mean-to-median income from 1.33 to 1.40. In terms of the shape of the distribution, a rising mean-to-median ratio suggests an increasingly right-skewed distribution. Quantile trend analysis can reveal changing patterns in the absolute and relative experience of U.S. households. Figure 6 presents mean quintile household income from 1993 to 2013. A few points of interest can be taken from this graph. First, mean income among the top quintile is markedly above the other four quintiles for the duration of the observed period. In all years, mean income among the top quintile was at least twice as large as the mean income in the fourth quintile. Second, mean income increased for the 2 nd , 3 rd , 4 th , and top quintiles over this time period—though the rate of growth in mean quintile income becomes steadily smaller when moving from the top quintile to the second quintile. Finally, quintile mean income growth stalls or declines during periods of recession. Figure 7 shows the evolution of 90-10, 90-50, and 50-10 income ratios between 1993 and 2013, and can be used to assess relative experiences of income groups over time. Households at the 90 th , 50 th , and 10 th percentiles are traditional stand-ins for the top, middle, and bottom of the income distribution. Movement across these ratios, therefore, can be used to gauge changes in the relative experience of top to bottom (90-10 ratio), top to middle (90-50 ratio), and middle to bottom (50-10 ratio). All ratios increased between 1993 and 2013, indicating that the income groups are moving farther apart from each other. The most pronounced change is in the 90-10 ratio, which increased from 10.6 to 12.1 (or approximately 14%). An interesting question, and one that is not immediately apparent from Figure 7 , is whether growth in the 90-10 ratio reflects growing distance between the bottom and middle households or relatively high-income growth at the very top (i.e., a further extension of the right tail). To address this question, income ratios are sometimes expressed (and graphed) in terms of cumulative percentage change from an anchor year. Figure 8 does just that. It converts the same data into the cumulative percentage change since 1993. All ratios show growth over their 1993 values, but more notably, the 90-50 ratio growth tracked closely with the 90-10 ratio while the 50-10 ratio exhibits low to no growth (over the 1993 ratio). The take away from these patterns is the rise in the 90-10 ratio is driven by growth at the top half (90-50) of the distribution (i.e., the extension of the right tail). Figure 9 compares quintile income shares across 1993, 2003, and 2013, and reveals growing concentration of U.S. household income at the top of the distribution over the past 20 years. The top of the distribution held a disproportionate share of income in 1993, 2003, and 2013. The share of income among the top 20% of the distribution grew from 48.9% in 1993 to 49.8% in 2003 and to 51% in 2013. The shares of total income held by each of the four lower quintiles fell between 1993 and 2003, and again between 2003 and 2013. Figure 10 translates the movement in income shares across quintiles into the percentage change in quintile share since 1993. This presentation can help identify trends and changes in trends. Figure 10 suggests 2000 was a turning point of sorts for the top quintile and bottom three quintiles. Prior to 2000, each quintile fluctuated close to a 2% increase or decrease over its 1993 share. After 2000, Figure 10 shows a relatively steady climb in the income share held by the top quintile, paired with declining shares among the bottom three quintiles; the fourth quintile continued to fluctuate steadily around a 2% cumulative change. It is important to note that data points shown in the line graphs in Figure 10 represent cumulative change since 1993; they do not describe year-by-year (i.e., annual) percentage change (except for 1994) nor depict percentage point changes. Figure 9 and Figure 10 present the same information in visually different ways. In comparing the two charts, the decline in income share among the lower quintiles appears much more pronounced in Figure 10 . This happens because percentage point changes ( Figure 9 ) reflect an absolute change in percentage points, whereas the percentage change shown in Figure 10 is a relative difference that is sensitive to base (i.e., value in 1993). Since the lowest quintile has a small base (3.6% in 1993), even small absolute changes in percentage points will represent a large percentage change. For example, Figure 10 shows an 11.1% fall in income share for the lowest quintile between 1993 and 2013, but the same change is shown in Figure 9 as a 0.4 percentage point decrease. Comparing income statistics across U.S. states can reveal interesting economic and distributional variation that is otherwise masked by national-level data. Figure 11 maps state median income in 2013. Some broad geo-economic patterns emerge. For example, a band of states in the southern part of the country had median income under $45,000 in 2013, while a cluster of states on the northeast coast had median incomes of $60,000 or more in the same year. This difference does not necessarily imply that median households in southern states had three-quarters or less the purchasing power of median households in coastal northeast states, because price levels are also found to fluctuate across states. Income comparisons over time and location can reflect true differences in purchasing power, and they can also reflect differences in price. Adjusting time series income data for inflation is standard practice, as it is generally acknowledged that prices change over time and affect the dollar value of income. Less recognized is the potential for wide variation in prices across geographical divisions. For the United States, the Commerce Department Bureau of Economic Analysis estimates that in 2012, average price levels (for consumption goods and services) in the District of Columbia were more than 18% higher than the national price average, while prices were nearly 14% below the national average in Mississippi (See Figure 12 ). The Gini index is a popular summary measure of income dispersion that describes the relationship between the cumulative distribution of income and the cumulative distribution of the population, a relationship depicted by the Lorenz curve. It is used to assess changes in income dispersion for a given population over time and make comparisons across groups, especially international comparisons. The Lorenz curve ( Figure 13 ) plots the cumulative percentage of the population in ascending order of income (i.e., from poor to rich) on the horizontal axis against the cumulative percentage of total income on the vertical axis. Points along the Lorenz curve indicate the portion of total income held by a particular segment of the population. The straight grey line in Figure 13 shows what the Lorenz curve would look like if total income was equally distributed. Under that scenario, for example, 50% of total income would be held by the (poorest) 50% of the population (point A), 75% of total income would be held by the (poorest) 75% of the population (point B), and so forth. This line is alternately referred to as the line of equality or the equidistribution line. The curved line illustrates the Lorenz curve under a more realistic scenario, in which income is dispersed unevenly across the population. As more income is concentrated at the top of the distribution, the curve pulls farther away from the equidistribution line. The Gini coefficient is the ratio of the area between the Lorenz curve and the equidistribution line (area A) to the total area underneath the equidistribution line (area A + area B). As the Lorenz curve approaches the equidistribution line, area A falls and the Gini index value declines. Perfect equality occurs when the Lorenz curve overlaps the equidistribution line and there is no area between the two curves, reducing the Gini to zero. When a single household holds all income—the perfect inequality scenario—the Lorenz curve runs along the horizontal axis up until the final percentile where it jumps to 100%. Under this scenario, the area between the equidistribution line and the Lorenz curve and the area underneath the equidistribution line are the same (area A + area B), producing a Gini index value of one. As demonstrated above, Gini index values range from zero to one, with zero indicating perfect equality (i.e., all individuals hold the same income) and one indicating perfect inequality (i.e., all income is held by one household). It provides a convenient way to compare the distribution of income over time or the income distributions for different groups, with higher values indicating greater dispersion. However, the index has drawbacks as well. For example, the Gini index does not convey information about the shape of the income distribution; several different shapes can yield the same Gini index value. Figure 14 provides an example of two Lorenz curves that both produce a Gini value of 0.20. The Gini is also not perfectly decomposable, which means it is not well-suited for comparing the dispersion of income within groups to the dispersion between groups. Figure 15 plots the Gini index between 1993 and 2013 and shows an upward trend. Over this time period, the Gini index for the United States ranged from 0.450 (in 1995) to 0.477 (in 2011). It was 0.476 in 2013. Appendix A. Describing Incomes at the Top of the Distribution Survey data, like the CPS-ASEC used by the Census Bureau to describe the distribution of household money income cannot be used to identify with certainty the highest and lowest earners in the population (See "Census Data"). IRS data are superior for studying incomes at the top, but privacy rules limit the information the IRS can share publicly about filers, though it does provide some information. For example, IRS is required by law to report (in aggregate) on the number of filers with adjusted gross incomes above $200,000, and it produces occasional reports on the top 400 filers, considered in aggregate and with identifying information removed. Through data agreements with both agencies, the Congressional Budget Office (CBO) is able to combine CPS and IRS data to create a more comprehensive picture of the income distribution than could be obtained from either data set used alone. As part of their analysis, CBO describes the distribution of incomes within the top 20% of households. Figure A-1 shows average after-tax income within the top quintile for 2011 as reported by CBO. CBO data indicate a wide range of incomes at the top of the income spectrum. The top 20% of households received $188,200 on average in after-tax income in 2011. Average income among the top 1% was $1,031,900. While mean income among the top 1% is high relative to the overall quintile mean, it is likely to lie far below incomes of the highest earners. For reference, IRS analysis of the top 400 filers in 2009 revealed that average adjusted-gross income among them was $202 million. Appendix B. Summary Indicators Reported by Census The U.S. Census Bureau publishes several summary measures of income dispersion in its annual Income and Poverty in the United States report: the Gini index, mean log deviation of income (MLD), Theil index, and Atkinson index. These indicators differ from the measures described in the main body of this report in that they do not convey descriptive details on the experience of the typical household, the range of incomes, or the shape of the distribution, but instead use information on the full distribution to characterize overall income dispersion (i.e., they are relative measures used to assess departure from a perfectly equal distribution of income). While the Gini is familiar to many (and discussed in this report—see " Gini Index "), the other three measures are less so. This appendix provides an overview of the MLD, Theil, and Atkinson indices, explaining their basic properties and interpretation, and the value they bring to analysis of the income distribution. Generalized Entropy Indices: MLD and Theil Index General entropy (GE) indices are a family of relative inequality measures that are based on ratios of incomes to the mean. A sensitivity parameter—typically identified using the Greek letter alpha—adjusts the weight the index gives to various portions of the distribution and distinguishes members of the broader class of GE measures. Two of the most popular GE measures are the MLD and Theil index, which are defined when the sensitivity parameter is set to zero and one, respectively. They are bounded from below by zero, the value that communicates perfect income equality. Both indices rise in value as the dispersion of income increases; higher values indicate a wider dispersion (i.e., more unequal distribution). Unlike the Gini, general entropy indices are not capped at one. The MLD and Theil index share several attractive features. They are scale invariant, meaning that the value does not change when all incomes are multiplied by a constant. This is helpful because it means, for example, that the measure is not sensitive to currency conversion. They also respond in an intuitive way to transfers of income within a distribution. Namely, they will register more dispersion when income is transferred from households at the bottom to those at the top. Finally, they are perfectly decomposable by subgroups. Both measures permit within and between components to be identified separately (e.g., they can be used to assess the extent to which a change in income dispersion is due to changes within U.S. states and how much can be explained by changes between states). The MLD and Theil differ, however, in their sensitivity to changes at various parts of the income distribution. MLD is sensitive to changes at the bottom of the distribution, and will be more responsive than the Theil index to increased dispersion among low to middle incomes. The Theil index, on the other hand, will rise faster than the MLD as incomes at the top of the distribution grow disproportionately. As such, it is possible to compare changes in income dispersion across portions of the distribution (lower tail, middle, or upper tail) by observing how the MLD and Theil index change over time for a given income distribution. The Atkinson Index The Atkinson index is a welfare-based measure. It uses a specific mathematical function to quantify the "social welfare" of a given income distribution and compares it to the value the same social welfare function would have if total income was distributed with perfect mathematical equality. The interpretation given to the numerical value of the index is the proportion of total income a society would be willing to forfeit to achieve a perfectly equal distribution. For example, consider a society with 100 individuals and a total (societal) income of $1 million. An Atkinson index of 0.10 indicates that this society would be equally content with 90% of total income (i.e., $900,000) if it were distributed equally among all 100 members (i.e., all members earn $9,000), as they are with the actual distribution of (actual) total income. The Atkinson index values range from 0 to 1, with 0 indicating that total income is distributed with perfectly mathematical equality (i.e., society would be willing to give up none of its total income to achieve an equal distribution, because they are already there). Like general entropy indices, the Atkinson index is a parameterized measure. The Atkinson sensitivity parameter—denoted by the Greek letter epsilon and often called the inequality aversion parameter —varies the priority applied to incomes at the lower end of the distribution in the social welfare function. As epsilon increases, so does the weight given to lower-income households and the value of the Atkinson index for a given income distribution. Like the MLD and Theil index, the Atkinson index is scale invariant, meaning that the index value does not change when all incomes are multiplied by a constant. It also registers more inequality, for a given inequality aversion parameter, as income is transferred from the bottom to the top of the income distribution. Unlike the MLD and Theil index, however, the Atkinson index is not easily decomposable into within and between components. | The distribution of income in the United States features heavily in congressional discussions about the middle class, program funding and effectiveness, new and existing target groups, government tax revenue, and social mobility, among other topics. Recently, the level and distribution of U.S. income have also been raised in the context of broader macroeconomic issues, such as economic growth. Accordingly, Congress has sought information on the absolute and relative experience of U.S. households, the range of incomes, and their dispersion. Describing the income distribution involves several important choices about the definition of income and the level at which income data are examined. Income can be constructed narrowly (e.g., earnings only) or broadly (e.g., as the sum of earnings, capital gains, government transfers, and other sources); it can be presented in pre-tax status or reflect taxes paid and tax credits received. Income can be presented at the individual level or represent pooled resources among households, families, or tax units. These choices about how to define income affect the magnitude of income indicators and the shape and range of the U.S. income distribution. For this reason, disagreement over the interpretation of income levels and trends frequently centers on how income is defined. This report is a guide to various measures, indicators, and graphics commonly used to describe the U.S. income distribution. It examines the complexities of income measurement, outlines important definitional and data considerations to bear in mind when using and interpreting income statistics, and reviews descriptive statistics commonly used in analysis. It also discusses the Gini index, a popular summary measure of income dispersion and an appendix presents information on additional summary indicators of income dispersion reported annually by the U.S. Census Bureau. The report provides descriptive analysis of the U.S. income distribution to illustrate various concepts and data presentation strategies. This analysis reveals broad trends, but does not provide an exhaustive study of the distribution of income in the United States. Importantly, the report does not explore potential drivers and impacts of changes to the shape and span of the distribution. Census data show a gap in income between households at the top of the distribution and those in the middle and bottom of the distribution. In 2013, household income at the 90th percentile was $150,000, whereas household income at the 10th percentile was $12,401. Said another way, household income at the 90th percentile was 12.1 times the level of household income at the 10th percentile. Median household income in 2013 was $51,939, up from $49,594 in 1993 (in 2013 dollars). Census data reveal growing concentration of income at the top of the distribution between 1993 and 2013. Households in the top 20% of the distribution earned 51% of total household income in 2013, compared to 48.9% in 1993 (an increase of 4.3%). The share of total income among the bottom 20% of households was 3.2% in 2013 and 3.6% in 1993 (a decrease of 11.1%). In addition, Census calculations indicate that the Gini index increased from 0.454 in 1993 to 0.476 in 2013, indicating increased dispersion of household income. |
The first version of the Energy Savings and Industrial Competitiveness Act was introduced as S. 1000 in the 112 th Congress. It had three energy efficiency titles, which addressed buildings, industry, and federal agencies. Title IV provided a budgetary offset for bill authorizations. The bill was reported by the Senate Committee on Energy and Natural Resources (SENR), but received no further action. Early in the 113 th Congress, S. 761 was introduced as a revised version of S. 1000 . S. 761 was then revised and introduced as S. 1392 . Floor action on S. 1392 was halted in September 2013. S. 1392 —the Energy Savings and Industrial Competitiveness Act of 2013—was introduced on July 30, 2013. Often referred to as the Shaheen-Portman bill 2013, it was a trimmed-down version of S. 761 from the 112 th Congress. It contained provisions for building energy codes, industrial energy efficiency, federal agencies, and budget offsets. The bill contained voluntary provisions and was designed to be deficit-neutral. Virtually all debate on the bill was focused on floor amendments. The bill was reported by the Senate Committee on Energy and Natural Resources (SENR) on a 19-3 vote. On August 1, 2013, a motion to proceed was introduced and amendments began to be filed. On September 11, 2013, a unanimous consent agreement on the motion launched floor action. By September 19, 2013, 125 amendments had been proposed. Of that total, 75 directly addressed energy efficiency policy, 23 addressed "other" energy and carbon emissions policy areas, and 27 addressed non-energy policy areas. Amendments subject to controversy addressed five policy areas: fossil fuel use by federal buildings, carbon emissions regulation, regional haze regulation, Keystone XL Pipeline, and the Affordable Care Act (ACA, P.L. 111-148 as amended). Only the Keystone XL Pipeline amendment and one ACA amendment were the subject of major floor debate on S. 1392 . S.Amdt. 1908 on the Keystone XL Pipeline called for a Sense of Congress resolution that would encourage the President to issue a permit needed to begin construction. In floor debate, proponents argued that the project would create thousands of jobs; generate tax revenues for federal, state, and local governments; reduce dependence on oil imports from Venezuela; and gain an "environmental advantage" from using high-tech refineries on the Gulf Coast. Opponents contended that there would be fewer than 100 permanent jobs, most of the oil would be exported, and there would be a "tangible risk" of a spill that could have severe environmental impacts. S.Amdt. 1866 would have amended Section 1312(d)(3)(D) of ACA and would affect how Members of Congress, congressional staff, the President, the Vice President, and many executive branch political appointees can obtain health insurance coverage through their federal employment. The sponsor of S.Amdt. 1866 requested a vote on the amendment and objected to further consideration of other amendments, which blocked voting on all other amendments. Shortly after floor debate began, the sponsor introduced a stand-alone bill ( S. 1497 ) with similar content and expressed a willingness to drop the objection, if a vote could be "locked down" for S.Amdt. 1866 —or if a vote on the proposal ( S. 1497 ) could be guaranteed for any other active legislation. Despite a tentative agreement to take votes on S.Amdt. 1908 and S.Amdt. 1866 , supporters of non-energy amendments increased their requests to include four additional non-energy amendments. The resulting impasse led to a suspension of action on September 19, 2013, with no fixed date to resume action. For more details on the legislative history of S. 1392 , see CRS Report R43259, S. 1392, Shaheen-Portman Bill: Energy Savings and Industrial Competitiveness Act of 2013 , by [author name scrubbed]. The bill was introduced on February 27, 2014, and referred to the Senate Committee on Energy and Natural Resources. As introduced, S. 2074 comprised all the core provisions of S. 1392 , with the addition of the text from 10 floor amendments proposed for S. 1392 . Those amendments added new sections to the bill and increased the number of bill titles from four to five. On March 5, 2014, the House passed H.R. 2126 , the Energy Efficiency Improvement Act of 2014. The bill has four provisions, which line up closely with Sections 133, 141, 303, and 421 of S. 2262 . Introduced on April 28, 2014, the text of S. 2262 is identical to that of S. 2074 , except that the amount of budget offsets in section 501 was increased from $638 million to $720 million (for FY2014 through FY2018). Table 1 , below, provides an overview of the bill provisions. S. 2262 includes core provisions from S. 1392 , and the text of 10 proposed amendments to S. 1392 that were incorporated into S. 2074 . The bill has five titles. Title I has six provisions that address energy efficiency in buildings. Title II has five key sections that address energy efficiency in industry. Title III would establish four provisions to improve energy efficiency at federal agencies. Title IV would create seven provisions for federal agencies. Title V would provide a budgetary offset for bill authorizations. The following table summarizes the key provisions of S. 2262 . The Appendix provides a more detailed list of provisions in the bill. So far, only one provision of S. 2262 has been a major focus of controversy. Section 431 would repeal section 433 of the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ). The EISA provision set a timetable to cut fossil energy use in new federal buildings (and major federal building renovations)—with a target to eliminate fossil energy use in new buildings by 2030. The provision has proven difficult to implement, and DOE has not yet issued a rule to enforce it. Section 431 would also modify other EISA requirements. First, the existing EISA goal for a 36% federal energy reduction by 2015 (relative to the 2003 level) would be pushed back to 2017. Also, section 431 would direct DOE to review the results of the requirements to date and analyze the feasibility and cost-effectiveness of further postponing energy savings targets. Section 431 would still tighten some energy efficiency guidelines and building codes for new federal buildings. The environmental and energy efficiency communities have split on this provision, with some in support and some in opposition. Supporters of Section 431 claim that the existing prohibition is unworkable, citing DOE's inability to develop a regulation to implement the law. Opponents to Section 431 say that the amendment would undermine federal leadership-by-example on net-zero energy buildings and on the effort to reduce federal greenhouse gas emissions. The American Council for an Energy-Efficient Economy (ACEEE), which has publicly stated support for the bill, used a bottom-up analysis to estimate the energy-saving potential for each provision of S. 2074 . Combining those estimates yielded a total estimate for the whole bill. Then, a 5% real discount rate was applied to estimate the present value of potential energy cost savings. ACEEE's projections are summarized in Table 2 . The Congressional Budget Office (CBO) estimates that S. 2262 would provide a net decrease in the deficit of $12 million over the period from FY2014 through FY2024. In deriving this estimate, CBO noted that some parts of the bill would increase direct spending by requiring Fannie Mae and Freddie Mac to revise certain standards related to underwriting mortgages. However, other parts of the bill would reduce direct spending by modifying existing requirements to reduce consumption of energy generated from fossil fuels at certain federal buildings. Bill sponsors report that over 270 businesses, associations, and trade groups—from the National Association of Manufacturers to the Chamber of Commerce—support S. 2262 . During the 2013 debate, the bill sponsors of S. 1392 cited support from 260 business, environmental, and other organizations. Business supporters included the U.S. Chamber of Commerce, Business Roundtable, and the National Association of Manufacturers. Environmental and energy supporters included the Sierra Club, Natural Resources Defense Council (NRDC), Alliance to Save Energy, and American Council for an Energy-Efficient Economy (ACEEE). Other organizations in support included the Christian Coalition. The Obama Administration has not yet issued a Statement of Administration Policy on S. 2262 . However, it did issue one for S. 1392 , which expressed support for that bill. The Statement noted that S. 1392 would: (1) complement key energy efficiency dimensions of the President's Climate Action Plan; (2) support the President's goal to cut in half the energy wasted by U.S. homes and businesses by 2030; and (3) support the Administration's efforts to strengthen U.S. competitiveness through research and development investments in manufacturing innovation and productivity, such as the Department of Energy's (DOE's) Clean Energy Manufacturing Initiative. In opposition to S. 2262 , Heritage Action—an advocacy group affiliated with the Heritage Foundation—argues that the incentives in the bill would burden taxpayers and consumers alike while producing no tangible benefits. They are also duplicative of federal and state efforts... Heritage explains that since the efficiency gains do not have market value (or industries would already have adopted them), "the government must artificially create both the demand and the supply." Further, Heritage Action concluded that As Heritage notes, only the free-market has been proven to decrease costs and increase efficiency in energy production. The federal government's role in energy efficiency should be limited to providing information to [help] consumers make well-informed decisions. This legislation allows the government to overstep its boundaries. Heritage Action also came out strongly against S. 1392 during floor action in 2013. S. 2262 was introduced on April 28, 2014. On May 1, 2014, the Majority Leader filed a motion to limit debate (invoke cloture) on the motion to proceed to S. 2262 . The motion to proceed was approved (79-20) on May 6, 2014. Floor debate continued through May 7, 2014, and was then suspended until May 12, 2014. Prior to floor action, press reports indicated that one non-energy amendment on the Affordable Care Act and at least five energy-related amendments could possibly be offered. Included among those five potential energy-related amendments were proposals to: (1) approve the Keystone XL pipeline, (2) facilitate approval of liquefied natural gas (LNG) exports, (3) prohibit EPA from requiring carbon capture technology on coal-fired power plants, (4) reduce the value of the social cost of carbon, and (5) prevent the establishment of a carbon tax. As of May 7, 2014, a total of 71 amendments to S. 2262 had been introduced. The amendments span a broad range of energy and environmental issues. Some address the energy topics noted above. During debate over the bill, the Majority Leader emphasized a willingness to hold a separate vote on the Keystone XL pipeline—but only after floor action was completed on S. 2262 . The Minority Leader noted that the possibility of an amendment to the Affordable Care Act had been dropped and stressed an interest in having four or five votes on energy-related amendments. Some see the anticipated floor action on the energy efficiency provisions of S. 2262 as an opportunity to create a broader energy debate. One Senator has indicated the intent to again offer an amendment that would modify the Affordable Care Act provision for Members of Congress and congressional staff and top level officials and staff of the Executive Branch. Such a request could lead to a replay of a similar amendment that halted action on S. 1392 . A detailed description of that topic is beyond the scope of this report. A press report indicates that, on May 1, 2014, that Senator indicated that he would temporarily sideline that effort in return for votes on five energy proposals, including a vote to approve the Keystone XL pipeline. During floor action, however, the Minority Leader noted that the possibility of an amendment to the Affordable Care Act had been dropped. Senate party leaders and bill sponsors are working to negotiate an agreement to limit floor action to no more than five amendments. Various press reports have suggested that the leading contenders for those five spots may include Keystone XL pipeline, LNG exports, power plant carbon capture requirement, social cost of carbon, and carbon tax. S. 2280 was introduced on May 1, 2014, to establish legislative approval for the Keystone XL pipeline. In the negotiation process, some have expressed preference that S. 2280 come to the floor for a separate stand-alone vote—before action is taken on S. 2262 . Others apparently prefer to offer S. 2280 as an amendment to S. 2262 . A third view suggests that a vote on Keystone XL may be taken after work is completed on S. 2262 . For details about the debate over the Keystone XL pipeline, see CRS Report R41668, Keystone XL Pipeline Project: Key Issues , by [author name scrubbed] et al. During floor action, one amendment was offered that would set policy for the Keystone XL pipeline: S.Amdt. 2991 (Hoeven). One Senator has announced plans to introduce an amendment to S. 2262 that would require DOE to approve liquefied natural gas exports (LNG) to all World Trade Organization member countries, including Ukraine. The amendment would apply to pending and future applications to export LNG. Additionally, press reports indicate that another Senator has announced plans to offer an amendment that would accelerate LNG exports. That amendment would be based on the provisions of H.R. 6 . During floor action, three amendments were offered that would affect natural gas exports: S.Amdt. 2981 (Barrasso), S.Amdt. 3038 (M. Udall), and S.Amdt. 3040 (M. Udall). The Electricity Security and Affordability Act, S. 1905 , aims to block the Environmental Protection Agency's (EPA's) proposed rule that would effectively require new coal-fired power plants to install carbon capture and sequestration technology—unless certain benchmarks are met. A press report indicates that there is an effort underway to attach the bill as an amendment to S. 2262 . Further discussion of the details of S. 1905 is beyond the scope of this report. During floor action, one amendment was offered that would affect power plant carbon capture: S.Amdt. 3013 (McConnell). The social cost of carbon is a quantitative measure used in cost-benefit analyses of climate change policies and energy efficiency rules. One press report suggests that there is an effort to craft an amendment to S. 2262 that would undo a recent increase in the value of the social cost of carbon established by the Administration for use in rulemaking decisions. A related provision was proposed for S. 1392 . There is a continuing debate over the potential to establish a carbon tax as a key policy for curbing emissions of carbon dioxide, the main greenhouse gas. One press report suggests that there is an effort to devise an amendment that would establish a point of order to prevent Congress from imposing a carbon tax. During floor action, two amendments were offered that would establish a policy involving a carbon tax: S.Amdt. 2982 (McConnell) and S.Amdt. 2986 (Blunt). The bill sponsors—together with leadership from both parties—worked to establish an agreement that would limit the number and type of amendments that would be considered for a vote. That effort was apparently unsuccessful. In floor action on May 12, 2014, the bill was called up for a cloture vote to close debate. The initial tally (56-35) failed to reach the required 60-vote threshold, whereupon the Majority Leader changed his vote in order to reserve the right to move for reconsideration. Thus, the final vote tally was 55-36, and the Majority leader entered a motion to reconsider the vote by which cloture was not invoked on S. 2262 . Title I: Buildings Subtitle A: Building Energy Codes Section 101. Greater Energy Efficiency in Building Codes Strengthens national model building codes for new homes and commercial buildings by requiring the Department of Energy (DOE) to support their development, including the setting of energy savings targets and providing of technical assistance to the code-setting and standard development organizations. DOE, in consultation with building science experts and institutions of higher learning, will produce a report on the feasibility, impact, economics and value of code improvements. Section 304 of the Energy Conservation and Policy Act (ECPA, P.L. 94-163 ) is amended to change the State certification process so that within two years after model building codes are updated, States are to certify whether or not they have updated their building codes, and demonstrate if the building codes have met or exceeded energy savings targets. The legislation reserves adoption and enforcement of model building codes to the states, but empowers DOE to offer technical assistance. Section 307 of ECPA is amended to direct DOE to support the updating of model building energy codes by independent codes and standards developers, and to utilize the 2009 International Energy Conservation Code (IECC) for residences and the ASHRAE 90.1-2010 for commercial buildings as the baseline. Authorizes $200 million in funding to incentivize and assist states to meet the goals and requirements of the bill through the use of model codes. Subtitle B: Worker Training and Capacity Building Section 111. Building Training and Assessment Centers Establishes a DOE program for university-based Building Training and Assessment Centers, modeled after the existing Industrial Assessment Centers (IACs). Authorizes $10 million in programmatic funding to train engineers, architects and workers in energy-efficient commercial building design and operations. Section 112. Career Skills Training Creates a DOE career skills program to provide grants to nonprofit partnerships for worker training in for the construction and installation of energy-efficient building technologies. Authorizes $10 million in funding to carry out this section, and establishes a 50 percent federal cost share. Subtitle C: School Buildings Section 121. Coordination of Energy Retrofitting Assistance for Schools Requires DOE's Office of Energy Efficiency and Renewable Energy (EERE) to review all relevant standing energy efficiency programs and financing mechanisms currently available to schools by federal agencies, and to coordinate educational and outreach efforts to promote federal opportunities for assistance to schools. Authorizes EERE to provide technical assistance to states, local educational agencies, and schools to help develop and finance energy efficiency projects. Requires EERE to cultivate and maintain an online database for relevant technical assistance and support staff. Directs EERE to recognize schools that successfully implement energy retrofit projects. Subtitle D: Better Buildings Section 131. Energy Efficiency in Federal and Other Buildings Requires the Administrator of General Services (GSA) to develop and publish model leasing provisions for use in federal leasing documents to encourage building owners and tenants to invest in cost-effective energy efficiency measures. Requires the GSA to develop policies and best practices to implement such measures for the realty services provided by GSA to federal agencies, including periodic training of federal employees and contractors, and to make such available to state, county, and municipal governments that manage owned and leased building space. Section 132. Separate Spaces with High-Performance Energy Efficiency Measures Requires EERE to study the feasibility of significantly improving energy efficiency in commercial buildings through the design and construction of separate spaces with high-performance energy efficiency measures, and through encouraging owners and tenants to implement such measures in separate spaces. Requires the Secretary to publish such study on DOE's website. Section 133. Tenant Star Program Requires EPA and DOE to develop a voluntary Tenant Star program within the ENERGY STAR program to recognize tenants in commercial buildings that voluntarily achieve high levels of energy efficiency in separate spaces. Requires DOE and the Energy Information Administration (EIA) to collect data on categories of building occupancy that consume significant quantities of energy and on other aspects of the property, building operation, or building occupancy determined to be relevant to lowering energy consumption. Subtitle E: Energy Information for Commercial Buildings Section 141. Energy Information for Commercial Buildings Requires a space leased by a federal agency in a building that has not earned the ENERGY STAR label to be benchmarked under an online, free benchmarking program, with public disclosure. Requires an agency that is a tenant of a space that has not earned the ENERGY STAR label to provide to a building owner the energy consumption information of the space for use in meeting the benchmarking and disclosure requirements. Requires the DOE to conduct a study on the impact of and best practices regarding state and local performance benchmarking and disclosure policies for commercial and multifamily buildings and the impact of utility policies for providing aggregated information to owners of multitenant buidlings to assist with benchmarking programs. Authorizes the Secretary to make awards to utilities, utility regulators, and utility partners to develop and implement programs to provide aggregated whole building energy consumption information to multitenant building owners. Such information is needed for benchmarking multi-tenant buildings. Authorizes $12.5 million in programmatic funding for FY2014 through FY2018. Title II: Industrial Efficiency and Competitiveness Subtitle A: Manufacturing Energy Efficiency Section 201. Purposes Identifies the purpose of this section, including reforming and reorienting DOE's industrial efficiency programs; establishing consistent regulatory authority; accelerating the deployment of more efficient industrial technologies and practices; and strengthening public-private partnerships. Section 202. Future of Industry Program Streamlines efforts by directing Industrial Assessment Centers (IACs) to coordinate with the Manufacturing Extension Partnership Centers of the National Institute of Standards and Technology and DOE's Building Technologies Program, and increases partnerships with the national laboratories and energy service and technology providers to leverage private sector expertise. Section 203. Sustainable Manufacturing Initiative Requires EERE to provide onsite technical assessments to manufacturers seeking efficiency opportunities. Subtitle B: Supply Star Section 211. Supply Star Establishes a DOE pilot program modeled on and in coordination with ENERGY STAR to identify examples and opportunities and promote practices for highly efficient supply chains. Allows DOE to award companies financing (competitive grants/other incentives), technical support and training to improve supply side efficiency. Authorizes $10 million in programmatic funding for FY2014 through FY2023. Subtitle C: Electric Motor Rebate Program Section 221. Energy Saving Motor Control, Electric Motor, and Advanced Motor Systems Rebate Program Creates a DOE rebate program to incentivize purchases of new, high efficiency motor systems that reduce motor energy use by no less than 5%. Authorizes $5 million in programmatic funding for each of FY2014 and FY2015. Subtitle D: Transformer Rebate Program Section 231. Energy Efficient Transformer Rebate Program Directs DOE to launch an incentive rebate for the purchase of energy efficient transformers for industrial/manufacturing facilities or commercial/multifamily residential buildings. Authorizes $5 million for each of FY2014 and FY2015. Title III: Federal Agency Energy Efficiency Section 301. Energy-Efficient and Energy-Saving Information Technologies Requires the DOE, in consultation with other federal agencies, to issue recommendations to employ energy efficiency through the use of information and communications technologies – including computer hardware, operation and maintenance processes, energy efficiency software, and power management tools. Section 302. Availability of Funds for Design Updates Allows the General Services Administration to utilize funding to update the project design of approved building construction to meet efficiency standards. Section 303. Energy-Efficient Data Centers Requires federal agencies to coordinate with the Office of Management and Budget (OMB) to develop a strategy for implementing energy efficient and energy saving technologies and practices, along with annual evaluation of federal data centers for energy efficiency. Directs DOE and Office of E-Government and Information Technology to maintain a data center energy practitioner program that leads to the certification of practitioners qualified to evaluate energy usage and efficiency opportunities at federal data centers. Establishes an open data initiative for federal data center energy usage data to facilitate data center optimization and consolidation. Section 304. Budget-Neutral Demonstration Program for Energy and Water Conservation Improvements at Multifamily Residential Units Authorizes a demonstration program to allow the Secretary of Housing and Urban Development (HUD) to use budget-neutral performance-based contracts to conduct energy and water efficiency upgrades to HUD-assisted multifamily housing units. Under the structure, private investors would fund the upfront costs of retrofits, and HUD would reimburse them with the related savings from reduced utility bills. The Secretary is authorized to issue contracts under the demonstration run until September 30, 2016. Contracts issued under this program may last no longer than 12 years. Payments will not be paid by the Secretary until utility savings have been validated by a third-party. The program will be targeted towards residential units in multifamily buildings participating in rental assistance programs under section 8 of the U.S. Housing Act of 1937, the supportive housing for the elderly program under section 202 of the Housing Act of 1959, or the supportive housing for persons with disabilities program under section 811(d)(2) of the Cranston-Gonzalez National Housing Act. Title IV: Regulatory Provisions Subtitle A: Third-party Certification Under Energy Star Program Section 401. Third-Party Certification under Energy Star Program Directs DOE and EPA to revise the Energy Star certification and verification requirements for electronic products to reflect that third party testing shall not be required for program partners that have complied with Energy Star regulations for at least 18 months. Any exceptions granted that allow product developers to forgo third party testing would be terminated if the partner violates the exemption rules twice during a two-year period. The exemption would be reinstated if developers subsequently followed Energy Star regulations for a period of three years. The cost of this amendment would be covered by the current EPA and DOE Energy Star budget. Subtitle B: Federal Green Buildings Section 411. High-Performance Green Federal Buildings Requires DOE to conduct an ongoing review into private sector green building certification systems and to work with other agencies to determine which certification system would encourage the most comprehensive and environmentally sound approach to certifying federal buildings. Also, requires DOE to allow—in its review of green building certification systems—the inclusion of any developer or administrator of a rating system or certification system and allows the inclusion of responsible domestic sourcing credits and life-cycle assessment as a credit pathway in such certification systems. Subtitle C: Water Heaters Section 421. Grid-Enabled Water Heaters Allows the continued manufacture of large-capacity, grid-enabled, electric-resistance water heaters, provided the water heaters include capabilities that intend for them to be used only in electric thermal storage or demand response programs. Provides additional energy conservation standards applicable to grid-enabled water heaters, and includes data reporting requirements for manufacturers and utilities to report to DOE the number of units enrolled in electric thermal storage or demand response programs. Subtitle D: Energy Performance Requirement for Federal Buildings Section 431. Energy Performance Requirement for Federal Buildings Extends existing federal building energy efficiency improvement targets. Requires DOE to review the results of the implementation of the energy performance requirements and to analyze the cost-effectiveness and feasibility of extending the energy savings targets. Requires federal energy managers to complete comprehensive energy and water evaluations every four years, to ensure that federal buildings are performing at their optimal level of energy efficiency, and to explain why agencies did not implement any energy- or water-saving measures that were deemed life-cycle cost effective. Repeals the provision of Section 433 of EISA that established a requirement that federal buildings be designed so that the fossil fuel-generated energy consumption of each building be reduced on a timetable to 0% in 2030. Section 432. Federal Building Energy Efficiency Performance Standards: Certification System and Level for Green Buildings Expands the scope of existing energy standards for new federal buildings to cover major renovations. Requires future rulemakings on federal building energy efficiency standards to include the existing administrative requirements of the "Guiding Principles for Sustainable New Construction and Major Renovations" for all new buildings of at least 5,000 sq. ft., unless found not to be life-cycle cost effective. Section 433. Enhanced Energy Efficiency Underwriting Requires HUD to develop and issue updated underwriting and appraisal guidelines for borrowers who voluntarily submit a qualified home energy report. The provision would cover any loan issued, insured, purchased, or securitized by the Federal Housing Administration (FHA) and other federal agencies, or their successors. The updated guidelines would adjust underwriting criteria and valuation guidelines to account for expected energy cost savings as an offset to other expenses and to account for present value of expected energy savings. If no qualified energy report is provided, no adjustment would be made. Lenders would be required to inform loan applicants of the costs and benefits of improving the energy efficiency of a home. Subtitle E: Third Party Testing Section 441. Voluntary Certification Programs for Air Conditioning, Furnace, Boiler, Heat Pump, and Water Heater Products Requires DOE to recognize voluntary, independent certification programs for air conditioning, furnace, boiler, heat pump, and water heater products. Requires DOE to rely on qualified voluntary certification programs to verify the performance rating of these products, provide annual reports of all test results, and maintain a publicly available list of all certified models, among other criteria. Title V: Miscellaneous Section 501. Offset Amends funding authorizations for FY2013-2018. Section 502. Budgetary Effects States that for the purpose of complying with the Statutory Pay-As-You-Go Act of 2010, the budgetary effect of this legislation shall be determined by reference to the latest statement titled ''Budgetary Effects of PAYGO Legislation'' for this act. Section 503. Advance Appropriations Required Provides that authorization of amounts under this act and the amendments made by this act shall be effective for any fiscal year only to the extent and in the amount provided in advance in appropriations acts. | S. 2262 has four energy efficiency titles, which address buildings, industry, federal agencies, and certain regulatory measures. Title V would provide a budgetary offset for bill authorizations. The bill was derived directly from S. 1392, often referred to as the Shaheen-Portman bill of 2013. During the first session, floor action on S. 1392 was halted by a push for votes on controversial non-energy amendments. Many energy amendments were also prepared for S. 1392, but floor action stopped before formal consideration. In the second session, anticipating the potential for further procedural battles, bill sponsors sought to expand the S. 1392 framework. The aim of expanding the bill was to secure enough additional votes to address the potential for a filibuster by ensuring sufficient votes for cloture on debate. The expanded bill was introduced as S. 2074. It contains all the core provisions of S. 1392, and the text of 10 bipartisan amendments that had been proposed for S. 1392 in floor action during 2013. The text of S. 2262 is identical to that of S. 2074, except that the amount of budget offsets in section 501 was increased from $638 million to $720 million (for FY2014 through FY2018). This report reviews the provisions of S. 2262, highlights the most controversial bill provision, and identifies potential amendments to the bill. The most controversial provision in S. 2262 is section 431. That section is an updated version of S.Amdt. 1917 to S. 1392 (Hoeven-Manchin amendment). Section 431 would repeal an existing requirement to eliminate fossil energy use in new federal buildings by 2030. DOE has found the provision difficult to implement, and has not yet issued a rule to enforce it. In place of that requirement, section 431 would tighten energy efficiency guidelines and building codes for new federal buildings—but to a lesser degree. Supporters assert that the existing prohibition is unworkable, citing DOE's inability to implement it and the "more feasible" goals in section 431. Opponents claim that the amendment would undermine federal leadership-by-example on net-zero energy buildings and on the effort to reduce federal greenhouse gas emissions. The American Council for an Energy-Efficient Economy (ACEEE), which has publicly stated support for the bill, estimates an energy-saving potential of 1.8 quadrillion Btu (quads) by 2030, with an associated cost-saving potential of $16.2 billion. S. 2262 was designed to be deficit neutral. The Congressional Budget Office (CBO) estimates that it would provide a net decrease in the federal budget deficit of $12 million over the period from FY2014 through FY2024. Bill sponsors reported that over 270 businesses, associations, and trade groups—from the National Association of Manufacturers to the Chamber of Commerce—support S. 2262. The Obama Administration expressed support for S. 1392, but it has not yet issued a Statement of Administration Policy on S. 2262. In opposition to S. 2262, Heritage Action—an advocacy group affiliated with the Heritage Foundation—argues that the incentives in the bill "would burden taxpayers and consumers alike while producing no tangible benefits." A cloture vote brought S. 2262 up for Senate floor action on May 6, 2014. Floor debate focused on the potential for action on five energy-related amendments, covering the issues of Keystone XL pipeline, liquefied natural gas (LNG) exports, power plant carbon capture technology, social cost of carbon, and carbon tax. An effort to forge an agreement to limit amendments did not succeed. On May 12, 2014, a cloture vote to close debate failed (55-36), whereupon the Majority Leader entered a motion to reconsider the vote. |
The annual Interior, Environment, and Related Agencies appropriations bill includes funding for agencies and programs in three separate federal departments, as well as numerous related agencies and bureaus. It provides funding for Department of the Interior (DOI) agencies (except for the Bureau of Reclamation, funded in Energy and Water Development appropriations laws), many of which manage land and other natural resource or regulatory programs. The bill also provides funds for agencies in two other departments—the Forest Service (FS) in the Department of Agriculture, and the Indian Health Service (IHS) in the Department of Health and Human Services—as well as funds for the U.S. Environmental Protection Agency (EPA). Further, the annual bill includes funding for arts and cultural agencies, such as the Smithsonian Institution, the National Endowment for the Arts, and the National Endowment for the Humanities, and for numerous other entities and agencies. Prior to FY2006, the appropriations laws for Interior and Related Agencies provided funds for several activities within the Department of Energy (DOE), including research, development, and conservation programs; the Naval Petroleum Reserves; and the Strategic Petroleum Reserve. However, at the outset of the 109 th Congress, these DOE programs were transferred to the jurisdiction of the House and Senate Appropriations subcommittees covering energy and water, to consolidate their jurisdiction over DOE. These programs currently are funded in the annual Energy and Water Development appropriations bill. At the same time, jurisdiction over the EPA and several smaller entities was moved to the House and Senate Appropriations subcommittees covering Interior and related agencies, and they are now funded in the annual Interior, Environment, and Related Agencies appropriations bill. This change resulted from the abolition of the House and Senate Appropriations Subcommittees on Veterans Affairs, Housing and Urban Development, and Independent Agencies, which previously had jurisdiction over EPA. Since FY2006, appropriations laws for Interior, Environment, and Related Agencies have contained three primary titles. This report is organized along these lines. The first section (Title I) provides information on Interior agencies; the second section (Title II) discusses EPA; and the third section (Title III) addresses other agencies, programs, and entities. A fourth section of this report discusses selected cross-cutting topics that encompass more than one agency. Entries in this report are for major agencies (e.g., the National Park Service) and cross-cutting issues (e.g., Wildland Fire Management) that receive funding in the Interior, Environment, and Related Agencies appropriations bill. For each agency or issue, we discuss some of the key funding changes that appear to be of interest to Congress based on hearings on agency budgets and statements in Appropriations Committee reports, among other sources. We also address related policy issues that occur in the context of considering appropriations legislation. Appropriations are complex, and not all issues are summarized in this report. For example, budget submissions for some agencies number several hundred pages and contain innumerable funding, programmatic, and legislative changes for congressional consideration. Further, appropriations laws provide funds for numerous accounts, activities, and subactivities, and the accompanying explanatory statements provide additional directives and other important information. For information on programs funded in the bill but not directly discussed in this report, please contact the key policy staff members listed at the end of the report. In general, in this report the term appropriations represents total funds available, including regular annual and supplemental appropriations, as well as rescissions, transfers, and deferrals, but excludes mandatory spending authorities. 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 match the precise totals provided due to rounding. Appropriations for accounts within annual Interior, Environment, and Related Agencies appropriations laws are available to be obligated for differing periods of time, depending on the nature and needs of the programs and activities funded. In general, appropriations in these laws are available only for the fiscal year covered by the act, unless otherwise specified. In recent practice, Interior appropriations laws have provided such one-year appropriations for several accounts. For instance, in the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), the appropriation to the National Park Service for its National Recreation and Preservation account was for FY2012 only, as the law did not specify a different period of availability: "For expenses necessary to carry out recreation programs, natural programs, cultural programs, heritage partnership programs, environmental compliance and review, international park affairs, and grant administration, not otherwise provided for, $59,975,000." However, many accounts within the annual Interior, Environment, and Related Agencies appropriations laws have contained appropriations for longer periods of availability, involving multiple fiscal years. For example, the appropriation in P.L. 112-74 to the Office of Surface Mining Reclamation and Enforcement for its Regulation and Technology account was provided for FY2012 and FY2013. The law provided, in part: "For necessary expenses to carry out the provisions of the Surface Mining Control and Reclamation Act of 1977, Public Law 95–87, as amended, $122,950,000, to remain available until September 30, 2013." For accounts available for two years, appropriations may be carried over from the first fiscal year to the second, and must be obligated by the end of the second year. Many other accounts have contained appropriations that were available for obligation without fiscal year limitation, often referred to as "no-year appropriations." Such appropriations typically were "to remain available until expended." For these accounts, appropriations may be carried over from fiscal year to fiscal year with no deadline for obligation. In P.L. 112-74 , the appropriation to the Fish and Wildlife Service for its Construction account provides an example of no-year appropriations: "For construction, improvement, acquisition, or removal of buildings and other facilities required in the conservation, management, investigation, protection, and utilization of fish and wildlife resources, and the acquisition of lands and interests therein; $23,088,000, to remain available until expended." FY2013 discretionary appropriations were considered in the context of the Budget Control Act of 2011 (BCA, P.L. 112-25 ), which established discretionary spending limits for FY2012-FY2021. The BCA also tasked a Joint Select Committee on Deficit Reduction to develop a federal deficit reduction plan for Congress and the President to enact by January 15, 2012. Because deficit reduction legislation was not enacted by that date, an automatic spending reduction process established by the BCA was triggered; this process consisted of a combination of sequestration and lower discretionary spending caps, initially scheduled to begin on January 2, 2013. The "joint committee" sequestration process for FY2013 required the Office of Management and Budget (OMB) to implement across-the-board spending cuts at the account and program level to achieve equal budget reductions from both defense and nondefense funding at a percentage to be determined, under terms specified in the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the BCA. The American Taxpayer Relief Act (ATRA, P.L. 112-240 ), enacted on January 2, 2013, made a number of significant changes to the procedures in the BCA. First, the date for the joint committee sequester to be implemented was delayed for two months, until March 1, 2013. Second, the dollar amount of the joint committee sequester was reduced by $24 billion. Third, statutory caps on discretionary spending for FY2013 (and FY2014) were lowered. Pursuant to the BCA, as amended by ATRA, President Obama ordered that the joint committee sequester be implemented on March 1, 2013. The accompanying OMB report indicated a dollar amount of budget authority to be canceled from each account containing non-exempt funds. Because the sequester was implemented at the time that a temporary continuing resolution was in force, the reductions were calculated on an annualized basis and were to be apportioned throughout the remainder of the fiscal year. The sequester ultimately was applied at the program, project, and activity (PPA) level within each account, under subsequent OMB guidance. No regular FY2013 Interior, Environment, and Related Agencies Appropriations bill was enacted prior to the beginning of the fiscal year on October 1, 2012. Accordingly, Congress first included funds for these agencies in a continuing appropriations resolution (CR, P.L. 112-175 ) through March 27, 2013. (See below under "FY2013 Part-Year Continuing Appropriations, P.L. 112-175 .) This part-year CR was superseded by the Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ). Enacted on March 26, 2013, the law provided full-year continuing appropriations for Interior, Environment, and Related Agencies through September 30, 2013. However, appropriations provided in the FY2012 Interior appropriations law (Division E, P.L. 112-74 ) that had multi-year or no-year availability maintain a comparable period of availability for the new FY2013 funds. The Congressional Budget Office had estimated that, excluding the effects of sequestration, P.L. 113-6 contained $29.83 billion for Interior, Environment, and Related Agencies. However, appropriations in the law were reduced under the sequester order of the President, issued on March 1, 2013. That order implemented an across-the-board cut for (non-exempt, nondefense) discretionary funding, which was calculated based on a reduction of each account of about 5.0%; the accompanying report indicated a dollar amount of budget authority to be canceled from each account pursuant to that across-the-board cut. In addition, appropriations in P.L. 113-6 were reduced by an across-the-board rescission of 0.2% under P.L. 113-6 .The effect of these reductions on budgetary resources of agencies, accounts, and programs within Interior, Environment, and Related Agencies initially was unclear, pending guidance from OMB as to how they would be applied. For this reason, sections of this report on agencies in the Interior bill were not updated to reflect final FY2013 appropriations for accounts and programs. For information on final appropriations for agencies for FY2013, reflecting the sequester and the across-the-board rescission, see CRS Report R43142, Interior, Environment, and Related Agencies: FY2013 and FY2014 Appropriations . Under P.L. 113-6 , most accounts in the Interior bill were funded at the FY2012 level, under the terms and conditions in the FY2012 appropriations law (Division E, P.L. 112-74 , including the across-the-board rescission of 0.16%). This provision extended for FY2013 many of the provisions in the FY2012 law that stipulated or limited agency authority during FY2012. However, exceptions to this general approach, often referred to as "anomalies," were provided for the appropriations for about two dozen accounts within Interior, Environment, and Related Agencies. For instance, funding anomalies were included for certain accounts within DOI agencies, EPA, FS, IHS, and the Smithsonian Institution, among other agencies. Again, the President's sequester order of March 1, 2013, is being applied to the funding in P.L. 113-6 . Other provisions of P.L. 113-6 would rescind previous appropriations or authorities. Specifically, the law rescinded $7.5 million in funding for DOI Wildland Fire Management; various levels of funding for specified EPA accounts/programs; and $30.0 million in contract authority for acquisitions under the Land and Water Conservation Fund. Still other provisions in P.L. 113-6 affected particular authorities and activities of agencies in the Interior, Environment, and Related Agencies appropriations bill. Among others, these provisions made changes regarding the collection of mining claim maintenance fees; extended the authority of national heritage areas to receive federal assistance; provided authority for the EPA Administrator to assess pesticide registration service fees under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA); clarified the amounts available to fund contract support costs of the Indian Health Service and the Bureau of Indian Affairs; extended the authority for the Forest Service for cost recovery for processing rights-of-way and other special use authorizations; and banned, for 180 days, funds in the law from being used for enforcement, with regard to any farm, of EPA's Spill, Prevention, Control, and Countermeasure rule. The law also contained two reporting requirements. First, it gave many departments and major agencies 30 days following enactment to submit plans to the Appropriations Committees specifying how funds would be allocated below the account level. These plans are to be at the program, project, or activity level, or at a greater level of detail. Further, they are to reflect the reductions made under the sequester order of the President. Second, the law required OMB to submit to the Appropriations Committees monthly reports (through November 1, 2013) on FY2013 obligations incurred by each department/agency. The reports are to compare obligations in FY2013 with obligations during the same period in FY2012. Previously, a part-year CR was enacted for roughly the first half of the fiscal year (through March 27, 2013). Under P.L. 112-175 , accounts in the Interior bill were generally funded at a level that was 0.612% higher than the FY2012 level. Exceptions to this level of funding were provided for Wildland Fire Management by the Department of the Interior and the Forest Service. Section 140 of the law provided a rate of operations of $726.5 million for DOI Wildland Fire Management. This amount was equivalent to the FY2013 President's budget request (excluding the request for the FLAME account). It also contained $23.0 million for DOI to repay accounts from which funds were transferred in FY2012 to suppress wildfires. Section 141 provided a rate of operations of $1.97 billion for FS Wildland Fire Management. This was equivalent to the FY2013 President's budget request (excluding the request for the FLAME account). It also contained $400.0 million for the FS to repay accounts from which funds were transferred in FY2012 to suppress wildfires. In other respects, the part-year CR was similar, although not identical, to the full-year CR that is currently in effect. For instance, P.L. 112-175 also generally provided funding at the account level, under the terms and conditions as contained in the FY2012 Interior, Environment, and Related Agencies appropriations law. It directed departments and agencies to report to the Appropriations Committees on how funds would be allocated below the account level. It further directed OMB to submit monthly reports on FY2013 obligations by each department and agency. It also did not affect the application of a sequester order by the President. Sections 142-144 of P.L. 112-175 contained provisions affecting particular programs or activities of agencies in the Interior bill. Section 142 amended the funding formula in the Surface Mining Control and Reclamation Act (SMCRA) that determines payments to eligible coal production states from the Abandoned Mine Reclamation Fund. This change in the formula would reverse the potential effect that the new limitation on payments to "certified" states would have on the payments that "noncertified" states receive. Section 100125 of the Moving Ahead for Progress in the 21 st Century Act (MAP-21, P.L. 112-141 ) included a new $15 million annual limitation on payments to certified states as an offset for federal surface transportation spending. Payments to certified states are linked in existing law under SMCRA to a portion of the payments that noncertified states receive, which had raised concern among some Members of Congress and affected states. Section 143 extended the authority of the Forest Service for cost recovery for processing rights-of-way and other special use authorizations (through March 27, 2013). The Administration had sought permanent cost recovery authority in its FY2013 budget request. Section 144 amended FIFRA to extend the authorization for EPA to collect and expend pesticide registration fees (through March 27, 2013). It also amended the Federal Food, Drug, and Cosmetic Act (FFDCA) to continue the existing prohibition on EPA's collection of pesticide tolerance fees (through March 27, 2013). The FY2013 President's budget request had recommended the reauthorization of pesticide registration fees, but at increased levels to pay a greater portion of EPA's program operating costs in order to reduce the reliance on discretionary appropriations. The CR reauthorized the fees at existing rates under current law in FIFRA and FFDCA. Subsequently, the Pesticide Registration Improvement Extension Act of 2012 ( P.L. 112-177 ) reauthorized pesticide registration fees and continued the prohibition on pesticide tolerance fees through FY2017, and revised the existing fee structure. For FY2013, the Administration requested a total of $29.72 billion for Interior, Environment, and Related Agencies, an increase of $495.1 million (1.7%) from the FY2012 level of $29.23 billion. The Administration proposed level funding for some agencies, but increases or decreases for others. Additional funds were proposed for the Forest Service, $255.2 million (6%); Indian Health Service, $115.9 million (3%); Smithsonian Institution, $46.6 million (6%); U.S. Geological Survey (DOI), $34.5 million (3%); and Bureau of Safety and Environmental Enforcement (DOI), $20.0 million (26%). The proposed decreases included the Fish and Wildlife Service (DOI), with $128.0 million (9%) less; Environmental Protection Agency, $104.9 million (1%) less; and Office of Surface Mining Reclamation and Enforcement (DOI), $9.5 million (6%) less. The House Appropriations Committee reported a regular appropriations bill for Interior, Environment, and Related Agencies, but Congress did not take subsequent action on an FY2013 regular appropriations bill. As reported by the House Committee on Appropriations, H.R. 6091 ( H.Rept. 112-589 ) contained $27.66 billion for Interior, Environment, and Related Agencies for FY2013. This would have been a decrease of $1.57 billion (5.4%) from the FY2012 level of $29.23 billion. The committee-reported bill included funding at the same level as FY2012 for some agencies, such as the Bureau of Ocean Energy Management, the Bureau of Safety and Environmental Enforcement, and the Office of Surface Mining Reclamation and Enforcement. For other agencies, the bill would have increased funds over FY2012. The proposed additional amounts were $186.9 million (4.3%) for the Indian Health Service, $86.0 million (1.9%) for the Forest Service, and $36.8 million (1.5%) for the Bureau of Indian Affairs. The committee-reported bill proposed decreases from FY2012 for still other agencies, for instance, $1.39 billion (16.5%) less for the Environmental Protection Agency, $316.6 million (21.5%) less for the Fish and Wildlife Service, $134.4 million (5.2%) less for the National Park Service, and $101.0 million (9.5%) less for the U.S. Geological Survey. The committee-reported bill would have been a decrease of $2.07 billion (6.9%) from the Administration's FY2013 request of $29.72 billion. The bill would have provided higher levels of funding for a few major agencies relative to the Administration's request, notably an additional $71.0 million (1.6%) for the Indian Health Service, $41.4 million (1.6%) for the Bureau of Indian Affairs, and $9.5 million (6.7%) for the Office of Surface Mining Reclamation and Enforcement. However, the bill would have provided most major agencies with less funding than under the Administration's request, including $1.29 billion (15.5%) less for the Environmental Protection Agency, $188.6 million (14.0%) less for the Fish and Wildlife Service, $169.2 million (3.5%) less for the Forest Service, $135.5 million (12.3%) less for the U.S. Geological Survey, $133.5 million (5.2%) less for the National Park Service, and $67.7 million (7.9%) less for the Smithsonian Institution. The House committee-reported bill and accompanying report addressed diverse issues affecting multiple agencies. Some of the broader issues addressed in bill or report language are covered in relevant sections throughout this report, while others are discussed below. H.R. 6091 as reported by committee would have continued a provision in the FY2012 law to require DOI agencies, EPA, FS, and IHS to report quarterly to the House and Senate Appropriations Committees on balances of appropriations. The reports were to identify balances that are uncommitted, committed, and unobligated for each program and activity. In support of the provision for FY2012, the House Appropriations Committee had expressed interest in knowing not only what levels of funding remain from previous years, but the source year of those funds, in order to ascertain whether appropriations have been provided in excess of need or whether administrative inefficiencies have impeded the expenditure of funds. Other reporting requirements were included in the committee report on H.R. 6091 . For instance, the House committee sought to continue a reporting requirement from FY2012 pertaining to the costs of litigation related to agency actions. It directed DOI agencies, EPA, and FS to report to the Appropriations Committees, and make publicly available, information on payments of attorney fees and expenses under the Equal Access to Justice Act (EAJA). The House Committee expressed concern that the costs of litigation are shifting agency funding away from priority programs and that agencies are unable to account for these costs. The information was to include the amount of program funds used and the names and hourly rates of fee recipients, among other information. The committee also directed these agencies to report the same information for non-EAJA settlements with litigants. The committee-reported bill would have prohibited funds from being used for the National Ocean Policy developed under Executive Order 13547. It would have required the President to report to the Appropriations Committees, no later than 60 days following the submission of the President's FY2014 budget request, on FY2011 and FY2012 expenditures related to the policy. Expenditures were to be provided by agency, account, and subaccount and were to reflect the costs of developing, administering, and implementing the policy. Further, the President was to identify, in the FY2014 request, funding for implementing the policy. The committee expressed that the provision was intended to allow Congress "to ascertain the potentially far-reaching impacts of this new policy ... and to direct the Administration to fully account for Federal funding spent to date." The bill also contained a provision to extend mandatory funding for the Payments in Lieu of Taxes Program (PILT) for FY2013. However, in light of the enactment of a provision providing a one-year extension of the mandatory funding for PILT (in P.L. 112-141 ), the Congressional Budget Office no longer scores H.R. 6091 with the effects of the PILT extension. The report of the House Appropriations Committee contained additional views, recommendations, and direction affecting multiple agencies. For instance, the committee asserted that at least 51 agencies or programs within the bill (as reported) "remain unauthorized or have an expired Congressional authorization of appropriations." The committee recommended a total appropriation of approximately $6 billion for these agencies and programs, but expressed that for some "unauthorized programs" it had limited or discontinued funding for FY2013 and that it might continue to do so in the future. The committee urged the authorizing committees to expeditiously reauthorize these agencies and programs and encouraged interested parties to work with the authorizing committees on securing authorizations. An authorizing measure can establish, continue, or modify an agency or program for a fixed or indefinite period of time. It also may set forth the duties and functions of an agency or program, its organizational structure, and the responsibilities of agency or program officials. Authorizing legislation also authorizes the enactment of appropriations for an agency or program. The amount authorized to be appropriated may be specified for each fiscal year or may be indefinite (providing "such sums as may be necessary"). The authorization of appropriations is intended to provide guidance regarding the appropriate amount of funds to carry out the authorized activities of an agency. The Senate Appropriations Committee's Subcommittee on Interior, Environment, and Related Agencies held hearings on appropriations requests of several agencies. While no bill to appropriate funds for FY2013 was marked up and reported by the Senate committee, on September 25, 2012, the bipartisan leadership of the subcommittee released a draft FY2013 bill and a draft detailed funding table. The draft contained $29.72 billion for Interior, Environment, and Related Agencies, $5.3 million (<0.1%) lower than the President's request but $489.8 million (1.7%) higher than the FY2012 appropriation and $2.06 billion (7.4%) higher than the House committee-reported level in H.R. 6091 . The Senate subcommittee draft would have provided higher levels of funding than the House committee-reported bill for nearly every major agency, with exceptions being the Office of Surface Mining Reclamation and Enforcement, Bureau of Indian Affairs, Indian Health Service, and DOI Department-Wide Programs (in particular, Wildland Fire Management). Congress typically debates a variety of funding and policy issues when considering each year's regular appropriations legislation. Recent issues have included regulatory actions of the Environmental Protection Agency, energy development onshore and offshore, wildland fire fighting, royalty relief, Indian trust fund management, climate change, DOI science programs, endangered species, wild horse and burro management, and agency reorganizations. Other issues have included appropriate funding levels for Bureau of Indian Affairs law enforcement and education; Indian Health Service construction and contract health services; wastewater/drinking water needs; the arts; land acquisition through the Land and Water Conservation Fund; and the Superfund program. Among the major issues that arose during hearings and debates on FY2013 appropriations and on earlier appropriations bills, which are discussed in subsequent sections of this report, are (in alphabetical order) the following: Clean Water and Drinking Water State Revolving Funds , especially the adequacy of funding to meet state and local wastewater and drinking water needs. These state revolving funds provide seed money for state loans to communities for wastewater and drinking water infrastructure projects. (For more information, see the section of this report on " Title II: Environmental Protection Agency .") Endangered Species , including the provision or elimination of funding for the addition of new species for protection (listing) under the Endangered Species Act and designation of their critical habitat. (For more information, see the " Fish and Wildlife Service " section in this report.) EPA Regulatory Actions , notably whether to provide or restrict funding for implementation of pending and promulgated regulations that cut across various environmental pollution control statutes, including those that address greenhouse gas emissions. (For more information, see the section of this report on " Title II: Environmental Protection Agency .") Indian Health Service , particularly the appropriate level of funding for new programs included in the reauthorization of the Indian Health Care Improvement Act. (For more information, see the section of this report on " Department of Health and Human Services: Indian Health Service .") Land Acquisition , including the amount of funding for the Land and Water Conservation Fund for federal land acquisition and for the state grant program, and the extent to which the fund should be used for activities not involving land acquisition. (For more information, see the " Land and Water Conservation Fund (LWCF) " section in this report.) Outer Continental Shelf Leasing , particularly preleasing and leasing activities in offshore areas and the appropriate level of funding for agencies to address regulatory, safety, and compliance issues related to development of energy and minerals resources in the Outer Continental Shelf. (For more information, see the section of this report on the " Bureau of Ocean Energy Management, Bureau of Safety and Environmental Enforcement, and Office of Natural Resources Revenue .") Superfund , notably the adequacy of proposed funding to meet hazardous waste cleanup needs, and whether to continue using general Treasury revenues to fund the account or reinstate a tax on industry that originally paid for most of the program. (For more information, see the section of this report on " Title II: Environmental Protection Agency .") Table 1 shows appropriations for Interior, Environment, and Related Agencies for FY2004-FY2012. The FY2012 appropriation represented a $1.90 billion increase (7.0%) over the FY2004 level in current dollars, and a $2.87 billion decrease (8.9%) in constant dollars. See Table 19 at the end of this report for a detailed budgetary history (by agency) for FY2008-FY2012. Funding for earlier years is not readily available due to changes in the makeup of the Interior appropriations bill. Further, although full-year continuing funding has been enacted for FY2013, the effect of reductions under the President's sequester order of March 1, 2013, remains unclear. For these reasons, Table 1 covers the nine-year period from FY2004 to FY2012. Table 2 reflects action on FY2013 Interior, Environment, and Related Agencies Appropriations legislation. H.R. 6091 , which was not enacted, contained regular appropriations for Interior, Environment, and Related Agencies. P.L. 112-175 provided part-year continuing appropriations through March 27, 2013, and P.L. 113-6 provided full-year continuing appropriations through September 30, 2013. The Bureau of Land Management (BLM) manages approximately 248 million acres of public land for diverse and sometimes conflicting uses, such as energy and minerals development, livestock grazing, recreation, and preservation. The agency also is responsible for about 700 million acres of federal subsurface mineral estate throughout the nation, and supervises mineral operations on an estimated 56 million acres of Indian Trust lands. For FY2013, the House Appropriations Committee approved $1.074 billion for BLM, a $39.7 million decrease (4%) from the FY2012 appropriation ($1.114 billion) and a $34.2 million (3%) decrease from the Administration's FY2013 request ($1.108 billion). Table 3 identifies funding for BLM accounts. Management of Lands and Resources includes funds for an array of BLM land programs, including protection, recreational use, improvement, development, disposal, and general BLM administration. For this account, the FY2013 House committee-reported level was $927.4 million, $18.7 million less than the FY2012 appropriation ($946.1 million) and $5.4 million less than the Administration's FY2013 request ($932.7 million). The House Committee supported various increases and decreases relative to FY2012 for activities and programs funded by this account. Among the committee-supported increases were funds for managing wildlife, range, and energy and minerals and for resource management planning, as noted below. Wildlife management would have increased by $15.3 million, as requested by the President, from $36.9 million to $52.2 million. The increase was intended for the implementation of sage grouse conservation activities in an attempt to prevent the listing of the species for protection under the Endangered Species Act. Range management, which focuses on livestock grazing on 158 million acres of BLM land, would have increased by $2.6 million, from $87.4 million to $90.0 million. By contrast, the Administration proposed a decrease to $72.3 million, to be offset in part through a proposed grazing administration fee of $1 per animal unit month (AUM). The committee did not support the proposed fee, and directed the agency to report on potential cost recovery based on permit administration costs rather than AUM. The committee-reported bill included provisions relating to livestock grazing. One provision would have extended the maximum term for BLM and FS grazing permits and leases from 10 to 20 years. Another provision would have made permanent a provision of law providing for the automatic renewal of BLM and Forest Service grazing permits and leases that expire (or are transferred or waived) until the permit renewal process is completed under applicable laws and regulations, including any necessary environmental analyses. The current provision is in effect through FY2013. Energy and minerals management would have increased by $23.2 million, from $107.6 million in FY2012 to $130.9 million in FY2013. This increase is attributable primarily to additional funding for oil and gas management. The President sought $92.9 million in appropriations and an additional $48.0 million to be derived from a new fee on industry for oil and gas inspections (for a total of $140.9 million). The committee did not approve of this proposed fee. Also, while the President sought an increase of $7.1 million for renewable energy, the committee supported a $2.9 million decrease to $16.8 million. Further, in its report the committee expressed that BLM "must address the role that delays in permitting of mining activities, including the Department's overly cumbersome Federal Register clearance process, play in hindering the ability to develop domestic sources." Resource management planning would have increased by $4.7 million, as recommended by the President, from $38.1 million to $42.7 million. The increase was to be used for revising, evaluating, and implementing BLM land management plans. These plans govern uses of BLM lands and are revised to reflect changing uses, conditions, and priorities. Among the committee-supported decreases were funds for wild horses and burros, recreation, the National Landscape Conservation System, and the Alaska conveyance program, as noted below. Wild horse and burro management would have decreased by $10.8 million, from $74.9 million to $64.1 million. The committee expressed concern about the increased costs of the program. The Administration requested an increase to $77.1 million to research and develop methods of contraception to reduce population growth. Also, the House committee-reported bill would have retained the prohibition in the FY2012 appropriations law on using funds for the slaughter of healthy, unadopted wild horses and burros under BLM management, or for the sale of wild horses and burros that results in their slaughter for processing into commercial products. The Administration also supported this funding prohibition. Recreation management would have decreased by $6.6 million, from $67.5 million to $60.9 million. The President sought an increase to $70.3 million, primarily for managing wild and scenic rivers, national scenic and historic trails, and off-highway vehicles. Also, the House committee-reported bill included a provision to bar funds (in the bill or other acts) from being used to prohibit the use of, or access to, BLM and FS land for hunting, fishing, or recreational shooting, provided the use/access was not prohibited on January 1, 2012, and was in compliance with the pertinent land management plan. However, the provision authorizes the Secretary of the Interior and the Secretary of Agriculture to temporarily close federal land to hunting, fishing, or recreational shooting under certain circumstances. National Landscape Conservation System base funding would have decreased by $11.8 million, from $31.8 million to $20.0 million. The President proposed an increase to $35.1 million. The funds are used for managing BLM's protected areas, including national monuments, national conservation areas, and BLM wilderness. This system also receives funding from other BLM programs. Also, the House committee-reported bill would have continued to prohibit the use of funds from being used to implement an order of the Secretary of the Interior (No. 3310) pertaining to the protection of wilderness characteristics on BLM lands. The Alaska conveyance program would have decreased by $12.3 million, as recommended by the President, from $29.1 million to $16.7 million. The Administration proposed the decrease as part of an effort to reevaluate and streamline the land conveyance process. The BLM is required by law to transfer ownership of about 150 million acres of federal lands to the state of Alaska, Alaska Natives, and Alaska Native corporations, most of which have already been conveyed. The committee-reported bill concurred with the Administration's proposal to eliminate BLM's Construction account in FY2013. Under the Administration's proposal, construction projects would be funded through the Management of Lands and Resources account, although the request did not propose specific construction projects to be funded through this account. The FY2012 appropriation for construction was $3.6 million, the lowest funding level in at least a decade. For land acquisition by the BLM, the House Appropriations Committee provided $6.7 million for FY2013, $15.6 million less than the FY2012 appropriation of $22.3 million and $26.8 million less than the Administration's request of $33.6 million. The funding would have been used for recreational access to BLM lands, as requested by the President, as well as for the acquisition of inholdings and the costs of program management. By contrast, most of the funding requested by the Administration was for 12 specific acquisition projects in nine states. The appropriation for BLM acquisitions has fluctuated over the past decade from a high of $33.2 million in FY2003 to a low of $8.6 million for both FY2006 and FY2007. 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 of this report.) The Fish and Wildlife Service (FWS) is responsible for implementing the Endangered Species Act, managing the National Wildlife Refuge System for wildlife habitats and appropriate uses, conserving migratory birds, administering grants to aid state fish and wildlife programs, and coordinating with state and other federal agencies on fish and wildlife issues. In H.R. 6091 , the House Appropriations Committee approved $1.16 billion for FY2013, down $316.6 million (21%) from the FY2012 level of $1.48 billion. The President requested $1.55 billion for comparable programs for FY2013. The President's total request for the FWS for FY2013 was $1.35 billion, reflecting a cancelation of $200.0 million in unobligated balances for the Coastal Impact Assistance Program (CIAP). The committee-reported level was 14% less ($188.6 million) than the Administration's request of $1.35 billion. The committee did not support the cancelation of the $200.0 million in CIAP balances. With a few exceptions, the committee's proposed changes in accounts and activities relative to FY2012 ranged from elimination (-100%) to a decrease of 6%. (See Table 4 .) By far the largest portion of the FWS annual appropriation is for the Resource Management account, for which the House Committee approved $1.04 billion, down $185.7 million (15%) from the $1.23 billion for FY2012. The committee-reported level was 17% less ($206.6 million) than the Administration's requested $1.25 billion. Among the programs included in Resource Management are endangered species, the Refuge System, law enforcement, fisheries, and cooperative landscape conservation and adaptive science. Selected accounts and programs are discussed below. Funding for the endangered species program is part of the Resource Management account and is one of the perennially controversial portions of the FWS budget. The House committee approved $134.0 million, a decrease of $41.9 million from the FY2012 level of $176.0 million and of $45.7 million from the Administration's request of $179.7 million. The FY2012 Interior appropriations law ( P.L. 112-74 ) contained limits on spending for listing species in response to petitions, for listing foreign species, and for designation of critical habitat. Both the House Committee and the President's proposal for FY2013 would have continued the spending limits though not at the same levels. The limitations on responding to petitions and listing foreign species were not included prior to the FY2012 appropriations law. On the other hand, limitations on critical habitat designation have been a feature of appropriations laws for over 15 years. The Cooperative Endangered Species Conservation Fund (CESCF) also benefits conservation of species that are listed, or proposed for listing, under the Endangered Species Act, through grants to states and territories. The House Committee approved $14.1 million for the CESCF, down $33.6 million from the FY2012 level of $47.7 million and $45.9 million from the Administration's request of $60.0 million. The House Committee approved $437.4 million for the National Wildlife Refuge System, a decrease of $48.2 million from FY2012 ($485.7 million) and $57.4 million from the President's request of $494.8 million. Costs of operations have increased on many refuges, partly due to special problems such as hurricane damage and more aggressive border enforcement, but also due to increased use, invasive species control, maintenance backlog, and other demands. The House Committee provided $127.2 million, a decrease of $8.1 million from the FY2012 level of $135.3 million and $4.4 million from the Administration's FY2013 request of $131.6 million. The reduction in the committee-reported level relative to FY2012 was for aquatic habitat and species conservation. For this activity, the committee proposed $63.1 million, down $8.1 million from the FY2012 level of $71.2 million and $7.3 million from the Administration's FY2013 request of $70.4 million. The committee supported funding for National Fish Hatchery Operations activity at $46.1 million, identical to the FY2012 level. The Administration had proposed a $2.9 million reduction for National Fish Hatchery Operations. The hatchery funding controversy stems from FWS management of a number of hatcheries whose mandated role, in whole or in part, is to provide mitigation for activities by other agencies. The House Committee stated that it "will continue to reject proposals to reduce funding in the Service's budget for mitigation fish hatcheries until the Administration has secured offsetting reimbursable funds from the responsible Federal agencies." The House Committee provided $3.0 million for this account, down $29.2 million from the FY2012 level of $32.2 million and $30.1 million from the Administration's request of $33.1 million. The accompanying report made no specific comments on this FWS program, although it contained a discussion of the Administration's climate change programs generally and criticized them for duplication and lack of coordination. Part of this FWS program supports work with partners at federal, state, tribal, and local levels to develop strategies to address climate impacts on wildlife at local and regional scales. The remainder is used to support cooperative scientific research on climate change as it relates to wildlife impacts and habitat. Both portions support and work through a network of Landscape Conservation Cooperatives (LCCs) to ameliorate the effects of climate change. The LCCs are an amalgam of research institutions, federal resource managers and scientists, and lands managed by agencies at various levels of government. The House committee provided $15.0 million for land acquisition for FY2013, to be derived from the Land and Water Conservation Fund (LWCF). This was a decrease of $39.6 million from the FY2012 level of $54.6 million and $91.8 million from the Administration's request of $106.9 million. (For more information, see the " Land and Water Conservation Fund (LWCF) " section of this report.) Within this program, the committee proposed that there be no new funding for general land acquisition, and that funding be directed to inholdings, acquisition management, and $4.0 million for purposes of the Highlands Conservation Act. The National Wildlife Refuge Fund (NWRF, also called the Refuge Revenue Sharing Fund) compensates counties for the presence of the non-taxable federal lands under the jurisdiction of FWS. A portion of the fund is supported by the permanent appropriation of receipts from various activities carried out on FWS lands. Receipts have not been sufficient for full funding at authorized levels for many years, so additional funds have come from annual appropriations, though not enough to provide the fully authorized level. County governments—which assert that the presence of these lands results in expenditures for emergency services, road maintenance, traffic control, etc.—have long urged additional appropriations to make payments at the full authorized level. The committee approved $12.0 million for the Fund—a reduction of $2.0 million from the FY2012 level. Funding at this level (added to $4.9 million in permanently appropriated receipts) would have provided counties with 23% of the authorized level of $73.8 million. The Administration requested no funding. If payments were based on estimated receipts alone, counties would have received 7% of this authorized level. The Administration asserted that the savings are justified based on low costs of refuges to county infrastructure and the economic benefits to local economies from increased tourism. For FY2012, the Administration made a similar proposal to eliminate annual appropriations for NWRF. However, Congress appropriated $14.0 million for FY2012. The Multinational Species Conservation Fund (MSCF) generates considerable public interest despite its small size. Its programs benefit Asian and African elephants, tigers, rhinoceroses, great apes, and marine turtles through grant programs in dozens of countries. The House committee reduced the MSCF to $4.7 million, down 50% relative to FY2012. All of the programs under MSCF were reduced by 50% as well. The committee emphasized that all of the authorizations in this account have expired, or will expire in FY2012. The Administration requested $10.0 million. Similarly, the committee reduced the Neotropical Migratory Bird Conservation Fund to $1.9 million (down 50%) relative to the FY2012 level and the Administration's FY2013 request ($3.8 million). State and Tribal Wildlife Grants help fund efforts to conserve species (including nongame species) of concern to states, territories, and tribes. The program was created in the FY2001 Interior appropriations law ( P.L. 106-291 ) and further detailed in subsequent Interior appropriations laws. (It has no separate authorizing statute.) As it did for some programs with expired or expiring authorizations, the House committee reduced this program to $30.7 million (down 50%) from the FY2012 level and the Administration's FY2013 request ($61.3 million). The House committee urged the authorizing committees to enact legislation for these grants or evaluate the possibility of certain alternatives. The committee-reported bill would have raised a state's minimum share to 50%. The FY2012 program required a state's minimum share of either 25% or 35% (depending on the type of project), which the President proposed continuing for FY2013. The committee also eliminated bill language to allow unobligated balances to be re-apportioned. In its FY2013 budget, the Administration proposed to cancel $200.0 million of the unobligated balance for the Coastal Impact Assistance Program (CIAP). The House Appropriations Committee did not support this proposal. CIAP was established in its modern form under the Energy Policy Act of 2005. The focus of CIAP is assistance to states and local governments with the impacts of offshore development on coastal ecosystems, including wetlands. Under the current CIAP, eligible states are those with offshore energy production: Alabama, Alaska, California, Louisiana, Mississippi, and Texas. The 2005 law provided that, from the revenues derived from federal energy leases on the Outer Continental Shelf for each year from FY2007 through FY2010, there would be mandatory spending authority of $250 million, to remain available until expended. Of the resulting $1 billion total from those four fiscal years, there remain approximately $565 million in unobligated balances. Under CIAP, these balances are available without further appropriation for the program. At its inception, the program was administered by the Minerals Management Service, then by its successor agency, the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE), and now by FWS. With the transfer to FWS in FY2012, the unobligated balance was transferred as well. As reported by the House Appropriations Committee, H.R. 6091 contained administrative provisions affecting FWS. A provision affecting gray wolves provided that "[b]efore the end of the 60-day period beginning on the date of enactment of this Act, the Secretary of the Interior shall issue a final rule pertaining to the proposed rule" concerning the removal of gray wolves in Wyoming from the list of species protected under the Endangered Species Act. The committee sought to "ensure a timely decision on the Wyoming wolf management plan" and expressed that "the pending wolf management proposal is the result of cooperative work between the agency and the State." The effect of the provision, in the absence of an accepted wolf management plan and the required approval by the Wyoming legislature, could mean that wolf management in the state stops short of recovery goals. Another provision concerns three captive-bred exotic species that are related to antelope. It would have required FWS to reissue a 2005 rule and preclude judicial review of the rule. Specifically, the rule affected U.S. captive-bred scimitar-horned oryx ( Oryx dammah ), addax ( Addax nasomaculatus ), and dama gazelle ( Gazella dama ), all listed as endangered. These species are rare, or perhaps extinct, in their native habitat. They are found on game farms, where farm managers allow hunting of surplus captive-bred animals subject to permits from FWS. The FWS 2005 rule would have allowed a variety of activities, including hunting, interstate shipment, and other specified activities, as long as certain criteria were met. A court held that the rule violated the ESA by granting a broad exception to all game farms raising these species, rather than issuing permits on a case-by-case basis. FWS removed the exclusion and stated that it would require any person who wishes to hunt or transport one of the three species to qualify for an exception or obtain a permit. The National Park Service (NPS) administers the National Park System—397 units covering more than 84 million acres, with many diverse natural and historic areas. The NPS also supports and promotes some resource conservation activities outside the Park System through limited grant and technical assistance programs and cooperation with partners. For FY2013, H.R. 6091 as reported by the House Appropriations Committee contained $2.45 billion for the NPS, a decrease of $134.4 million (5%) from the FY2012 level of $2.58 billion and of $133.5 million (5%) from the Administration FY2013 request of $2.58 billion. Under the committee bill, each account would have been decreased relative to the FY2012 appropriation and the FY2013 request, except that the committee level matched the Administration's request for the Construction account. However, most of the decrease in the bill relative to both the FY2012 appropriation and the FY2013 request was for Land Acquisition and State Assistance. Table 5 provides the appropriations for the NPS by account, and several of the major accounts and programs are discussed below. The largest portion of the NPS annual appropriations is for the Operation of the National Park System account. The majority of operations funding is provided directly to park managers for the activities, programs, and services that constitute the day-to-day operations of the Park System. For this account, the House Appropriations Committee approved $2.23 billion, $7.2 million less than the FY2012 level ($2.24 billion) and $20.6 million less than the Administration's request for FY2013 ($2.25 billion). Of the five major activities funded in the account, funding for resource stewardship differed the most among the committee-reported bill, Administration's request, and FY2012 appropriation. Specifically, the House committee bill included $324.3 million, a decrease of $5.5 million from the FY2012 level ($329.8 million) and $9.1 million from the Administration's request ($333.4 million). Within this activity, the Administration sought $8.0 million for the climate change program, an increase of $5.0 million over FY2012. Under this program, the NPS monitors the impact of climate change on park units, takes mitigation actions based on monitoring, and develops adaptation strategies. The House Appropriations Committee did not include "requested funding for climate-change related activities," on the grounds that there is a "critical need for a significant improvement in the level of coordination and communication of climate change activities, budgets, and accomplishments across the bureaus within the Department of the Interior." The House Appropriations Committee expressed its rejection of the Administration's proposed cuts to funding for park base operations. The Administration had proposed a $21.6 million decrease in park base operations due to "fiscal realities." To reduce costs at park units, while attempting to minimize the negative impact on visitors, NPS proposed options including limiting the use of certain areas (e.g., campgrounds and facilities), reducing hours of operation and services during periods of low visitor usage, reducing the use of utilities and supplies, and limiting maintenance and cleaning. The committee-reported bill included level funding of $168.9 million for NPS external administrative costs. The Administration sought $179.7 million for these costs, an increase of $10.7 million over FY2012. External administrative costs fund the NPS contribution towards administrative support functions which are managed centrally. Increases were sought for payments for unemployment compensation, space rental, and other DOI-wide programs and activities. However, the committee bill supported the Administration's requested increase of $2.6 million for NPS responsibilities related to the 2013 presidential inauguration, for park police and visitor orientation and safety. Further, it contained $9.8 million for planning and interagency coordination in support of Everglades restoration, nearly level with the Administration's request ($9.9 million). For the National Recreation and Preservation (NR&P) account for FY2013, the House committee-reported bill contained $51.8 million, $8.1 million less than the FY2012 level of $59.9 million and $0.3 million less than the Administration's request for FY2013 of $52.1 million. NR&P funds a variety of Park System activities, including natural and cultural resource protection programs, environmental and compliance review, and an international park affairs office. It also includes programs providing technical assistance to state and local community efforts to preserve natural, historic, and cultural resources outside the National Park System. Both the House Committee and the Administration approved a reduction in heritage partnership funding to about half the FY2012 amount; they supported $9.3 million, an $8.1 million decrease from the FY2012 level of $17.4 million. The program supports national heritage areas (NHAs), which are neither owned nor managed by the NPS. According to the NPS, the reduction for FY2013 would allow the agency to focus resources on national park units and other partnership programs, provide seed money for less mature heritage areas, and address the concerns of appropriators about the expanding number of NHAs and their ability to become more financially self-sufficient. The committee noted that state and local managers of NHAs "continue to rely heavily" on federal funding and that NHAs have not completed plans for long-term self-sufficiency. The committee also expressed concern with the NPS pace of evaluations of NHAs as to the agency's future role. The House committee-reported bill also included a provision to extend the authority of the Secretary of the Interior to provide financial and other assistance to certain heritage areas for which the authority is due to expire (for most areas on September 30, 2012). The provision would have extended the authority until September 30, 2014. The bill also would have extended the authority of the Blackstone River Valley National Heritage Corridor Commission and the authorization of appropriations for the Delaware and Lehigh Navigation Canal National Heritage Corridor Commission. The Historic Preservation Fund (HPF), administered by the NPS, provides grants-in-aid for activities specified in the National Historic Preservation Act (NHPA; 16 U.S.C. §470), such as restoring historic districts, sites, buildings, and objects significant in American history and culture. The fund's preservation grants are normally funded on a 60% federal and 40% state matching share basis. For FY2013, the House Appropriations Committee recommended $49.5 million for the HPF, a reduction of $6.4 million from the level enacted for FY2012 and proposed by the Administration for FY2013 ($55.9 million). Of the $49.5 million, $42.5 million was for state historic preservation offices and $7.0 million was for tribal grants. For NPS Construction for FY2013, the House Appropriations Committee recommended $131.2 million, as requested by the Administration, a $24.2 million decrease from the FY2012 level of $155.4 million. The FY2013 request included a reduction of $25.3 million for line-item construction projects (as well as other smaller increases and decreases for a total reduction of $24.2 million for the account). The Administration asserted that this level of funding would address "only the most critical life/health/safety, resource protection, and emergency projects." These projects were identified through an NPS inventory and condition assessment program. In the past, the Construction account has funded new construction projects, as well as improvements, repair, rehabilitation, and replacement of park facilities. No new facility construction was included in the House committee-reported bill or Administration's request. The Construction account also funds general management planning, including the special resource studies that evaluate potential Park System additions. For general management planning, the House Appropriations Committee supported the Administration's request for $13.6 million for FY2013, a $1.0 million reduction from FY2012. Of the $13.6 million, $2.2 million was intended for the development of special resource studies, with a focus on completing previously authorized studies before beginning new ones, as the conferees on the FY2012 appropriations bill had urged. Construction funds are used in part to address deferred maintenance, which is a continuing NPS concern. However, the portion of construction funds for addressing deferred maintenance typically is not specified in NPS budget and appropriations documents. While the NPS has improved inventory and asset management systems, the estimate of its deferred maintenance backlog has continued to mount. DOI estimated deferred maintenance for the NPS for FY2011 at between $8.94 billion and $13.15 billion, with a mid-range figure of $11.04 billion. In the past, additional funding also has been provided for NPS road construction and repair through the Federal Lands Highway Program of the Federal Highway Administration. For FY2013, the House committee-reported bill would have provided $13.3 million for Land Acquisition and State Assistance. This would have been a decrease of $88.6 million from the FY2012 appropriation ($101.9 million) and $106.1 million from the Administration's request for FY2013 ($119.4 million). The committee approved decreases relative to the FY2012 appropriation and FY2013 request for both components of the program. Land acquisition funds typically are used primarily to acquire lands, or interests in lands, for inclusion within the National Park System. For land acquisition, the committee bill would have provided $10.5 million, with no funding for new core acquisitions. Instead, the funds would be used for the costs of managing previously funded acquisitions, emergencies and hardships, and protection of battlefields outside the National Park System (under the American Battlefield Protection Program). The committee level would have been a decrease of $46.5 million from the FY2012 appropriation ($57.0 million) and of $48.9 million from the Administration's request for FY2013 ($59.4 million). State assistance is for outdoor recreation-related land acquisition and recreation planning and development by the states, with the appropriated funds allocated among the states by formula and the states determining their spending priorities. Grants are provided on a 50/50 matching basis. For grants to states, the House committee-reported bill contained $2.8 million. Instead of new grants to states, the funds were to be used for the costs of administering previous state grants. The committee level would have been a decrease of $42.1 million from the FY2012 level ($44.9 million) and of $57.2 million from the Administration's request for FY2013 ($60.0 million). Of the funding for grants to states, the Administration proposed that $20.0 million be provided under a new competitive grants program. The program would focus on grants for urban parks and greenspaces, landscape-level conservation, and public access to rivers and waterways for recreation. (For more information, see the " Land and Water Conservation Fund (LWCF) " section of this report.) The U.S. Geological Survey (USGS) is a science agency that provides physical and biological information related to geological resources; climate change; and energy, mineral, water, and biological sciences and resources. 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 2011, the USGS reorganized its science programs to interdisciplinary themes related to those outlined in the USGS 2007-2017 strategic plan. The interdisciplinary programs are Ecosystems; Climate and Land Use Change; Energy, Minerals, and Environmental Health; Natural Hazards; Water Resources; Core Science Systems; Administration and Enterprise Information; and Facilities. For FY2013, the bill reported by the House Appropriations Committee contained total appropriations of $967.0 million for the USGS, a decrease of $101.0 million (9%) from the FY2012 level of $1.07 billion and of $135.5 million (12%) from the FY2013 request of $1.10 billion (see Table 6 ). The committee-reported bill contained decreases from the FY2012 level for the following programs: Ecosystems; Climate and Land Use Change; Energy, Minerals, and Environmental Health; Natural Hazards; Administration and Enterprise Information; and Facilities. The bill provided increases over FY2012 for the Water Resources and Core Science Systems programs. Relative to the Administration's request, only the Water Resources Program received more funding in the reported bill; all other programs received decreases. The committee-reported bill sought to limit funds for particular purposes. It provided that none of the funds under the Ecosystems Program can be used to conduct surveys on private land without the written consent of the owner. Another provision provided that none of the funds for the USGS can be used to pay for more than one-half the cost of topographical mapping and water resources data collections and investigations done in collaboration with states and municipalities. The committee indicated that USGS science programs were provided limited or no funding for FY2013 because they are unauthorized or have expired authorizations of appropriations. Specific programs were not identified. This justification also was used for proposing limited or no funding for other programs in agencies funded by the bill. Further, the committee asserted that significant improvement in coordination and communication among federal agencies in activities related to climate change needs to take place. The committee proposed cutting climate change spending throughout the bill by 29% for FY2013 compared to FY2012. The USGS conducts research and monitoring related to climate change in its Climate Change Program. Funding for the Climate Change Program in the reported bill was $51.9 million, $7.1 million less than the FY2012 level of $58.9 million. The Ecosystems program focuses on research and monitoring of the structure and function of ecosystems. Activities emphasize a systems approach to scientific research that focuses on how processes affect the structure, function, and resilience of ecosystems. The Ecosystems program has six sub-programs: status and trends; fisheries (aquatic and endangered resources); wildlife (terrestrial and endangered resources); terrestrial, freshwater, and marine environments; invasive species; and cooperative research units. For FY2013, the House Appropriations Committee recommended $132.5 million for the Ecosystems Program, a decrease of $45.3 million from the FY2013 Administration request of $177.9 million and of $28.8 million from the FY2012 level of $161.3 million. In its report, the House committee noted that it did not support a large number of program increases requested by the Administration. Much of the requested increases were for ecosystem priorities activities, which focus on the conservation and restoration of ecosystems throughout the nation such as the Chesapeake Bay and Florida Everglades. However, the committee supported some increases proposed by the Administration, including $1.0 million for addressing white nose syndrome in bats and $3.0 million for research on new methods to control and eradicate Asian carp in the Upper Mississippi River Basin and to prevent their entry into the Great Lakes. The committee proposed reductions for all sub-programs under this program compared to the Administration's request, including funding for the Fisheries: Aquatic and Endangered Resources sub-program (34% reduction); Wildlife: Terrestrial and Endangered Resources sub-program (20% reduction); and the Terrestrial, Freshwater and Marine Environments Program (31% reduction). The Climate and Land Use Change program is split into two sub-programs, climate variability and land use change. The climate variability sub-program provides scientific information to users and DOI agencies to assist in creating adaptation strategies for changes in various landscapes. The committee-reported bill included $128.3 million for the Climate and Land Use Change Program, a reduction of $25.5 million from the Administration's request of $153.7 million and $15.8 million from the FY2012 level of $144.1 million. The Land Use Change sub-program enables users to access and use Earth observation imagery collected via satellites. The committee level for this sub-program was $76.4 million, $9.6 million less than the FY2013 request of $86.0 million and $8.8 million below the FY2012 level of $85.2 million. The Landsat Missions programs, through the line item Land Remote Sensing, would have received $66.4 million, $5.7 million less than the FY2013 request ($72.1 million) and $7.3 million less than the FY2012 level ($73.7 million). Portions of this funding were to be used to complete Landsat 8 and Landsat 9 mission development. Under the Climate Variability sub-program, the reported bill provided $51.9 million, which was $15.9 million less than the FY2013 request of $67.7 million and $7.1 million less than the FY2012 level of $58.9 million. The reported bill did not fund increases requested by the Administration for science support for DOI agencies and climate research and development, among other things. According to the Administration, the funding would be used to create tools to monitor landscape changes and maintain partnerships with other stakeholders to better understand climate effects and adaptation strategies. The Energy, Minerals, and Environmental Health program includes research and assessments on the nation's mineral and energy resources. There are four components: minerals resources, energy resources, toxic substances hydrology, and contaminant biology. The contaminant biology sub-program reflects the intent for energy and mineral resources to be understood in the context of the life cycle of the energy or mineral commodity. Under this context, activities address how energy and mineral resources influence landscape, water, climate, ecosystems, and human health. The House committee-reported bill provided $88.3 million for this program, a decrease of $8.9 million from the Administration's request of $97.1 million and of $7.9 million from the FY2012 level of $96.2 million. The bill provided $46.8 million for the Minerals Resources sub-program, a $1.5 million increase over the Administration's request of $45.3 million but a decrease of $2.4 million from the FY2012 level of $49.2 million. This program supports data collection, analysis, and research to better understand the availability of domestic and global mineral resources. A decrease in funding may delay the completion of the next National Mineral Resource Assessment, according to USGS. In the past, the Administration has proposed cuts in this program but Congress has reinstated funding. The committee supported the Administration's request for a $1.0 million increase over FY2012 to support research on rare earth elements. Rare earth elements are used in various components of defense weapons systems and have applications for the science and technology and manufacturing sectors. Their supply and accessibility have been referred to as a national security concern by some Members. The committee also expressed its support for studying the extent and sources of endocrine-disrupting chemicals that are affecting fish and wildlife in the Chesapeake Bay Watershed. This program is expected to provide scientific information and knowledge necessary to address and mitigate the effects of natural hazards such as volcanoes, earthquakes, storm surges, and landslides. The coastal and marine geology sub-program is expected to address natural hazards-related issues, such as the impacts of hurricanes and tsunamis on the coast, and the effects of rising relative sea level on coastal ecosystems and communities. The House Appropriations Committee proposed $107.4 million for this program, a decrease of $37.4 million from the Administration's request of $144.8 million and of $27.1 million from the FY2012 level of $134.5 million. The largest reduction was for the Earthquake Hazards program, a $14.8 million decrease from the requested amount of $58.9 million and an $11.0 million decrease from the FY2012 appropriation of $55.1 million. The committee report did not make explicit why reductions in this program were made. The second largest reduction was for the Coastal and Marine Geology program, a $14.4 million decrease from the requested amount of $49.3 million and a $9.0 million decrease from the FY2012 level of $43.9 million. The Water Resources program includes activities that collect, assess, and disseminate hydrological data, and analyze and research hydrological systems and methods for water conservation. This program contains the national streamflow information sub-program and the cooperative water sub-program, both of which fund streamgages throughout the nation. The House Appropriations Committee proposed $219.8 million for this program, an increase of $10.0 million from the Administration's request of $209.8 million and of $5.1 million from the FY2012 level of $214.7 million. The committee proposed level funding for the Water Resources Research Act Program at $6.5 million; funding was eliminated in the Administration's request. Such elimination has been proposed several times in the past, although each year the appropriations law contained funding. Funding for this program provides grants to 54 water resources research institutes throughout the country. Generally, the grants are used to leverage additional funding for research from other sources. The Administration contended that the elimination of this program would allow funds to be used in higher priority areas, such as the WaterSMART program. The committee-reported bill also retained funding for the Cooperative Water Program at $64.0 million, although the Administration sought a reduction to $59.3 million. The reduction would have affected funding for interpretative studies of water related data as well as for data collection activities through streamgages, according to the Administration. The Core Science Systems program provides data in a geospatial framework for managing resources and planning for natural hazards. The House Appropriations Committee bill proposed $112.3 million for this program, a decrease of $8.1 million from the Administration's request of $120.4 million and an increase of $5.6 million from the FY2012 level of $106.7 million. The Administration proposed a realignment of funds from the information resources sub-program under the Administration and Enterprise Information program, to consolidate several information programs into a new science synthesis, analysis, and research program. The realignment resulted in a request of $ 26.3 million for biological information management and delivery, an increase over the FY2012 level of $15.1 million. The committee supported the realignment, but proposed funding at $20.6 million. This program reflects administrative activities and Enterprise Information. Enterprise Information consolidates funding of all USGS information needs, including information technology, security, services, and resources management, as well as capital asset planning. The House Committee on Appropriations proposed $82.4 million for this program, a decrease of $16.6 million from the Administration's request of $99.1 million and of $27.8 million from the FY2012 level of $110.2 million. A primary reason for the reduction from FY2012 was that the committee supported the Administration's request to transfer funding for information resources to the Core Science Systems line item, as discussed above. The committee also proposed a reduction of $10.5 million for the Science Support sub-program to $62.9 million from the FY2012 level of $73.4 million; the Administration sought an increase to $75.8 million. The Facilities program includes sites where USGS activities are housed—offices, laboratories, storage, parking, and more—as well as eight large research vessels. The House Appropriations Committee proposed $96.0 million for this program, a decrease of $3.7 million from the Administration's request of $99.7 million and of $4.4 million from the FY2012 level of $100.4 million. In response to the April 20, 2010, Deepwater Horizon oil spill in the Gulf of Mexico, on May 11, 2010, Secretary of the Interior Ken Salazar announced a plan to separate the safety and environmental functions of the Minerals Management Service (MMS) from its leasing and revenue collection function. The goal was to improve the efficiency and effectiveness of the agency. On May 19, 2010, the Secretary decided to establish three new entities to perform the functions of the MMS: the Bureau of Ocean Energy Management (BOEM), the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resources Revenue (ONRR). The transition to the new framework was completed on October 1, 2011. Each of the three new entities has a director under the supervision of an assistant secretary. BOEM manages development of the nation's offshore resources, including administering offshore leasing, conducting environmental and economic analyses, and preparing resource evaluations. BSEE enforces safety and environmental regulations. Functions include offshore regulatory programs, research, and oil spill response. Field operations include permitting, inspections, and environmental compliance. ONRR was established under the DOI Office of the Assistant Secretary for Policy, Management, and Budget to collect, account for, analyze, audit, and disburse revenues from energy and mineral leases on the outer continental shelf, federal onshore, and American Indian lands. In FY2011, ONRR disbursed $11.2 billion in revenues from mineral leases on federal and Indian lands, up from $9.2 billion in FY2010 but down from the FY2008 record amount of $23.5 billion. This amount fluctuates annually based primarily on the prices of oil and natural gas and averaged about $13 billion per year from FY2007-FY2011. Other sources of ONRR receipts include bonus bids and rents for all leasable minerals and royalties from coal and other minerals. ONRR distributes revenues under various authorities. Revenues from onshore leases are disbursed to the states in which they were collected, the general fund of the U.S. Treasury, and designated programs based on various statutory formulas. Revenues from offshore leases are allocated among coastal states, the Land and Water Conservation Fund, the Historic Preservation Fund, and the Treasury. The bill reported by the House Appropriations Committee would have funded all three agencies at the FY2012 level: BSEE, $76.3 million; BOEM, $59.7 million; and ONRR, $119.4 million. This would have been $20.0 million less than the Administration's FY2013 request for BSEE ($96.3 million), $3.0 million less than the request for BOEM ($62.7 million), and $0.2 million less than the request for ONRR ($119.6 million). The committee supported offsetting collections within the BSEE and BOEM at a level of $125.9 million and $101.4 million, respectively. There were no offsetting collections reported by the committee for ONRR. Table 7 , Table 8 , and Table 9 identify the funding levels enacted for FY2012, requested by the Administration, and reported by the House Committee for BSEE, BOEM, and ONRR, respectively. With regard to BSEE, the House committee supported a $4.8 million increase over FY2012 ($132.1 million) for the Operations, Safety, and Regulation activity and an increase in offsetting receipts of the same amount. Most of the Administration's proposed $20.0 million increase for FY2013 was for the regulatory programs as well as for environmental enforcement. Under the committee-reported bill and the Administration's request, oil spill research would have remained flat at $14.9 million in FY2013, but would have been up substantially from $6.3 million enacted in FY2010. The committee agreed with the Administration's proposal to increase inspection fees to $65.0 million, up from the $62.0 million for FY2012. With regard to BOEM, about one-half of the Administration's proposed increase ($3.0 million in total) was for the renewable energy program. Specifically, the Administration proposed increasing this program by $1.4 million from $22.7 million in FY2012 to $24.0 million in FY2013. This subactivity was established in FY2010, when BOEM created a new Office of Offshore Alternative Energy Programs to develop and implement its offshore renewable energy policies and comply with departmental goals. The agency issued four limited leases (three in New Jersey, one in Delaware) for site testing and data collection in late 2009. On April 28, 2010, the Secretary of the Interior announced the BOEM Record of Decision to issue a commercial lease to Cape Wind Associates, LLC, at Horseshoe Shoal in Nantucket Sound, to develop a 130-turbine wind energy project offshore. BOEM has plans to more efficiently site, lease, and construct offshore wind energy projects with its "Smart from the Start" program, according to the agency. The House committee did not support the Administration's proposed $4.00 per acre fee on new nonproducing Outer Continental Shelf (OCS) and onshore leases or the proposed repeal of royalty relief provisions (§344) in the Energy Policy Act of 2005. The Administration had similar proposals in both areas in FY2012, although neither was included in the FY2012 appropriations law. The timeliness of issuing permits for development has been an issue for Congress. For instance, in FY2012 the House Appropriations Committee expressed concern over delays in issuing OCS exploration and development permits, and encouraged BOEM to issue permits in a timely and consistent manner while ensuring safety and environmental protection. The conferees on the FY2012 appropriations bill further expressed that the highest priority for BSEE was "ensuring safety and prompt consideration of permits," and that applications for permits to drill "should be processed with all due speed." The Administration asserts that the review of deepwater permit applications has taken longer as a result of the Deepwater Horizon incident and additional informational requirements (e.g., pertaining to environmental reviews). For ONRR, the House committee would have funded its two major programs—compliance and asset management (CAM) and revenue and operations—at FY2012 levels: $77.1 million and $42.3 million, respectively. The Administration requested slightly more for CAM ($77.8 million) and slightly less for revenue and operations ($41.8 million). CAM is implementing reforms in the way the agency uses data mining to detect missing or inaccurate royalty payments and implement its risk-based compliance strategy to ensure proper revenue collections. The revenue and operations program continues to phase-out the royalty-in-kind program (RIK, wherein payments are made in fuel rather than in cash) and replace it with a royalty-in-value program and strengthen the auditing and oversight functions of ONRR. Issues not directly tied to specific funding accounts remain controversial and typically are debated during consideration of the annual Interior appropriations bills. Two issues have been the focus of recent debates: moratoria (areas off limits to leasing), and the audit and compliance program. Oil and gas development moratoria in the OCS along the Atlantic and Pacific coasts, parts of Alaska, and parts of the Gulf of Mexico had been in place since 1982, as a result of public laws and executive orders of the President. On July 14, 2008, President Bush lifted the executive moratoria, which included planning areas along the Atlantic and Pacific coasts. On September 30, 2008, moratoria provisions in annual appropriations laws expired, potentially opening these areas for oil and gas leasing activity. Whether to lift the remaining moratorium in the eastern Gulf of Mexico under the Gulf of Mexico Energy Security Act (GOMESA) remains controversial. This law placed nearly all of the eastern Gulf under a leasing moratorium until 2022, and contained revenue-sharing provisions for selected coastal states. Congressional proposals to lift the moratorium are supported by some as an attempt to increase domestic oil and gas supply. Others favor continuing the moratorium due to concerns about adverse economic and environmental impacts of development, and note that there already are several thousand leases in the central and western parts of the Gulf of Mexico that are unexplored or in development and could potentially yield significant oil and natural gas. The 2010 oil spill in the Gulf of Mexico has been a factor in the debate. On December 1, 2010, the Obama Administration announced its Revised Program (RP) for the remainder of the 2007-2012 OCS Leasing Program. Among other components, the RP eliminates five Alaskan lease sales (sales 209, 212, 214, 217 and 221) that had been contemplated in the current lease program. Further, the Obama Administration, under executive authority, withdrew the North Aleutian Basin Planning Area from oil and gas leasing activity until June 30, 2017. On June 28, 2012, the Administration submitted its proposed final five-year OCS oil and gas leasing program for 2012-2017, which excludes all three Atlantic and all four Pacific Coast planning areas at least through 2017. Three planning areas in Alaska (Cook Inlet, Chukchi, and Beaufort Sea) were included in the program for leasing. There are 15 lease sales included in the new leasing program—12 in the Gulf of Mexico and three in Alaska. Since the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, President Obama has cancelled the August 2010 lease sale (215) and the Mid-Atlantic lease sale (220). The Obama Administration held lease sale 218 in the Western Gulf of Mexico on December 14, 2011. This was the first sale since the oil spill. The final combined OCS sale (sale 216/222) of the 2007-2012 leasing program was held on June 20, 2012. A major challenge confronting ONRR is to ensure that its audit and compliance program is consistently effective. Critics contend that less auditing and more focus on compliance review has led to a less rigorous royalty collection system and thus a loss of revenue to the federal Treasury. DOI's Inspector General and the Government Accountability Office (GAO) have made recommendations to strengthen and improve administrative controls of the compliance and asset management program, including adoption of a risk-based compliance approach. Further, DOI established an independent panel, the Royalty Policy Committee (RPC), to review the Mineral Leasing Program. The RPC offered over 100 recommendations to BOEM and ONRR for improving the leasing program and auditing function. The review included an examination of the RIK program, which grew from 41.5 million barrels of oil equivalent (BOE) in 2004 to 112 million BOE in 2007. GAO issued a report on September 26, 2008, concluding that the RIK Program could be improved. After review of the RIK program, the Secretary of the Interior announced its "phased-in termination." The FY2013 House committee-reported bill, like the Administration's FY2013 request and the FY2012 appropriations law, reflected the Administration's plan to continue phasing out the RIK program. Concerns about the legacy of hazards resulting from decades of coal mining in the United States led to the enactment of the Surface Mining Control and Reclamation Act of 1977 (SMCRA, P.L. 95-87 ). The act authorized the federal government to work with states and tribes to reclaim abandoned coal mines, and regulate active coal mines to minimize environmental impacts during mining and to reclaim affected lands and waters after mining. The act established the Office of Surface Mining Reclamation and Enforcement (commonly referred to as the Office of Surface Mining or OSM) to administer these responsibilities, and created the Abandoned Mine Reclamation Fund to provide a dedicated source of funds for reclaiming abandoned coal mines. The fund is financed by fees on coal production that are used to issue payments to eligible coal production states and tribes for implementing their reclamation programs. Amendments to SMCRA in 2006 authorized these payments as mandatory appropriations, no longer subject to discretionary appropriations. This mandatory funding constitutes the majority of OSM's total budget. Discretionary appropriations fund grants to states for the regulation of active coal mines, and certain activities still administered by OSM that support the reclamation of abandoned mines. The Administration proposed a total budget of $677.8 million for OSM in FY2013, $211.8 million (24%) less than the FY2012 level of $889.6 million. The decrease primarily was attributed to the proposed termination of mandatory payments from the Abandoned Mine Reclamation Fund to "certified" states that have reclaimed their "priority" coal sites, in order to reserve funds for "noncertified" states with unmet coal reclamation needs. The termination of these payments to certified states would be subject to the enactment of authorizing legislation. Subsequently enacted legislation now limits mandatory payments to certified states to $15 million annually, but does not entirely eliminate these payments as the President had proposed. Some Members and affected states had expressed concern about the impacts of the new funding limitation on resources for mine reclamation, and potential effects on the funding formula for certain payments to noncertified states which are linked in part to the amounts that certified states receive. Section 142 of P.L. 112-175 reversed the potential effects on noncertified states but did not repeal the limitation on funding for certified states. For the discretionary appropriations that fund OSM, the House Appropriations Committee recommended $150.1 million for FY2013, $9.5 million (7%) more than the President's request of $140.6 million, but nearly the same as the FY2012 enacted appropriation. The decrease that the President had requested was attributed to a proposed reduction in regulatory grants to states. Table 10 identifies the level of discretionary appropriations for OSM broken out by activity. The following sections discuss funding issues related to the regulation of active coal mines, the existing Abandoned Mine Reclamation Fund, a proposed parallel fund dedicated to the reclamation of abandoned hardrock mines, and the proposed integration of certain OSM functions within BLM. Under Title V of SMCRA, OSM is responsible for developing the regulations for active coal mines and may allow states and tribes to implement these federal regulations within their respective jurisdictions. SMCRA authorizes OSM to approve state and tribal regulatory programs that it determines are sufficient to assume these responsibilities, and to oversee their implementation to ensure the adequacy of environmental protections. States with approved regulatory programs are referred to as "primacy" states. Federal regulatory grants to primacy states may cover up to 50% of the costs that a state or tribe incurs to operate its regulatory program. States or tribes with primacy are responsible for permitting, inspection, and enforcement of OSM's regulations at active coal mines. OSM currently has granted regulatory primacy to 24 states in which coal is produced, while OSM has retained regulatory primacy in two states without approved programs, Tennessee and Washington. To date, there are no tribes with regulatory primacy under SMCRA, and OSM regulates active coal mines on tribal lands. For FY2013, the House Appropriations Committee recommended $122.7 million for OSM's Regulation and Technology account to support the regulation of active coal mines, an increase of $9.7 million above the President's request ($113.1 million), and the same as the FY2012 enacted appropriation. The President had proposed a decrease below FY2012 within this account to reduce federal regulatory grants to primacy states, and to reduce funding for OSM's own regulatory responsibilities in non-primacy states and on tribal lands. The Administration had indicated that its requested reduction for federal regulatory grants was intended to encourage primacy states to increase permit fees collected from mine operators, and that OSM similarly would increase permit fees in non-primacy states and on tribal lands to offset its lower funding level. In its report on H.R. 6091 , the House Appropriations Committee expressed its concern that reducing federal regulatory grants to primacy states could impair their ability to continue their regulatory role, if they were forced to rely more heavily upon increases in permit fees. The committee restored funding for these grants to maintain the level of existing resources and help primacy states avoid the need to raise fees on coal mine operators to pay their regulatory expenses. The Administration had asserted the opposing view that current permit fees are lower for the coal industry than other regulated industries and that increasing coal mining fees would ensure more comparable treatment among industries, while reducing the reliance on federal appropriations to regulate the coal industry. Subsequently, on March 26, 2013, OSM proposed to increase coal mining permit fees on lands within its regulatory jurisdiction. Primacy states would not be required to increase permit fees on lands within their respective jurisdictions, but would have the discretion to do so in a similar manner. With respect to the state regulatory role, the House Appropriations Committee also did not approve the increase that the President had requested within the Regulation and Technology account for increased inspections and enhanced federal oversight of state regulatory programs. The committee expressed that states with primacy under SMCRA should retain the principal role in regulating coal mining operations within their respective jurisdictions, and that enhanced federal oversight beyond the current level was not needed to ensure "the continued implementation of a protective regulatory framework." As originally enacted, Title IV of SMCRA established the Abandoned Mine Reclamation Fund to support the reclamation of lands and waters affected by coal mining and processing that were abandoned and left unreclaimed prior to the enactment of the statute on August 3, 1977, and for which there is no continuing reclamation responsibility under other federal or state laws. The fund is financed by a per-ton fee assessed on the production of coal in the United States. States and tribes with lands on which coal is mined are eligible for payments from the fund to support the reclamation of abandoned coal mines located within their respective jurisdictions. A total of 25 coal production states and three tribes are currently eligible. The 2006 amendments to SMCRA reauthorized the collection of coal production fees through FY2021. Beginning in FY2008, the amendments authorized state and tribal payments from the Abandoned Mine Reclamation Fund as mandatory appropriations. The amendments also altered the formula for disbursing these funds to states and tribes to base the disbursements on coal production. Mandatory payments also were authorized to support three United Mine Workers of America retiree health benefit plans. The activities that continue to rely on discretionary appropriations from the Abandoned Mine Reclamation Fund are limited to those administered by OSM, not implemented by states and tribes. These activities currently include the evaluation of state and tribal reclamation programs, technical assistance to states and tribes to enhance their reclamation programs, the management of coal production fees that finance the fund, and federal watershed restoration projects at historic coal sites that are not administered through the state programs. The House Appropriations Committee recommended $27.4 million for these activities for FY2013, essentially level with FY2012 and slightly lower than the President's FY2013 request ($27.5 million). The 2006 amendments were driven by concerns about fee collections surpassing discretionary appropriations for a number of years, and the contention among western states that they were bearing a disproportionate share of the reclamation expense because coal production had moved westward over time, whereas the majority of the abandoned coal mines in need of reclamation are located in eastern states. To address the disbursements of prior collections of fees that had accumulated when the fund was subject to discretionary appropriations, the 2006 amendments authorized a series of mandatory payments to states and tribes from the General Fund of the U.S. Treasury. In total, these payments are to be equivalent to the balance of prior collections that had not been appropriated as of the beginning of FY2008. The payments are to be made in seven annual installments through FY2014. The 2006 amendments also established a process for OSM to "certify" states and tribes that have reclaimed all of their priority coal sites. Certified states and tribes may use their payments for the reclamation of other types of mining sites and other purposes. Four states and three tribes are currently certified. Certified states and tribes receive their share of current reclamation fees through equivalent Treasury payments that are made in lieu of disbursements from the Abandoned Mine Reclamation Fund, which is now reserved for payments to noncertified states. Certified states and tribes may use their in lieu Treasury payments of current fees for the reclamation of other mineral mining or processing sites, and their in lieu Treasury payments of pre-FY2008 balances for any purposes approved by their state legislatures or tribal councils (but the impacts of mineral development are to receive priority). The President's FY2013 budget request included a legislative proposal to terminate reclamation payments to certified states and tribes to reserve the funds for priority coal sites that are not reclaimed in other states. The Administration included similar proposals in its FY2012 and FY2011 budget requests, which were not enacted. The House Appropriations Committee specified discretionary appropriations for reclamation for FY2013 but did not address the President's proposal to terminate these payments. Certified states and tribes have opposed the termination of their reclamation payments, which would make coal production fees collected on their lands unavailable to them for the reclamation of other types of abandoned mines (especially hardrock mines) and other purposes. As noted earlier, Section 100125 of P.L. 112-141 did not terminate these payments but amended the funding formula to limit them to $15 million annually. The President's FY2013 budget proposal also would cease the allocation of coal production fees to noncertified states and tribes based on production, and instead would award the funds through a competitive grant process to focus on the most hazardous sites, which would be subject to the enactment of authorizing legislation. This proposal would reverse aspects of the 2006 amendments that were intended to ensure that each coal production state and tribe received a certain portion of the fees collected on its lands and could use the funds for other purposes once its priority coal sites were reclaimed. In conjunction with the Administration's proposal to focus the use of coal production fees on the reclamation of abandoned coal mines, the President's FY2013 budget request included a related legislative proposal to establish a fund dedicated to the reclamation of abandoned hardrock mines, which would be subject to the enactment of authorizing legislation. A similar proposal was included in the FY2012 budget request. The FY2013 proposal would have entailed levying fees on the production of uranium and metallic hardock minerals in the United States beginning on January 1, 2013. The fees would be used to finance a Hardrock Abandoned Mine Reclamation Fund. BLM would be responsible for administering this fund and would award reclamation grants on a competitive basis, with priority based on the severity of the hazards. Abandoned hardrock mines on both public and private lands would be eligible. The Administration estimated that the hardrock reclamation fees would generate a total of $1.8 billion in receipts from FY2014 through FY2022. OSM would not administer this fund, but possibly would provide some supporting services through the proposed integration of certain functions within BLM. However, the House Appropriations Committee opposed this integration in its report on H.R. 6091 , discussed below. The Administration has stated that the proposed fund is intended to hold the hardrock mining industry responsible for the reclamation of abandoned hardrock mines, just as the coal mining industry currently is held responsible for the reclamation of abandoned coal mines. There also has been some concern that the lack of a dedicated fund for hardrock mines has increased the reliance on EPA Superfund appropriations to address abandoned sites. Opponents of the proposal have expressed concerns about the potential impacts of the costs on the domestic hardrock mining industry, associated employment, and competitiveness with foreign minerals production. The Administration has been considering the consolidation of certain support functions of OSM and BLM that serve parallel purposes, while maintaining the independence of these agencies with respect to their separate statutory responsibilities. The House Appropriations Committee directed that no additional funds be spent on studies to merge their respective functions and stated its position that "the proposal offers little administrative savings when attempting to combine functions of two statutorily created agencies." Conferees on the FY2012 appropriations bill also had expressed concern about the proposed integration. On October 26, 2011, the Secretary of the Interior had issued an order to integrate OSM within BLM, which was to have become effective on December 1, 2011. The order had directed OSM and BLM to develop a schedule by March 1, 2012, for implementation. It outlined the integration of revenue collections, reclamation of abandoned mine lands, regulation of active mines, and certain administrative support functions. On November 28, 2011, the Secretary issued a second order suspending the effective date and directing OSM and BLM to prepare recommendations for the Secretary by February 15, 2012, to address congressional and stakeholder concerns. OSM and BLM issued their recommendations to the Secretary in a report released on February 15, 2012. The report recommended the consolidation of certain support functions, while maintaining the independence of OSM and BLM. It did not propose an effective date for the consolidation of support functions, but instead had recommended that the Secretary issue a new order to develop plans for implementation. The Secretary issued a new order on April 13, 2012, directing the consolidation of certain support functions and resources of BLM, OSM, and certain other Interior offices to gain efficiencies among similar functions, while keeping these agencies and offices intact as separate entities. The Bureau of Indian Affairs (BIA) provides and funds 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, roads, economic development, employment assistance, housing repair, irrigation, dams, Indian rights protection, implementation of land and water settlements, and management of trust assets (real estate and natural resources). Education programs are provided or funded by the Bureau of Indian Education (BIE), a sister bureau to BIA. For FY2013, the bill reported by the House Appropriations Committee contained $2.57 billion for the BIA and BIE. This was $41.4 million (1.6%) above the Administration's request for FY2013 ($2.53 billion) and $36.8 million (1.5%) above the FY2012 appropriation ($2.53 billion). In its report, the committee expressed that increased funding reflected an intention "to meaningfully address programs and policies that empower and improve the lives of American Indians and Alaska Natives." Table 11 identifies funding for BIA and BIE accounts. Selected topics and programs related to the BIA and BIE are discussed below. Since enactment of the Indian Self-Determination and Education Assistance Act (ISDEAA; P.L. 93-638 ), the adequacy of contract support costs has been a major issue for Congress, the BIA, and tribes. Under the ISDEAA, tribes contract with the DOI so they can provide services that the federal government otherwise would have provided. ISDEAA requires the DOI to enter contracts with all qualifying tribes and also to pay full contract support costs. Contract support costs are used by tribes to cover the expenses of administering their self-determination contracts and self-governance compacts. Appropriations have been insufficient to pay the full contract support costs of every tribe. Accordingly, the DOI was paying contract support costs on a pro rata basis. In June 2012, the U.S. Supreme Court ruled that when Congress appropriates contract support costs on a lump sum basis, tribes are entitled to receive the full amount of reasonable and allowable federal funds for their contract support costs. The Supreme Court pointed out that Congress has several options: it could amend ISDEAA to relieve the DOI of the obligation to enter contracts with all qualifying tribes or the obligation to pay full contract support costs; it could appropriate contract support costs on a contractor-by-contractor basis; or it could appropriate enough funds to cover the aggregate amount of contract support costs of all tribes. For FY2013, the bill reported by the House Appropriations Committee contained $228.0 million for contract support. This was the same amount the Administration had requested for FY2013 and $8.8 million more than the FY2012 appropriation of $219.2 million. The $8.8 million increase is equal to the BIA's estimated FY2011 contract support cost shortfall; however, the FY2012 estimated shortfall is $17.1 million. The House Appropriations Committee directed the BIA to improve the transparency of current year contract support cost information and to report back to the committee within 90 days of enactment of the bill. The federal government has primary jurisdiction over major criminal offenses on most Indian reservations, while tribes share jurisdiction but with limited sentencing options. The BIA funds most law enforcement, jails, and courts in Indian country, whether operated by tribes or by the BIA. Currently, BIA supports 187 law enforcement agencies (of which 151 are operated by tribes), 93 detention programs (of which 73 are tribally operated), and 288 court systems (of which 185 are operated under self-determination contracts). The sufficiency of funding for public safety and justice has been under consideration in Congress. In general, tribes and the BIA have fewer law enforcement resources than comparable state and local jurisdictions. The National Congress of American Indians (NCAI) has reported that tribal law enforcement agencies are understaffed when compared to other law enforcement agencies. In policing, for instance, a 2006 analysis showed that there were 2,555 law enforcement officers in Indian Country, but that 4,409 were needed to provide adequate services to tribal residents. The NCAI also reported that even though tribal law enforcement agencies provide services for 1% of the country's population and patrol nearly 2% of the country's square mileage, tribal law enforcement officers only account for 0.004% of all law enforcement officers in the United States. Further, detention and corrections facilities funded by the BIA had significant shortfalls in staffing, training, operating procedures, reporting, and maintenance, according to a 2004 Interior Inspector General report. According to the BIA, while the agency has taken steps to remedy the deficiencies noted in the Inspector General's report, detention facilities remain understaffed by a total of 373 positions (74 Indian Affairs and 299 tribally funded positions). The BIA also asserts that there will be a need for 186 new positions to staff five new or expanded detention facilities that are expected to become operational by the end of FY2013. The Tribal Law and Order Act (TLOA) placed new responsibilities on the BIA's Office of Justice Services. According to BIA, the act will have a "significant impact on tribal courts, law enforcement, and detention centers." The act allows tribal courts to give extended jail sentences to tribal citizens convicted of crimes under tribal codes. The act also requires the BIA to develop guidelines for approving correctional centers for long-term incarceration and a long-term plan for the construction, maintenance, and operation of tribal detention centers. The ability of tribal courts to hand down longer sentences under the TLOA could prompt a need for additional court capacity, such as staff or equipment. Longer sentences for tribal offenders could also result in a need for increased detention capacity, either through construction of new facilities or contracting for bedspace with local jails. The Administration requested $353.9 million for Public Safety and Justice, $7.7 million more than the FY2012 appropriation of $346.2 million. The additional funding was to be used for hiring tribal and bureau law enforcement personnel and staff for newly constructed tribal and bureau detention centers, as well as enhancing the capacity of tribal courts so they can handle an expected caseload increase resulting from the enforcement of the TLOA. The House Committee recommended higher funding still—$361.9 million for Public Safety and Justice. This was $8.0 million more than the request, composed of an additional $7.4 million for law enforcement and $0.6 million for tribal courts. In total, the committee-reported level would have been $15.7 million more than the FY2012 appropriation. The BIE funds an elementary and secondary school system, institutions of higher education (IHEs), and other educational programs. The BIE-funded elementary and secondary school system serves approximately 41,000 students in 183 schools and residential facilities (of which 125 are tribally operated). The BIE operates two IHEs and provides funding support to 29 tribally controlled IHEs. The BIE also funds early childhood and adult education programs, postsecondary scholarships, and education programs for Indian children in public schools. For FY2013, the bill reported by the House Appropriations Committee contained $810.1 million for the BIE, within the Operation of Indian Programs account. This was $14.0 million more than the Administration had requested for FY2013 ($796.1 million) and $14.6 million more than the FY2012 appropriation ($795.5 million). The committee-reported bill included one major program increase compared to the Administration's request. Tribal grant support costs, which cover administrative and indirect costs at the 125 tribally operated schools and residential facilities, would have received $61.2 million, $13.0 million over the Administration's request for FY2013 ($48.3 million) and $15.0 million more than the FY2012 appropriation ($46.3 million). The Administration's request would have funded approximately 65% of the funding needed as defined by the statutory formula, compared to approximately 62% in the 2012-2013 school year. The committee expressed that the $13.0 million over the request would provide half of the projected shortfall. The bill reported by the House Appropriations Committee maintained the Administration's requested increase for postsecondary education and decrease for education management: IHEs funded under Title I and Title II of the Tribally Controlled Colleges and Universities Assistance Act would have received an increase of $2.5 million compared to the FY2012 appropriation, for a total of $69.8 million. From the 2008-09 school year to the 2010-2011 school year, the 12-month full-time equivalent enrollment in these colleges has increased 15%, including the addition of Keweenaw Bay Ojibwa Community College in FY2012. BIE education program management would have decreased $3.5 million to $18.4 million compared to the FY2012 appropriation ($22.0 million). BIE education program management costs include information technology costs and the separation costs of BIE employees when BIE-operated schools are converted to tribally operated schools. The BIE plans to reduce its workforce and streamline service delivery on the basis of tribal consultations and a third-party study of its operations and organization originally scheduled for completion in June 2012. With respect to BIE administration, language in the House Appropriations Committee's report reiterated direction from FY2012 that the BIE, in coordination with the U.S. Department of Education, count the number of students eligible for (participating in) the Johnson O'Malley (JOM) program and report to the committee thereon. The JOM program provides supplementary financial assistance, through contracts, to meet the unique and specialized educational needs of eligible Indian students in public schools and nonsectarian private schools. JOM funds are distributed by a formula based on a count of Indian students and average per-pupil operating costs. Student counts have been effectively frozen since FY1995. As a result of the 1995 freeze, the BIE no longer systematically collects data about the students served by projects. The freeze allows pre-1995 contractors to receive funding based on their 1995 student count regardless of the number of students actually served. The freeze included each tribe's 1995 JOM allocation into its base funding tribal priority allocation (TPA). TPA allows tribes flexibility in the management and use of funds for various programs and services. Tribes that receive JOM funding through TPA are dependent on this as a fairly stable source of funding. For FY2013, the bill reported by the House Appropriations Committee contained $117.1 million for BIA construction activities. This was $11.2 million more than the Administration had requested for FY2013 ($105.9 million) and $6.5 million less than the FY2012 appropriation ($123.6 million). Of the $117.1 million, education would have received $62.1 million, public safety and justice, $11.3 million; and resource management, $32.7 million. Through the education construction program, the BIA replaces, repairs, and improves facilities in the BIE elementary and secondary school system, including employee housing, to ensure safety and functionality. The $62.1 million for education included $9.2 million for replacement school construction to complete the next project on the 2004 priority list. The House Appropriations Committee urged the BIE to publish a new replacement school construction priority list. OIA provides financial assistance to four insular areas—American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands (USVI)—as well as three freely associated states in the Western Pacific—the Federated States of Micronesia (FSM), the Republic of the Marshall Islands (RMI), and the Republic of Palau. OIA staff manage relations between each jurisdiction and the federal government and work to build the fiscal and administrative capacities of local governments. OIA aid can be particularly important for addressing ongoing financial challenges among territorial governments, particularly amid the decline of the tuna and garment industries, respectively, in American Samoa and the CNMI. OIA funds also have supported various infrastructure projects in preparation for the military buildup on Guam. Each of the territorial governments, however, faces economic challenges, complicated by delicate natural resources, generally decreasing population, and limited land. OIA funding consists of two parts: (1) permanent and indefinite (mandatory) appropriations, and (2) funds provided in the annual appropriations process (discretionary funds). The latter come from two accounts: Assistance to Territories (AT) and Compact of Free Association (CFA). AT funding provides grants for the operation of the government of American Samoa, infrastructure improvement projects on many of the insular area islands, and specified natural resource initiatives. The CFA account provides federal assistance to the freely associated states pursuant to compact agreements negotiated with the U.S. government. The AT and CFA accounts, however, provide a relatively small portion of the office's overall budget; permanent and indefinite funds provide the bulk of U.S. financial assistance to U.S. insular areas, FSM, RMI, and Palau. The total OIA request (including permanent and indefinite appropriations) for FY2013 was $575.3 million. Of that amount, $487.3 million (85%) is required through statutes, as follows: an estimated $239.3 million under conditions set forth in the respective Compacts of Free Association; and an estimated $248.0 million in fiscal assistance for Guam and the U.S. Virgin Islands through fiscal payments. Discretionary and current mandatory funds in the AT and CFA accounts require annual appropriations that constitute the remaining $88.0 million (15%) of the OIA budget request. For FY2013, the House Appropriations Committee recommended an appropriation of $83.3 million, $22.0 million (21%) less than the FY2012 level ($105.2 million) and $4.7 million (5%) less than the Administration's request of $88.0 million. Of the total, the committee approved $79.9 million in AT funding, $8.0 million less than the FY2012 level ($87.9 million) and $5.0 million less than the FY2013 request ($84.9 million). AT funding would provide various technical assistance to territories, for instance, grants supporting local governments and infrastructure projects. For the CFA account, the committee recommended $3.3 million, $14.0 million less than the $17.3 appropriated in FY2012 and $0.2 million more than the $3.1 million the Administration requested. The change proposed by the committee and the Administration for FY2013 would be, in fact, a return to typical CFA funding levels. OIA provided additional funds in FY2012 (and FY2011) in lieu of a renegotiated compact agreement with Palau. The FY2013 budget assumed that a recently renegotiated agreement will be approved during FY2013. Congress could, however, choose not to approve the renegotiated compact, in which case additional funds might be pursued. EPA's primary responsibilities include the implementation of federal statutes regulating air quality, water quality, pesticides, toxic substances, the management and disposal of solid and hazardous wastes, and the cleanup of environmental contamination. EPA also awards grants to assist states and local governments in implementing federal law and in complying with federal requirements to control pollution. For FY2013, H.R. 6091 as reported by the House Appropriations Committee included a total of $7.06 billion for EPA, $1.29 billion (15.5%) less than the President's FY2013 request of $8.34 billion, and $1.39 billion (16.5%) less than the FY2012 enacted appropriation of $8.45 billion. Table 12 presents the FY2013 amounts for EPA reported by the House Appropriations Committee compared to the President's FY2013 budget request and appropriations enacted for FY2012 within the eight accounts that fund the agency. As indicated in Table 12 and discussed below, the House Appropriations Committee approved an overall decrease for EPA below the President's FY2013 request and the FY2012 enacted level. The decrease was due largely to proposed reductions for four of EPA's eight accounts: the State and Tribal Assistance Grants (STAG), Environmental Programs and Management (EPM), Science and Technology (S&T), and the Hazardous Substance Superfund accounts. The reduction for grants to aid states to capitalize their Clean Water State Revolving Funds (SRFs) within the STAG account constituted the largest single portion of the overall proposed reduction. The Drinking Water SRF also would have been reduced, although the magnitude of decrease was smaller. Funding in the committee-reported bill for the Leaking Underground Storage Tank Trust Fund (LUST) account was the same as the FY2012 appropriation and FY2013 request, while the committee-reported amounts for the remaining three EPA accounts were below the FY2013 request but roughly the same as the FY2012 levels. The committee-reported bill included a variety of decreases and increases in funding for many of the individual programs and activities funded within the eight appropriations accounts. The following sections highlight issues associated with certain accounts and programs that were prominent in the debate on EPA's FY2013 appropriations. Much of the attention on EPA's appropriations for FY2013 focused on federal financial assistance for wastewater and drinking water infrastructure projects; funding for implementation and research support for air pollution control requirements, including climate change and greenhouse gas emissions; and funding for the cleanup of contamination at Superfund and Brownfields sites. Also, a number of recent and pending EPA regulatory actions under several pollution control statutes implemented by the agency that were central to the debates on EPA's FY2011 and FY2012 appropriations were also prominent in the debate regarding FY2013 appropriations. The House Appropriations Committee bill as reported included provisions proposed by the Subcommittee as well as amendments added during full-committee markup that would have restricted or prohibited the use of FY2013 funds by EPA for implementing or proceeding with a number of regulatory actions. Amendments to remove several of the EPA provisions during full-committee markup were defeated. The provisions and amendments would have impacted ongoing and anticipated EPA actions including those addressing greenhouse gas emissions, hazardous air pollutants, particulate matter emissions, permitting of new source air emissions, water quality impacts of mountaintop mining operations, management of coal ash, lead-based paint removal, environmental impacts associated with livestock operations, financial responsibility assurance with respect to Superfund cleanup, regulation of stormwater discharges, and EPA's consideration of requiring permits for point source discharges of pesticides into U.S. waters. Many of these EPA actions were the subject of authorizing committees hearings and proposed legislation. The overall decrease for FY2013 included in the House committee-reported bill below the President's FY2013 request and FY2012 enacted appropriations was largely due to the proposed reduction in EPA's STAG account for SRF capitalization grants. The amount approved by the House Appropriations Committee for these grants represents almost one-fifth of the EPA total recommended for FY2013, whereas the FY2011 and FY2012 appropriations for these grants were about one-fourth of the EPA total. The House Committee approved $1.52 billion combined for the Clean Water and the Drinking Water SRFs for FY2013, a $507.0 million decrease compared to $2.03 billion in the President's FY2013 request and a $866.3 million decrease compared to $2.38 billion enacted for FY2012. The Clean Water SRF supports municipal wastewater infrastructure projects, such as constructing or upgrading sewage treatment plants needed to comply with the Clean Water Act. The Drinking Water SRF supports drinking water infrastructure projects to facilitate compliance with the Safe Drinking Water Act (SDWA) and to meet the act's health goals. EPA awards SRF capitalization grants to states and territories based on formulas. As shown in Table 12 , the committee-reported bill included $689.0 million for the Clean Water SRF capitalization grants for FY2013, $486.0 million (41%) below the President's FY2013 request of $1.18 billion and $777.5 million (53%) below the FY2012 enacted level of $1.47 billion. The $829.0 million for the Drinking Water SRF capitalization grants in the House committee-reported bill was also less than the FY2013 requested and FY2012 enacted levels, but the magnitude of decrease was significantly smaller. The FY2013 committee-recommended amounts for both SRF programs were the same as the FY2008 enacted levels. While the House Committee expressed its recognition of the importance of the Clean Water and Safe Drinking Water SRFs to the states, they noted that these accounts received a combined additional $6.00 billion in the American Recovery and Reinvestment Act (ARRA) of 2009 ( P.L. 111-5 ), and a "130 percent increase" in FY2010 over FY2008 and FY2009 regular appropriations or "the equivalent of six years' worth of appropriations in one calendar year." The House Committee further asserted that funding these accounts through regular appropriations is unsustainable, and encouraged the appropriate authorizing committees to examine funding mechanisms for the SRFs that are sustainable in the long term. How to meet these water infrastructure needs has been an ongoing issue within Congress. The debate has centered on the extent of federal assistance that still may be needed to help states maintain sufficient capital in their SRFs to meet local water infrastructure needs. Capital needs for water infrastructure, as demonstrated in EPA-state surveys, remain high. Some advocates of a prominent federal role have cited estimates of hundreds of billions of dollars in long-term needs among communities, and the expansion of federal water quality requirements over time, as reasons for maintaining or increasing the level of federal assistance. Others have called for more self-reliance among state and local governments in meeting water infrastructure needs within their respective jurisdictions, and contend that reductions in federal funding for SRFs are in keeping with the need to address the overall federal deficit and federal spending concerns. Congress's consideration of FY2013 appropriations for EPA also focused extensively on the agency's regulation of greenhouse gas (GHG) emissions under the Clean Air Act (CAA) and several other recently proposed or promulgated EPA actions under the CAA, including those addressing hazardous air pollutants (including mercury), particulate matter emissions and other ambient air quality pollutants, and livestock operation air emissions. The House committee-reported bill included a number of general provisions addressing EPA's use of FY2013 funds for the development, implementation, or enforcement of CAA regulatory actions. Some of these provisions were similar to general provisions included in the FY2012 Interior appropriations law ( P.L. 112-74 ), and proposed during deliberations on the FY2011 EPA appropriations. The impacts of several of these CAA actions on various sectors of the economy also were topics of multiple hearings and proposed legislation before authorizing committees. In its report, the House Committee expressed skepticism with regard to the repackaging of existing program activities and funding new ones as "climate change" programs, noting that in the Interior, Environment, and Related Agencies appropriations alone, funding for programs identified as "climate change" nearly doubled from $192.0 million to $372.0 million between FY2008 and FY2011. Citing its concern with the number of new, seemingly duplicative programs and a lack of effective coordination and communication of climate change activities, budgets, and accomplishments across the federal government, the House Committee proposed cutting climate change funding by 29% in H.R. 6091 as reported. Similar to the FY2012 appropriations, the House committee-reported bill included a general provision that would have required the President to submit a comprehensive report to the House and Senate Appropriations Committees detailing all federal (including EPA) obligations and expenditures, domestic and international, for climate change programs and activities by agency for FY2012. EPA is one of 17 federal agencies that have received appropriations for climate change activities in recent fiscal years. EPA's share of this funding is relatively small, but EPA's policy and regulatory roles are proportionately larger than other federal agencies and departments. Issues that have emerged within the context of appropriations include (1) how different agency programs may be complementary or duplicative, (2) how these programs may together constitute an effective strategy to achieve U.S. objectives, and (3) whether there are gaps or opportunities for efficiencies that may be addressed. Appropriated funds for EPA's climate change and air quality actions are distributed across several program activities under multiple appropriations accounts. Because of variability in these activities and modifications to account structures from year to year, it is difficult to compare the overall combined funding included in appropriations bills with the President's request and prior year enacted appropriations. However, comparisons can be made among certain activities for which Congress does specify a line-item in the appropriations process. For example, the House committee-reported bill would have provided a total of $372.5 million for FY2013 within the EPM and the S&T accounts for EPA "clean air and climate" programs, compared to the President's FY2013 request of $440.3 million, and the FY2012 appropriation of $410.5 million. Also within the S&T account, the House committee-reported bill included $95.0 million for "Research: Air, Climate, and Energy" for FY2013, compared to the FY2013 request of $105.9 million and the FY2012 enacted level of $98.8 million. Under the STAG account, the House committee-reported bill included $200.7 million for State and Local Air Quality Management grants, $100.8 million less than the FY2013 request of $301.5 million and $35.0 million less than the FY2012 enacted level of $235.7 million. The House Committee expressed, in report language, that no funds within this line item would be provided for greenhouse gas (GHG) permitting grants, or for the GHG reporting rule within this program activity. Also within the STAG account, the House Committee included $30.0 million for the Diesel Emission Reduction Grants program for FY2013, $15.0 million more than the FY2013 request and roughly the same as FY2012, and would have funded state indoor radon (categorical) grants at the FY2012 level of $8.0 million. The FY2013 request proposed eliminating the radon categorical grant program on the grounds that states had the necessary technical expertise and program funding in place to continue radon protection efforts without federal funding. The Hazardous Substance Superfund account (or Superfund account) supports the assessment and cleanup of sites contaminated from the release of hazardous substances. EPA administers these activities under the Superfund program, as authorized in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). As indicated in Table 12 , the House committee-reported bill would have provided a total of $1.16 billion for the Superfund account in FY2013, $11.5 million less than the FY2013 request of $1.18 billion and $48.9 million less than the FY2012 appropriation of $1.21 billion. Funding levels for the Superfund account had averaged approximately $1.25 billion over the prior decade (not accounting for inflation), with the exception of $600.0 million in supplemental funds provided for FY2009 in P.L. 111-5 . Debate over the sufficiency of funding for the Superfund program has centered primarily on the pace and adequacy of cleanup. Most of the funding within the Superfund account is allocated to the cleanup of sites that EPA has placed on the National Priorities List (NPL). The House Appropriations Committee recommended $546.8 million in FY2013 for the performance of "remedial" actions at these sites. These actions are the central element of CERCLA that are intended to address long-term risks to human health and the environment. The committee's recommendation was a $15.0 million increase above the President's FY2013 request of $531.8 million but $18.2 million less than the FY2012 appropriation of $565.0 million. The House Appropriations Committee recommended $188.5 million for Superfund "emergency response and removal" actions, the same as the President requested and $1.1 million less than the FY2012 appropriation of $189.6 million. These actions are shorter-term measures that are intended to address more immediate hazards. The remainder of the Superfund account funds EPA's research of cleanup technologies, independent evaluation of the program by the EPA Office of Inspector General, homeland security activities related to hazardous substance incidents, various activities that support cleanup efforts, oversight of federal facility cleanups, and enforcement of cleanup liability. The enforcement of liability is a core tenet of CERCLA to ensure that the responsible parties pay for the cleanup whenever possible, so as to reserve Superfund appropriations for abandoned sites at which there are no viable responsible parties to pursue. The adequacy of resources to enforce liability and reduce the burden of cleanup costs on the taxpayer has been a long-standing issue. The House Appropriations Committee recommended $169.4 million in FY2013 for Superfund enforcement, a decrease of $15.0 million below the President's request of $184.4 million and of $17.3 million below the FY2012 appropriation of $186.7 million. Some Members, states, and communities have expressed concerns that budgetary constraints could jeopardize the availability of funding for ongoing remediation at some Superfund sites. The President's FY2013 budget request indicated that reduced funding would be prioritized for on-going remedial projects and that no new remedial projects would be started with federal funds. The increase for remedial projects that the House Appropriations Committee recommended above the President's request would have provided additional resources, although less than enacted for FY2012. EPA also could still begin new remedial projects in FY2013 at sites financed with private settlement funds paid to EPA from the responsible parties, or at sites directly led by the responsible parties with EPA oversight. Approximately 70% of the sites on the NPL are financed by the responsible parties and do not rely upon Superfund appropriations to ensure the performance of the cleanup. In addition to specifying funding, the House Appropriations Committee provided direction to EPA regarding particular elements of the Superfund program. Among them, the committee-reported bill would have prohibited EPA from using any funds in the bill to proceed with its development or implementation of financial responsibility requirements for those who may release hazardous substances. In its report, the committee elaborated that no funding would be provided until the agency completed an analysis of the capacity of the financial and credit markets to provide the necessary assurances for industry to demonstrate financial responsibility. Although the lack of these requirements has been a long-standing issue among those concerned about the capability of potentially responsible parties to satisfy their cleanup liability if contamination were to occur, the committee noted its concern that proceeding with new financial responsibility requirements under current economic conditions may impose an undue burden on industry. The committee also directed EPA to submit a report on the "practical and legal implications" of re-prioritizing private settlement funds deposited in Superfund Special Accounts, and to continue to report annually on the use of Superfund Alternative Approach agreements under which the responsible parties pay for the cleanup of specific sites. Concerns about the financial capability of responsible parties to pay for the cleanup of contamination also have been at the center of the long-standing debate as to whether Superfund taxes on industry should be reinstated to help support the Hazardous Substance Superfund Trust Fund. Congress appropriates monies from this trust fund to finance EPA's Superfund program. The President's FY2013 budget request included a proposal to reinstate Superfund taxes beginning in 2013 and ending in 2022. Historically, these taxes provided most of the revenues for the trust fund until the taxing authority expired at the end of 1995. As the remaining revenues were expended over time, Congress increased the portion of revenues from the General Fund of the U.S. Treasury to help compensate for the loss in revenues from the expired industry taxes. General revenues now constitute most, but not all, of the revenues for the trust fund. The reinstatement of Superfund taxes would be subject to reauthorizing legislation. The adequacy of funding for the cleanup of brownfields that are not addressed under the Superfund program also has been an issue. Brownfields generally are lower risk sites where the known or suspected presence of contamination may present an impediment to economic redevelopment. EPA's Brownfields program awards competitive grants to state and local governmental entities for the assessment and cleanup of individual sites, and formula grants to help states enhance their own cleanup programs. These grants are funded within the STAG account. EPA's expenses to administer the program are funded separately within the EPM account. The House Appropriations Committee recommended a total of $131.2 million within these two accounts for EPA's Brownfields program in FY2013, a decrease below the President's request of $166.5 million and the FY2012 appropriation of $167.8 million, continuing an overall trend downward since FY2009. The committee's proposed decrease for FY2013 is attributed to a reduction for competitive grants of 36% below the President's request and of 37% below the FY2012 appropriation. The committee noted its support for "the continued work of the Brownfields program, but at a reduced rate." The Forest Service (FS) manages 193 million acres of national forests, national grasslands, and a tallgrass prairie in 44 states and the Commonwealth of Puerto Rico; provides technical and financial assistance to states, tribes, and private forest landowners; and conducts research on sustaining forest resources for future generations. The FY2013 bill reported by the House Appropriations Committee contained $4.68 billion for the Forest Service. This was $86.0 million (2%) more than the FY2012 appropriation ($4.59 billion) and $169.2 million (3%) less than the Administration requested for FY2013 ($4.85 billion). The committee expressed that active forest management was the priority in its recommendations due to concerns about the health of national forests. The committee's report contained various directives. For instance, the committee directed the U.S. Department of Agriculture (USDA) to award a grant or contract to the National Academy of Public Administration to conduct an in-depth review of the USDA Administrative Solutions Services Project as it affects the FS. The committee also directed the FS to examine the amount of personnel and resources in offices to identify duplicative functions, and to include its findings and recommendations in the FY2014 budget request. The committee-reported bill also contained directives to the FS. For example, it required the FS to submit a formal request to the Council on Environmental Quality (CEQ) for authorization to use "alternative arrangements" for compliance with the National Environmental Policy Act (NEPA) for post-fire restoration and rehabilitation activities pertaining to large-scale wildfires on National Forest System land that burned more than 250,000 acres in 2011 or 2012 if a formal request was not previously made. There is an existing authority for the FS to contact CEQ for "alternative arrangements" to comply with NEPA under circumstances deemed an "emergency. Pursuant to the existing CEQ regulations, the Forest Service is not required to obtain CEQ "authorization" before pursuing alternative arrangements for complying with NEPA. Instead, the agency could consult with CEQ to determine the most appropriate arrangements to take the place of the normal NEPA compliance process and implement those arrangements in cooperation with CEQ. As shown in Table 13 , FS appropriations are provided in several major accounts: Forest and Rangeland Research (R&D); State and Private Forestry (S&PF); National Forest System (NFS); Capital Improvement and Maintenance (CIM); Land Acquisition; Wildland Fire Management (WFM); and Other. Wildland Fire Management, nearly half of the FS budget request, is discussed with DOI Wildland Fire Management in the "Cross-Cutting Topics" section at the end of this report. Seven research program areas are contained within the Forest and Rangeland Research account—wildland fire and fuels; invasive species; recreation; resource management and use; water, air, and soil; wildlife and fish; inventory and monitoring—along with forest inventory and analysis. This account received an overall decrease under the committee-reported bill. Specifically, the committee provided $247.8 million for Forest and Rangeland Research, $45.0 million less than the FY2013 Administration's request ($292.8 million) and $47.5 million less than the FY2012 level ($295.3 million). The committee expressed "deep concern" about the Forest and Rangeland Research program on the grounds that "many research stations have fixed costs that exceed 90 percent of their budget with no long-term plan to remedy this problem." The committee also asserted a lack of coordination among research stations, national forests, regional offices, and FS headquarters. State and Private Forestry (S&PF) programs provide financial and technical assistance to states and to private forest owners. The bill reported by the House Appropriations Committee contained $183.0 million for S&PF programs. This was $67.7 million less than the Administration had requested ($250.7 million) and $69.9 million less than the FY2012 level ($252.9 million). The decrease in funding for the S&PF programs is mostly attributable to a decrease for the Forest Legacy Program, and shifting the cooperative fire protection programs (e.g., state fire assistance, and volunteer fire assistance) to be funded under the Wildland Fire Management account state fire assistance and volunteer fire assistance line items. The committee supported the Administration's request to consolidate funding for forest health management in the State and Private Forestry account. Funding for forest health management (e.g., federal lands and cooperative lands) was transferred from the Wildland Fire Management account to the federal lands forest health management program in the State and Private Forestry account. The committee approved funding at $112.0 million, as requested by the Administration, an increase of $24.6 million over FY2012. The committee also supported a new line item in this account—landscape scale restoration—with $16.0 million. This was $2.0 million less than the Administration's request. Funds for landscape scale restoration are to be used to restore the health and resiliency of forests and communities in priority areas identified by states through competitive projects. The committee-reported bill also contained $6.0 million for international forestry, a $2.0 million decrease from FY2012 ($8.0 million) but a $2.1 million increase over the Administration's request ($3.9 million). For FY2013, the bill reported by the House Appropriations Committee contained $1.50 billion for the National Forest System (NFS), which was $128.1 million less than the Administration request ($1.62 billion) and $58.7 million less than the FY2012 enacted level ($1.55 billion). The committee did not approve the Administration's request for a major restructuring of the NFS account, similar to requests made in FY2011 and FY2012. However, the committee did approve the continuation of the restructuring proof of concept pilot established in FY2012. A major change in the committee bill versus FY2012 was the elimination of funding for FS planning, which was funded at $39.9 million in FY2012. The committee expressed "significant concerns" about the implementation and cost of the recently revised planning rule. The committee stated a belief that "the Forest Service has ignored the direction of Congress embodied in the National Forest Management Act" and that the "rule places too many conflicting requirements on forest plans and will likely lead to increased litigation." Also, a provision of the committee-reported bill will allow the FS to use the 1982 planning rule procedures for revised plans in place of the 2012 planning rule. Among other noteworthy items in the committee-reported bill are provisions related to travel management plans and forest products. The bill would have prohibited the implementation of travel management plans in California until the FS completes additional analysis to include more routes. The bill also increased funding by 2% for the Forest Products, Vegetation and Watershed Management, and Wildlife and Fish Habitat Management line items within the NFS account in an effort to improve the health of national forests, protect communities from catastrophic wildfires, and to maintain forest products mills and logging infrastructure. This account includes funding for the construction and maintenance of facilities, roads, and trails, as well as for deferred maintenance (i.e., the maintenance backlog). For FY2013, the House committee-reported bill contained $344.1 million for Capital Improvement and Maintenance, which was $9.7 million more than the Administration's request ($334.4 million) and $38.0 million less than the FY2012 enacted level ($382.1 million). Legacy roads and trails received $35.0 million, a decrease of $9.9 million from the FY2012 level ($44.9 million). The Administration had proposed shifting funding for Legacy Roads to another account, which the committee did not support. Funds for legacy road remediation are used to decommission roads, repair and maintain roads and trails, remove fish passage barriers, and protect community water resources. Deferred maintenance and the backlog of needed infrastructure improvements has continued to be a concern. The agency's backlog of deferred maintenance was estimated at $6.0 billion as of September 30, 2012. The House committee-reported bill contained $7.1 million for FS deferred maintenance, matching the Administration's request, and a $2.0 million decrease from the FY2012 level ($9.1 million). For FY2013, the bill reported by the House Appropriations Committee contained $17.7 million for land acquisition, a $41.4 million decrease from the Administration's request ($59.1 million) and a $36.0 million decrease from the FY2012 enacted level ($53.7 million). Most of the funds for FS land acquisition are derived from the Land and Water Conservation Fund. (For more information, see the "Land and Water Conservation Fund (LWCF)" section of this report.) The Indian Health Service (IHS) in the Department of Health and Human Services (HHS) is responsible for providing medical and environmental health services for approximately 2 million American Indians and Alaska Natives (AI/AN) who belong to 566 federally recognized tribes located in 35 states. Health care is provided through a system of facilities and programs operated by IHS, tribes and tribal groups, and urban Indian organizations. In FY2012, IHS operated 29 hospitals, 66 health centers, 2 school-based health centers, and 41 health stations. Tribes and tribal groups, through IHS contracts and compacts, operated another 16 hospitals, 254 health centers, 4 school-based health centers, 74 health stations, and 166 Alaska Native village clinics. Urban Indian organizations operated 33 ambulatory or referral programs. IHS, tribes, and tribal groups also operated 11 residential youth substance abuse treatment centers. For FY2013, the bill reported by the House Appropriations Committee contained a total discretionary appropriation of $4.49 billion for IHS, which would have been an increase of $186.9 million (4%) from the FY2012 appropriation of $4.31 billion. It also would have been $71.0 million (2%) more than the Administration had requested ($4.42 billion). Besides discretionary appropriations, IHS also receives funding from third-party reimbursements, mandatory appropriations for a special Indian diabetes program, and rent on personnel quarters. The sum of appropriations, reimbursements, diabetes funding, and rent is IHS's "program level" total. This amount is an estimate because total reimbursements and rent collected will not be known until after the fiscal year is complete. Under the House Appropriations Committee's bill, the IHS program level funding would have been $5.57 billion, which also would have been $186.9 million more than the program level estimated under the FY2012 appropriations ($5.39 billion) and $71.0 million more than the program level under the Administration's FY2013 request ($5.50 billion). See Table 14 . IHS funding is separated into two accounts: Indian Health Services and Indian Health Facilities. Under the House Appropriations Committee's reported bill and the Administration's request for FY2013, approximately 90% of the agency's appropriation was for Health Services, while the remaining 10% was for the Health Facilities account. This distribution was similar to the distribution included in the FY2012 appropriations law. Below is a discussion of funding for these accounts and some of the major programs included in these accounts. For Health Services in FY2013, the House Appropriations Committee approved $4.05 billion, which was $70.6 million more than the Administration's request for FY2013 of $3.98 billion. Both the committee-reported bill and the Administration's request were higher than the $3.87 billion appropriated for FY2012 ($183.4 million and $112.8 million more, respectively). The House Committee's bill would have provided additional funding for clinical services ($105.2 million more than the FY2012 appropriation). The House Committee recommended that $48.4 million of the funds included for clinical services be used to staff new or expanded health care facilities ($3.6 million more than the Administration had requested for this activity). The Administration had also requested additional funding for clinical services overall, but sought $2.4 million less than the House committee-reported bill. The House Committee's bill would have provided higher levels of funding over FY2012 for a number of other programs and activities funded under the Indian Health Services account, including urban Indian health programs, public health nursing programs, and contract health services (CHS). With regard to the latter, both the bill and the Administration's request contained a $54.0 million increase over FY2012. CHS funds are used to purchase care from outside providers when the IHS-funded facility is unable to directly provide these services. CHS funds are limited; as a result, IHS uses a medical priority system to determine when a CHS referral will be authorized. In requesting increased funds for CHS, the Administration stated that this is a top tribal priority. Congress has raised a number of issues with the CHS program, including concerns about the program's funding level, administration, use of a medical priority system, and number of denials. GAO also recently raised concerns about how CHS funds are allocated across the 12 IHS areas and recommended that Congress require IHS to change how funds are allocated. The House Committee directed IHS to implement GAO's recommendations. The House committee-reported bill also included $546.4 million for contract support costs (CSC), which was $70.0 million more than the Administration's request ($476.4 million) and $75.0 million more than was appropriated in FY2012 ($471.4 million). CSC funds are provided to tribes to help pay the costs of administering IHS-funded programs under self-determination contracts or self-governance compacts authorized by the Indian Self-Determination and Education Assistance Act (ISDEAA). CSC pays for costs that tribes incur for such items as financial management, accounting, training, and program start-up. The CSC program has long been subject to shortfalls, resulting in reduced services or decreased administrative efficiency for tribes with contracts and compacts. The committee directed the IHS to explore and report on options for improving transparency of current year contract support cost information. The committee also sought to require that IHS submit additional reports. One would address the agency's ability to hire dentists; a second report would address IHS personnel issues, including the departure of agency senior staff and recruitment efforts undertaken to fill vacant positions; and a third report, to be undertaken in conjunction with the EPA and BIA, would provide a strategy for addressing deficiencies in sanitation facilities in Indian Country. Although most programs and activities within the Indian Health Services account would have received increases, the House Committee would have reduced funding for IHS's direct operations to $67.6 million, a $4.1 million decrease from FY2012 ($71.7 million). The Administration had proposed to increase this funding to $72.9 million. For FY2013, the House Committee's bill contained $443.9 million for the IHS Facilities Account, which was $0.4 million higher than the Administration's request of $443.5 million and $3.5 million more than the $440.3 million appropriated for FY2012. The increased funding over FY2012 was to be used to support additional maintenance and improvement activities at IHS-funded facilities and also to support facilities and environmental health activities. This would include facility operations and staff who work on environmental health issues such as those that support the sanitation facility construction program. The committee's bill and the Administration's request would have maintained the FY2012 funding level ($79.6 million) for sanitation facility construction and would have reduced funding for health care facility construction by $3.6 million, from $85.0 million to $81.5 million in FY2013. In FY2012, funding for health facility construction had more than doubled over the FY2011 appropriation. The Smithsonian Institution (SI) is a museum and research complex consisting of 19 museums and galleries, the National Zoo, and nine research facilities throughout the United States and around the world. Almost 29 million people visited Smithsonian facilities in 2011. Established by federal legislation in 1846 in acceptance of a trust donation by the Institution's namesake benefactor, SI is funded by both federal appropriations and a private trust, with more than $1.2 billion in total revenue from all sources of funding for FY2011. The bill reported by the House Appropriations Committee included $789.2 million for FY2013, a decrease of $21.1 million (3%) from FY2012 appropriations ($810.2 million) and $67.7 million (8%) from the FY2013 Administration request ($856.8 million). See Table 15 . For FY2013, the House Appropriations Committee included $643.6 million for the SI to fund salaries and expenses for its museums, research centers, and administration. This was an $8.1 million increase over the FY2012 funding of $635.5 million and a $16.7 million decrease from the FY2013 request of $660.3 million. The House committee-reported bill included the following: $252.0 million ($9.5 million less than the FY2013 request of $261.6 million and $6.7 million more than the FY2012 level of $245.3 million) for museums and research institutes. Of the $252.0 million, the committee included $19.0 million for the National Museum of African American History and Culture (NMAAHC). This was $5.6 million over the FY2012 level ($13.4 million), in order to increase the staff, fundraising capacity, research, and collection-building efforts of the NMAAHC. However, it was $7.5 million less than the Administration's FY2013 request ($26.5 million). $44.6 million ($0.3 million less than the FY2013 request of $44.9 million and $1.4 million more than the FY2012 level of $43.2 million) for program support and outreach. The increase over FY2012 would have been for SI's Collections Care initiative to improve preservation, storage, and accessibility of its collections. $82.6 million ($4.0 million less than the FY2013 request of $86.6 million and equal to the FY2012 level) for administration, the Office of the Chief Information Officer, and the Inspector General. $264.4 million ($2.9 million less than the FY2013 request of $267.3 million and equal to the FY2012 level) for facilities services. For FY2013, the House Appropriations Committee approved $145.5 million for facilities capital, $29.2 million less than the FY2012 level of $174.7 million and $51.0 million less than the FY2013 requested amount of $196.5 million. The funding was to be allocated to three main activities: $84.7 million (a decrease of $16.0 million from the FY2013 request of $100.7 million and equal to the FY2012 enacted amount) for baseline revitalization requirements. Included was funding for repairs at the Museum Support Center and the National Air and Space Museum for damage caused by the August 2011 earthquake. $10.9 million (equal to the FY2013 requested amount and a decrease of $4.3 million from the FY2012 level of $15.1 million) to fund facilities planning and design. $50.0 million ($35.0 million less than the FY2013 requested amount of $85.0 million and $24.9 million less than the FY2012 level of $74.9 million) for construction of the NMAAHC, which is scheduled to open in 2015. In addition to federal appropriations, the SI receives income from trust funds, which support salaries for some employees, donor-designated capital projects and exhibits, and operations. In FY2011, the SI's net assets totaled almost $2.8 billion. The primary vehicles for federal support for the arts and the humanities are the National Foundation on the Arts and the Humanities and the Institute of Museum and Library Services (IMLS). The National Foundation on the Arts and the Humanities is composed of the National Endowment for the Arts (NEA) and the National Endowment for the Humanities (NEH). For the National Foundation on the Arts and the Humanities, the House Appropriations Committee approved a total of $264.0 million, a decrease of $28.0 million (10%) from the FY2012 enacted level of $292.0 million and a decrease of $44.5 million (14%) from the Administration's FY2013 request of $308.5 million. The committee-reported decreases would have been divided equally between the NEA and NEH, as discussed below. For FY2013, NEA and NEH each included $3.0 million for relocation expenses in their requests. Both agencies are anticipating moving from their current headquarters in the Old Post Office Building in Washington, DC, to new, as yet unidentified, headquarters. The committee did not include funding for the agencies' relocation expenses, as the agencies had not included a detailed justification, including specific relocation costs. The committee directed the agencies to work with the General Services Administration to prepare a detailed justification to submit to the committee. The NEA is a major federal source of support for all arts disciplines. Since 1965 it has awarded more than 135,000 grants that have been distributed to all states. The House Appropriations Committee approved a total of $132.0 million for NEA for FY2013. This would have been a $14.0 million decrease from the FY2012 enacted amount of $146.0 million and a $22.3 million decrease from the President's FY2013 request of $154.3 million. Within the total, the committee included $105.5 million for grants, $16.4 million less than requested ($121.9 million) and $9.7 million less than the appropriation for FY2012 ($115.2 million). For the two largest grant programs funded by the agency, $52.5 million was recommended for direct grants (a decrease of $2.6 million from the requested amount of $55.1 million and a decrease of $3.6 million from the FY2012 amount of $56.1 million), and $35.5 million for state/regional partnership grants (a decrease of $2.9 million from the requested amount of $38.4 million and a decrease of $0.8 million from the FY2012 appropriated amount of $36.3 million). With regard to other grants, the committee recommended $6.0 million for Challenge America grants ($2.0 million less than the FY2013 request and FY2012 appropriation of $8.0 million). Challenge America provides matching grants for arts education, outreach, and community arts activities for rural and underserved areas. The committee also approved funding of $2.5 million ($7.5 million less than the FY2013 request of $10.0 million and $2.5 million less than the FY2012 enacted amount of $5.0 million) for Our Town, a grant program aimed at arts projects that engage and revitalize communities. See Table 16 . The NEH generally supports grants for humanities education, research, preservation, and public humanities programs; creation of regional humanities centers; and development of humanities programs under the jurisdiction of the state humanities councils. Since 1965, NEH has awarded more than 61,000 grants. NEH also supports a Challenge Grant program to stimulate and match private donations in support of humanities institutions. The House Appropriations Committee approved $132.0 million for the NEH for FY2013, a decrease of $14.0 million from the FY2012 appropriation ($146.0 million) and $22.3 million less than the FY2013 request ($154.3 million). The committee included $97.0 million in non-matching grant funding, a decrease of $15.5 million from the request ($112.5 million) and $10.8 million from the FY2012 level ($107.8 million). The largest such program is the federal/state partnership grants program, for which the committee approved $38.0 million, a decrease of $2.4 million from the request and from the FY2012 appropriated amount ($40.4 million). For the Bridging Cultures initiative, the committee included $2.5 million, $6.5 million less than the FY2013 request ($9.0 million) and $1.0 million less than the FY2012 appropriation ($3.5 million). Bridging Cultures awards grants for projects that increase understanding of America's diverse cultural heritage and of other cultures around the world. NEH did not request FY2013 funding for the We the People grant program, which supports exhibitions, films, library programs, professional development programs for teachers, scholarship research on American history and culture, and collection preservation. However, the House Committee stated that it should remain a core NEH grant program as it is "a proven, cost-effective national grant program with broad geographic reach and bipartisan Congressional support." The committee directed that the program receive no less than $3.5 million for FY2013, an increase of $0.5 million over the FY2012 amount of $3.0 million. See Table 16 . The LWCF (16 U.S.C. §§460 l -4, et seq.) is authorized at $900 million annually through FY2015. It accumulates revenues primarily from oil and gas leasing in the Outer Continental Shelf, although the federal motorboat fuel tax and surplus property sales also provide smaller amounts of revenues. However, revenues in the LWCF may not be spent without an appropriation. The LWCF has been 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 from the LWCF to acquire lands. Second, the LWCF funds acquisition and recreational development by state and local governments through a grant program administered by the NPS, sometimes referred to as stateside funding. Third, Congress has appropriated money from the LWCF to fund some related activities; one FWS program and one FS program (discussed below) have consistently received LWCF funding in recent years. Since FY2008, the largest portion of the LWCF appropriation has been for land acquisition ( Table 17 ). From FY1965 through FY2012, a total of about $34.4 billion was credited to the LWCF. A total of about $16.2 billion of that amount has been appropriated. Annual appropriations from LWCF have fluctuated considerably over time. Table 17 shows funding for LWCF since FY2008. For FY2013, H.R. 6091 as reported by the House Committee on Appropriations contained a total of $66.0 million for the Land and Water Conservation Fund, similar to the committee's proposal for FY2012. If enacted, this would have been the second-lowest funding level in the history of the program; LWCF was first funded in FY1965 with $16.0 million. The House committee level would have been a reduction of $256.3 million (80%) from the FY2012 appropriation of $322.3 million and of $383.9 million (85%) from the $449.9 million requested by the Administration. The committee sought to reduce LWCF funding for FY2013 to focus on oversight of acquisition and state grant projects funded in previous years rather than funding for new acquisitions. In its report, the committee expressed that it will not fund new acquisition projects until the agencies submit "consolidated, prioritized" lists of requested acquisitions for the committee to use "to determine which projects would be implemented with limited funds." The committee also directed the agencies to implement a standard definition and policy for using funding provided for inholdings. There continues to be a difference of opinion on the optimal total level of funding for LWCF, and on allocations for the three purposes for which the fund has been used. For example, for FY2013 the Administration sought a $127.6 million increase (40%) over the FY2012 appropriation. The Administration's FY2012 request was significantly higher still—$900.0 million. Such "full funding" has occurred only twice in the history of the program. For land acquisition for FY2013, H.R. 6091 as reported contained $48.8 million, the lowest level since FY1974. All agencies would have received a decrease from FY2012, with a total decrease of $137.7 million from the FY2012 level of $186.5 million. The House committee report did not identify the particular lands to be acquired, but noted that funding for new federal acquisitions was limited to small inholdings and recreational access for BLM and FS lands. Also, the committee level was $209.0 million less than the Administration's request for FY2013 of $257.8 million. The Administration sought an increase for each of the four land management agencies over FY2012, with a $71.4 million total increase. In seeking funds for acquisition projects, since FY2011 the DOI agencies have sought to develop and use consistent, merit-based criteria, according to the department. These criteria were designed to meet common conservation goals, such as developing additional recreational opportunities and maximizing landscape conservation for wildlife and habitat. For FY2013, the criteria used by the DOI agencies included the value of the lands to the agency mission, the feasibility of acquiring and managing the lands, the availability of willing sellers and participating partners, and the extent to which the land is threatened by development. The FS budget justifications since FY2011 also have noted changes to the LWCF program, including the use of selection criteria to rank land acquisition projects. For FY2013, the FS criteria included the extent to which the acquisition would be nationally important, supported by the public and partners, have a landscape level impact, result in improvements in land management, and protect threatened lands. Further, for FY2013 the DOI agencies and the FS sought funding for inter-agency landscape scale acquisition projects and acquisitions to increase recreational access, e.g., for hunting and fishing. The development and detailing of criteria for acquisitions in part sought to address congressional concerns regarding the land acquisition process, including that to the maximum extent possible, there be a single set of policies among the four agencies for conducting land acquisitions. Nevertheless, the House Appropriations Committee expressed dissatisfaction with the information submitted by the agencies in support of acquisitions proposed for FY2013, specifically a lack of "consolidated, prioritized project lists ... [d]espite repeated requests by the Committee." The House committee bill did not include funding from the LWCF for the DOI Office of Valuation Services. The office conducts land appraisals related to DOI land acquisitions. The FY2012 appropriation from the LWCF for the office was $12.7 million, and the Administration requested $12.1 million for FY2013. For state grants, the House Appropriations Committee approved $2.8 million for FY2013, $42.1 million below the FY2012 level of $44.9 million and $57.2 million below the $60.0 million requested by the Administration for FY2013. The $2.8 million was for administrative expenses related to previous grants, rather than new grants. Seeking to eliminate funds for new grants to states is not a new phenomenon. For example, for several years the Clinton Administration proposed eliminating stateside funding and Congress concurred. The George W. Bush Administration also did not request stateside funding for several years, although Congress provided appropriations for new grants during those years. Of the $60.0 million requested by the Administration for FY2013, $3.5 was for program administration, $36.5 million was to be distributed in accordance with the formula in law, and $20.0 million was for a new competitive grant program. The objectives of the proposed competitive program are to fund projects in large urban centers with little or no access to natural areas; reconnect young people and their families to the outdoors; provide access to rivers and waterways; and protect, restore, and connect open space and natural landscapes. The NPS would evaluate proposed projects based on a variety of criteria, including the level of need, expected benefits, and ability to leverage funding. The grants would be provided on a 50:50 federal/state matching basis (as under the formula program). The bill reported by the House Appropriations Committee did not include the proposal. For FY2013, the House Appropriations Committee approved $14.4 million in funding from LWCF for other purposes, $63.8 million less than the FY2012 level of $78.3 million and $105.6 million less than the Administration's request of $120.0 million for FY2013. If enacted, the committee-reported level would have been the second-smallest since funding for other purposes was first provided in FY1998; no funding for other purposes was provided in FY1999. The funds were for two purposes, the Forest Legacy program and cooperative endangered species grants. The Forest Legacy program funds acquisition of lands and easements to protect forests threatened by land conversion. There are two types of cooperative endangered species grants funded through LWCF—recovery land acquisition grants and habitat conservation plan land acquisition grants. For FY2013, the Administration requested $60.0 million for Forest Legacy and $60.0 million for cooperative endangered species grants. Wildfire protection programs and funding continue to generate controversy. Ongoing discussions include questions about the high cost of fire suppression efforts; locations for various wildfire protection treatments; and whether, and to what extent, environmental analysis, public involvement, and legal challenges to administrative decisions hinder fuel reduction and post-fire rehabilitation. The FS and DOI wildfire funding includes funds for fire suppression, preparedness, and other operations. For FY2013, the bill reported by the House Appropriations Committee, including FLAME funds (see below) and rescissions, contained $3.23 billion for Wildland Fire Management (WFM). Of the total, $2.39 billion was for the FS and $838.5 million was for DOI. This was a $121.4 million (4%) increase from the Administration's request ($3.10 billion; $2.29 billion for the FS and $818.5 million for DOI) and a $600.6 million (23%) increase from the FY2012 enacted level ($2.63 billion; $2.05 billion for the FS and $575.4 million for DOI). The increase was largely due to the use of previously enacted emergency suppressions funds as an offset to new appropriations for FY2012 and not adopting the Administration's request to shift funding for hazardous fuels (non-wildland urban interface) under the WFM account to the proposed integrated restoration line item under the NFS account. See Table 18 . This program provides funding for baseline staffing, training, and equipment. The FY2013 committee-reported bill contained $1.28 billion for preparedness ($279.5 million for DOI and $1.00 billion for the FS). This matched the Administration's request, and was a decline of $2.9 million for the FS and an increase of $3.0 million for DOI relative to the FY2012 level. The Administration's request included $24.0 million to modernize the large air tanker fleet used for fire fighting. This program funds agency fire control activities while wildfires are burning (e.g., for initial attack on most fires), but before they meet the criteria for FLAME funding. The FY2013 committee-reported bill contained $892.5 million for wildfire suppression ($276.5 million for DOI and $616.0 million for the FS), matching the Administrations' request. This was an $83.8 million increase from the FY2012 level ($808.7 million). This included an increase of $6.0 million for DOI and $77.8 million for the FS over the FY2012 level to address unplanned fire incidents that threaten lives, property, and resources. Other wildfire operations include a variety of activities. The largest is fuel reduction treatments, followed by FS state fire assistance. For FY2013, the committee-reported bill contained $512.3 million for "hazardous" fuel reduction ($167.3 million for DOI and $345.0 million for the FS). This was a $125.4 million increase from the Administration's request of $386.9 million ($145.3 million for DOI and $241.6 million for FS), in part due to the Administration's proposal to shift FS funding to the another FS account. The House committee level would have been a $12.2 million increase from the FY2012 level of $500.1 million ($183.0 million for DOI and $317.1 million for the FS). (For more information, see the " Department of Agriculture: Forest Service " section of this report.) The FY2013 committee-reported bill contained $13.0 million for site rehabilitation, the same as the FY2012 level and the Administration's FY2013 request. Funding for site rehabilitation was limited to DOI, as FS funding was not included in FY2012 appropriations or in the FY2013 Administration's request. However, other agency appropriations are available for post-fire site rehabilitation. The bill would have funded DOI fire facilities at $4.1 million, a $2.0 million decrease from both the Administration's request and the FY2012 enacted level of $6.1 million. For research, the bill contained $31.9 million, a decrease of $3.1 million from the enacted FY2012 level ($34.9 million) and of $2.0 million from the Administration's request of $33.9 million. The committee supported the consolidation proposed by the Administration to shift funding for FS state and volunteer fire assistance from State and Private Forestry, to consolidate funds for these purposes in Wildland Fire Management in order to improve program management and reduce administrative complexity. The FY2013 committee-reported bill contained $72.7 million and $11.7 million for the FS state fire assistance and volunteer fire assistance line items, respectively. This matched the Administration's request. In its report, the committee "strongly encouraged" the FS to submit two "critical" reports on wildfire management. The first report, on the results of the nationwide assessment of the Forest Service's night flying operations, would have been due within 90 days of enactment of the bill. The second report, on the third and final phase of the cohesive wildland fire strategy as required by the FLAME Act, would have been due within 180 days of enactment of this bill. The FY2010 Interior appropriations law modified the traditional approach to funding wildfire suppression. Title V, the Federal Land Assistance, Management, and Enhancement (FLAME) Act of 2009, established in the Treasury the FLAME Wildfire Suppression Reserve Fund for DOI and the FLAME Wildfire Suppression Reserve Fund for the Department of Agriculture (for the Forest Service). The funds are to be used to cover the costs of large or complex fires, when amounts provided in the Wildland Fire Management accounts for suppression and emergency response are exhausted. The requirements are the same for the two accounts. Each Secretary may transfer funds from the FLAME fund into the respective Wildland Fire Management account, for suppression activities, upon a secretarial declaration. The declaration may be issued if the fire covers at least 300 acres or threatens lives, property, or resources, among other criteria. The conferees on the FY2010 bill stated their intent that the money in the FLAME funds, together with appropriations through the Wildland Fire Management accounts, should fully fund suppression needs and prevent borrowing funds from other programs. They directed the Secretaries to develop new methods of estimating fire suppression funding needs as part of their budget requests. The committee-reported bill contained $407.0 million ($315.0 million for the FS and $92.0 million for DOI) in FLAME funds. This matched the Administration's request and was an $0.2 million decrease from the FY2012 level of $407.2 million (315.4 million for the FS and $91.9 million for DOI). Table 19 and Figure 1 show appropriations for Interior, Environment, and Related Agencies for the five-year period from FY2008 through FY2012. Table 19 also includes FY2013 funding requested by the Administration and contained in H.R. 6091 as reported by the House Committee on Appropriations. It shows the appropriations by agency during this period, as well as the total appropriations contained in each title of the appropriations law and the overall total in the law. The graph depicts the appropriations provided for each of the three main titles of the law: Title I, Department of the Interior; Title II, Environmental Protection Agency; and Title III, Related Agencies. | The Interior, Environment, and Related Agencies appropriations bill includes funding for the Department of the Interior (DOI), except for the Bureau of Reclamation, and for agencies within other departments—including the Forest Service within the Department of Agriculture and the Indian Health Service within the Department of Health and Human Services. It also includes funding for arts and cultural agencies, the U.S. Environmental Protection Agency, and numerous other entities. Neither the House nor the Senate passed a regular appropriations bill for FY2013 for Interior, Environment, and Related Agencies. On July 10, 2012, the House Appropriations Committee reported H.R. 6091 (H.Rept. 112-589) with $27.66 billion for Interior, Environment, and Related Agencies. If enacted, this level would have been a decrease of $1.57 billion from the FY2012 level of $29.23 billion and a decrease of $2.07 billion from the Administration's FY2013 request of $29.72 billion. While no regular appropriations bill was marked up or reported in the Senate, the bipartisan leadership of the Senate Appropriations Interior Subcommittee released a draft bill, together with a draft detailed funding table, on September 25, 2012. The draft would have provided $29.72 billion for Interior, Environment, and Related Agencies, $5.3 million lower than the President's request but $489.8 million higher than the FY2012 appropriation and $2.06 billion higher than the House committee-reported level in H.R. 6091. Because no regular FY2013 Interior, Environment, and Related Agencies Appropriations bill was enacted prior to the beginning of the fiscal year, Congress first included funds for these agencies in a continuing appropriations resolution (CR, P.L. 112-175) through March 27, 2013. For accounts in the Interior bill, the CR generally continued funding at a level that was 0.612% higher than the FY2012 level. P.L. 112-175 was superseded by a second law, the Consolidated and Further Continuing Appropriations Act, 2013 (P.L. 113-6). Enacted on March 26, 2013, the law provided full-year continuing appropriations for Interior, Environment, and Related Agencies through September 30, 2013. The Congressional Budget Office had estimated that, excluding the effects of sequestration, the law contained $29.83 billion for Interior, Environment, and Related Agencies. However, appropriations in the law were reduced under the sequester order of the President, issued on March 1, 2013. That order implemented an across-the-board cut for (non-exempt, nondefense) discretionary funding, which was calculated based on a reduction of each account of about 5.0%; the accompanying report indicated a dollar amount of budget authority to be canceled from each account pursuant to that across-the-board cut. Appropriations in the law also were reduced by an across-the-board rescission of 0.2% under P.L. 113-6. The effect of these reductions on budgetary resources of agencies, accounts, and programs within Interior, Environment, and Related Agencies initially was unclear, but was subsequently determined. For final FY2013 appropriations for agencies, reflecting the sequester and across-the-board rescission, see CRS Report R43142, Interior, Environment, and Related Agencies: FY2013 and FY2014 Appropriations. |
In the first session of the 110 th Congress, the House and the Senate passed two markedly different versions of omnibus energy efficiency and renewable energy legislation. The Senate version of H.R. 6 , the proposed Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007 , passed the Senate on June 21, 2007. The key provisions of the Senate-passed H.R. 6 are appliance efficiency standards, an increase of the renewable fuel standard (RFS) to 36 billion gallons by 2022, and an increase of the combined corporate average fuel economy (CAFE) standards to 35 miles per gallon (mpg) by 2020. Tax provisions and a renewable energy portfolio standard (RPS) were not included. The House passed H.R. 3221 on August 4, 2007. H.R. 3221 has two divisions. Division A contains the New Direction for Energy Independence, National Security, and Consumer Protection Act , which has nine titles An adopted floor amendment ( H.Amdt. 748 ) added a 15% renewable portfolio standard (RPS). Division B, the Renewable Energy and Energy Conservation Tax Act of 2007 , contains the House-approved version of H.R. 2776 . It adds four titles to H.R. 3221 that include a four-year extension of the renewable electricity production tax credit and other efficiency and renewables incentives. This report compares the major provisions of the House version of H.R. 3221 , and the Senate version of H.R. 6 . (For more details on the provisions in these two bills, see the appendices to this report. For more details on the legislation that led to the omnibus bills, see CRS Report RL33831, Energy Efficiency and Renewable Energy Legislation in the 110 th Congress . For more details on the tax provisions, see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) The following analysts in the CRS Resources, Science, and Industry Division contributed to this report: [author name scrubbed], transmission and electric utilities, [phone number scrubbed] [author name scrubbed], fuel economy standards, [phone number scrubbed] Lynne Corn, wildlife and habitats, [phone number scrubbed] Susan Fletcher, international climate cooperation, [phone number scrubbed] [author name scrubbed], carbon storage, [phone number scrubbed] [author name scrubbed], loan guarantees, [phone number scrubbed] [author name scrubbed], oil and natural gas royalties, [phone number scrubbed] [author name scrubbed], marine energy, [phone number scrubbed] [author name scrubbed], energy taxes, [phone number scrubbed] [author name scrubbed], energy prices, [phone number scrubbed] [author name scrubbed], agriculture-based energy, [phone number scrubbed] Brent Yacobucci, biofuels, [phone number scrubbed] The Senate version of H.R. 6 , the proposed Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007 , was derived primarily from S. 1419 , which, in turn, was composed from four major bills: the Energy Savings Act ( S. 1321 ), the Public Buildings Cost Reduction Act ( S. 992 ), the Ten-in-Ten Fuel Economy Act ( S. 357 ), and the Energy Diplomacy and Security Act ( S. 193 ). A summary of the Senate-passed version of H.R. 6 is presented in CRS Report RL33831, Energy Efficiency and Renewable Energy Legislation in the 110 th Congress . That report also contains descriptions of all the bills that composed the Senate version of H.R. 6 . An RPS amendment ( S.Amdt. 1537 ) was introduced during Senate floor action on the proposed substitute ( S.Amdt. 1502 ) to H.R. 6 . The RPS amendment proposed setting a target of 15% by 2020. No action was taken on S.Amdt. 1537 before a successful cloture vote on the substitute. That cloture vote caused S.Amdt. 1537 to be ruled non-germane, and it fell from consideration. A package of tax provisions ( S.Amdt. 1704 ) was considered during Senate floor action on the proposed substitute to H.R. 6 . The proposed tax package amendment included oil and natural gas revenue offset provisions, as well as incentives for renewable energy and energy efficiency. The proposed revenue offsets were similar to, but more extensive than, the offsets proposed in Title XIII, Subtitle A, of H.R. 3221 . However, S.Amdt. 1704 failed by a vote of 57-36 on a cloture motion to limit debate. (For more details, see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) H.R. 3221 has two divisions. Division A contains the New Direction for Energy Independence, National Security, and Consumer Protection Act , which has nine titles that represent the integration of H.R. 364 , H.R. 2304 , H.R. 2313 , H.R. 2337 , H.R. 2389 , H.R. 2420 , H.R. 2635 , H.R. 2701 , H.R. 2773 , H.R. 2774 , H.R. 2847 , and a draft bill by the Committee on Energy and Commerce. Division B, the Renewable Energy and Energy Conservation Tax Act of 2007 , contains the House-approved version of H.R. 2776 , and adds four titles to H.R. 3221 . A summary of the bill is presented in CRS Report RL33831, Energy Efficiency and Renewable Energy Legislation in the 110 th Congress . That report also contains descriptions of all the bills that composed the House-passed version of H.R. 3221 . One challenge involves key differences between the provisions of the two bills. There are several provisions where the two bills are very similar. One example is energy efficiency standards, where the House and Senate provisions have more similarities than differences. However, especially among the more controversial provisions, many either have major differences or the provision appears only in one bill. One key challenge will be to resolve such differences. A second challenge involves additional action that will be required to get a bill to conference committee. Because the House and Senate have passed different measures, constitutionally-required congressional procedures prevent the two bills ( H.R. 3221 and H.R. 6 ) from going to conference in their current form. Further action will be needed on at least one of the two bills in at least one of the two chambers. For example, one option could be that the Senate takes up H.R. 3221 , amends it however it wishes, and then pass the bill as the Senate version of H.R. 3221 . Then, a conference could be held to resolve any remaining differences between the two versions of H.R. 3221 . A third challenge involves opposition to the bills expressed by the Administration. In a June 12, 2007, Statement of Administration Policy on H.R. 6 , the Administration expressed several points of opposition to the Senate bill. Its primary concerns involved issues related to oil and natural gas. The Administration stated that the bill "does nothing to increase domestic supplies of oil and natural gas." Moreover, it threatened to veto the bill if it retained a price gouging provision, which it feels would lead to problematic gasoline price controls. Another veto threat was focused on the proposal to subject foreign oil cartels to the jurisdiction of U.S. courts. Additional concerns were identified. One concern focused on the explicit 35 mpg fuel economy target in the CAFE provision and the proposal to set standards for medium- and heavy-duty trucks. For the RFS provision, the Administration strongly urged expansion to include fossil-based alternative fuels. Regarding loan guarantees, the Administration stated opposition to loosening of controls over program size and "special" treatment that would allow guarantees for biofuels projects to be increased to from 80% to cover up to 100% of project costs. In an August 3, 2007, Statement of Administration Policy on H.R. 2776 and H.R. 3221 , the Administration expressed several points of opposition to the House bill. Its primary concerns were focused on oil and natural gas. It stated that because the two bills "would lead to less domestic oil and gas production, higher energy costs, and higher taxes, the President's senior advisors would recommend that he veto these bills." Other concerns included the proposed repeal of the manufacturing tax deduction for the oil and gas industry, the application of royalty requirements for certain offshore oil and gas leases issued in 1998 and 1999, increased authorization for clean renewable energy bonds, and expansion of the Davis-Bacon prevailing wage requirements. After the House completed action on H.R. 3221 , informal bipartisan negotiations over the omnibus energy bills began between the House and Senate. Key issues seem to include the RPS provision (Title IX, Subtitle H) in the H.R. 3221 , differences over proposals for increasing the renewable fuels standard (RFS), and a proposal to offset costs by repealing certain oil and natural gas subsidies. In November 2007, EIA issued a report on the impacts of the RPS and oil and gas provisions in H.R. 3221 . On December 1, 2007, the Ranking Member of the Senate Committee on Energy and Natural Resources stated that the House Leadership's intent to include an RPS led him to cease negotiations. Further, on December 3, 2007, the White House announced that it may veto the negotiated bill, if it includes an RPS, oil tax increases, and certain other provisions. On December 4, 2007, United Press International reported that, in a press conference, DOE Secretary Bodman warned against the inclusion of "a narrow, one-size-fits-all renewable portfolio standard," and said "taxes should not be raised or tax breaks reversed for the oil and gas sector." This report compares the major provisions of the House-passed version of H.R. 3221 and the Senate-passed version of H.R. 6 . Table 1 shows a list of the major provisions that are reviewed in this report. Some provisions are contained wholly under one title or subtitle. For example, the RPS provision in the House bill is contained wholly under Subtitle H of Title IX. However, some provisions are scattered throughout several titles or subtitles. For example, in the House bill, the most extensive provision for loan guarantees is found in Title IX, Subtitle C, but additional provisions for loan guarantees appear under Titles IV (Subtitle E), V, IX (Subtitle A) and IX (Subtitle E). Similarly, Senate provisions for loan guarantees appear in both Title I (Subtitle B), and Title II (Subtitle C). Appendix A. House-Passed Version of H.R. 3221 , Division A: "New Direction for Energy Independence, National Security, and Consumer Protection Act" The proposed New Direction for Energy Independence, National Security, and Consumer Protection Act ( H.R. 3221 ) is an omnibus energy policy bill that consists mainly of provisions for energy efficiency and renewable energy. It was composed of several bills that were reported from various committees. In House floor action on August 4, 2007, several amendments to H.R. 3221 were adopted, including one that would establish a renewable energy portfolio standard (RPS). The House approved the amended bill by a vote of 241-172. Minutes later, the tax provisions bill ( H.R. 2776 ) was approved and then incorporated into H.R. 3221 . A brief description of the provisions in H.R. 3221 and H.R. 2776 follows. Key Provisions Adopted and Absent A description of some key provisions and amendments follows: Renewable Energy Portfolio Standard (RPS). H.Amdt. 748 proposed an RPS target that would reach 15% by 2020. Up to 4% of the target could be met with certain energy efficiency measures. The amendment was approved by a vote of 220-190. Renewable Energy and Energy Conservation Act ( H.R. 2776 ). This bill proposed extensions and additions of several tax incentives for renewable energy and energy efficiency, including a four-year extension of the renewable energy electricity production tax credit. The bill was approved on a separate floor vote by a tally of 221-189. It was subsequently incorporated into H.R. 3221 . Renewable Fuel Standard (RFS). Proposed Amendment 81 would have increased RFS to 36 billion gallons by 2022. It was withdrawn. Corporate Average Fuel Economy (CAFE) Standards. Proposed amendments 62 and 95 offered different policies for increasing CAFE standards. Proposed Amendment 95 was withdrawn, and Proposed Amendment 62 was not included in the rule that prescribed floor action. Oil Savings Provisions. Proposed Amendment 36 would have set a goal to reduce imported oil to less than 25% of vehicle petroleum use by 2015. Proposed Amendment 72 would have called for development of a plan to cut U.S. oil use by 2.5 million barrels per day (mbd) by 2016, rising significantly by 2025. Neither Amendment 36 nor Amendment 72 was included in the rule that prescribed floor action. Title I—Green Jobs This title assumes the provisions of H.R. 2947 . It would authorize up to $125 million in funding to establish national and state job training programs, administered by the U.S. Department of Labor, to help address job shortages that are impairing growth in green industries, such as energy efficient buildings and construction, renewable electric power, energy efficient vehicles, and biofuels development. Title II—The International Climate Cooperation Re-engagement Act of 2007 This title assumes the provisions of H.R. 2420 . It would declare U.S. policy on international climate cooperation, authorize assistance to promote clean and efficient energy technologies in foreign countries, and establish the International Clean Energy Foundation. Subtitle A—U.S. Policy on Global Climate Change This subtitle would state that it is the policy of the United States to take a more active role in international climate change negotiations including future fifteenth meeting of the Conference of Parties (COP-15) to the United Nations Framework Convention on Climate Change. Also, the United States would declare its intent to seek mitigation commitments from all major greenhouse gas (GHG) emitting nations, including China, India, Brazil, and other major developing nations. An Office on Global Climate Change would be established at the Department of State. The Secretary of State would be required to report to Congress on progress made in promoting transparency in extractive industries resource payments. Subtitle B—Assistance for Clean and Efficient Energy Technologies The U.S. Agency for International Development (USAID) would be directed to report to Congress on efforts to support policies for clean and efficient energy technologies. The Department of Commerce would be directed to increase efforts to export such technologies and report to Congress on the results. Other U.S. agencies with export promotion responsibilities would be required to increase efforts to support these technologies. Also, increased efforts are requested from the Interagency Working Group on the Clean Energy Technology Exports Initiative, particularly to implement its 2002 strategic plan. The Secretary of State would be required to report to Congress on the impact of global climate change on developing countries. Subtitle C—International Clean Energy Foundation The Foundation would be established with the long-term goal of reducing GHG emissions. It would be directed to use the funds authorized by this subtitle to make grants to promote projects outside of the United States that serve as models of how to reduce emissions. An annual report to Congress would be required. Title III—Small Energy-Efficient Businesses This title assumes the provisions of H.R. 2389 . Loans, grants, and debentures that would be established to help small businesses develop, invest in, and purchase energy efficient buildings, fixtures, equipment, and technology. On May 23, 2007, the House Committee on Small Business ordered reported H.R. 2389 by voice vote. Title IV—Science and Technology This title has eight subtitles, most of which correspond to a bill ordered reported by the House Committee on Science and Technology. Subtitle A—Advanced Research Projects Agency—Energy This subtitle assumes the provisions of H.R. 364 . ARPA-E would be established at the Department of Energy (DOE). The new agency's goal would be to reduce the energy imports from foreign sources by 20% over the next 10 years. On May 23, 2007, the House Science and Technology Committee ordered reported H.R. 364 . On August 9, 2007, the President signed the America Competes Act ( P.L. 110-69 ). In that law, Section 5012 (Title V) directs that an ARPA-E be established at DOE. Subtitle B—Marine Renewable Energy This subtitle assumes the provisions of H.R. 2313 . DOE would be directed to support wave, tidal, current, and ocean thermal energy technology R&D and commercial applications to help expand energy production. Further, DOE would be instructed to award grants to institutions of higher education (or consortia thereof) to establish National Marine Renewable Energy Research, Development, and Demonstration Centers. On June 21, 2007, the House Committee on Science and Technology reported H.R. 2313 . Subtitle C—Geothermal Energy This subtitle assumes the provisions of H.R. 2304 . DOE's program for geothermal energy R&D, demonstration, and commercial application would be expanded to cover certain advanced concepts. On June 21, 2007, the Committee reported H.R. 2304 . Subtitle D—Solar Energy Part 1 assumes the provisions of H.R. 2774 . It aims to improve the cost and effectiveness of thermal energy storage technologies that could improve the operation of concentrating solar power electric generating plants. Also, it calls for improved integration of concentrating solar power into regional electricity transmission systems. On June 22, 2007, the House Committee on Science and Technology ordered reported H.R. 2774 by voice vote. Part 2 would require DOE to create a Solar Energy Industries Research and Promotion Board and a Solar Energy Research and Promotion Operating Committee. The Board and Committee would work with manufacturers and importers of solar energy products to improve consumer awareness of solar energy options and appropriate certifications. The solar program would be funded by a small portion of industry revenues. No appropriations are authorized. Subtitle E—Biofuels This subtitle assumes the provisions of H.R. 2773 . It aims to improve information about federal biofuels research programs, focus research on infrastructure and biorefineries, study potential impacts of increased biofuels use, and increase authorized funding for DOE biofuels research. An authorization of $25 million would be created to provide grants for biofuels RD&D and commercial applications in states that have low rates of ethanol production. A university-based program would provide grants up to $2 million for R&D on renewable energy technologies. Priority would be given to universities in low income and rural communities with proximity to trees dying of disease or insect infestation. Subtitle F—Carbon Capture and Storage This Subtitle assumes the provisions of H.R. 1933 . A program would be established at DOE for carbon capture and storage R&D and demonstration. DOE would be directed to engage the National Academy of Sciences (NAS) to conduct a review of the program. EPA would be directed to assess potential impacts of such storage on public health and safety and the environment. DOE would be directed to work with NAS to establish graduate degree programs on geological sequestration at universities. Further, a university-based grant program would be created. Subtitle G—Global Change Research Part 1 would direct the President to establish an interagency committee to coordinate research on global change. The committee would be responsible for developing a national global change research and assessment plan. Further, a U.S. global change research program would be established, with the Office of Science and Technology Policy (OSTP) serving as the lead agency. A report to Congress would be required to accompany each annual budget request. Part 2 would establish an interagency working group charged with recommending ways to coordinate federal data management and archiving activities for climate data and other global change data. Subtitle H—H-Prize DOE would be directed to conduct a competitive program to award cash prizes to advance R&D, demonstration, and commercial application of hydrogen energy technologies. The provisions of this Subtitle are identical to those of H.R. 632 , which passed the House on June 6, 2007. Title V—Agriculture Energy This title assumes the provisions of H.R. 2419 . Agricultural-based energy programs established by the Farm Security Act of 2002 would be expanded and continued through FY2012. A total of about $3.2 billion in new funding is proposed including $1.4 billion for biofuels production incentives, $800 million to underwrite up to $2 billion in loan guarantees for biorefineries, $420 million for research on biomass feedstocks and production, and new mandatory funding for a cellulosic biomass feedstock reserve. Most new funding would be directed away from corn-based ethanol and toward cellulosic-based biofuels and other new technologies. USDA would be directed improve feedstock flexibility for bioenergy producers by purchasing eligible commodities and selling them to bioenergy producers in a way that ensures no cost to the federal government and avoids forfeitures to the Commodity Credit Corporation. Except for sections 5011 and 5012, all other provisions of Title V are included in H.R. 2419 , the Farm, Nutrition, and Bioenergy Act of 2007 , which passed the House on July 27, 2007. (For more background, see CRS Report RL34130, Renewable Energy Policy in the 2008 Farm Bill .) Title VI—Carbon-Neutral Government Act This title assumes the provisions of H.R. 2635 . It would set a goal to make the federal government carbon-neutral by 2050. Several energy and fuel efficiency policies would be undertaken to meet this goal, including standards for federal fleet emissions, green buildings, and agency purchases of renewable energy. Subtitle A—Federal Government Inventory and Management of Greenhouse Gas (GHG) Emissions Each federal agency would be required to inventory and report on its GHG emissions annually. EPA would be required to review the each agency's inventory to see that it complied with guidance for data collection. EPA would be directed to set a collective annual emission reduction target for each year in the period from 2010 through 2050. The goal would be to achieve zero net annual emissions (carbon-neutrality) by 2050. The Government Accountability Office (GAO) would be required to issue a report on markets for GHG offsets. Federal agencies would be allowed to purchase offsets and renewable energy certificates in open market transactions. This subtitle would not preempt or limit any state actions to reduce emissions. Subtitle B—Federal Government Energy Efficiency Federal agencies would be required to purchase "low GHG" vehicles and to procure energy-efficient (Energy Star) products or products designated by the federal energy management program (FEMP-designated). DOE would be directed to establish, by rule, revised federal building energy efficiency performance standards for new federal buildings and major federal building renovations. Relative to a comparable building's fuel use in 2003, buildings covered by the rule would be directed to reduce the share of fossil fuel use by 55% in 2010, reducing steadily to 100% (zero emissions) by 2030. Each federal agency would be required to ensure that a large capital investment in an existing building that is not a major renovation employs the most energy efficient designs, systems, equipment, and controls that are life-cycle cost effective. Federal agencies would be directed to avoid leasing buildings that are not Energy Star rated. Alternative fuels could not be procured if they have GHG emissions greater than those produced by conventional petroleum. Federal contracts for renewable energy could not exceed 30 years and could not include energy generated from municipal solid waste. The Office of Management and Budget (OMB) would be required to report annually on progress under Title VI. Subtitle C—Telework Enhancement Federal executive branch agencies would be directed to develop and implement a telework (work from home or close to home) policy for eligible employees. It would exclude those employees who handle secure materials or special equipment, are assigned to national security functions, or voluntarily decline the telework option. Title VII—Natural Resources Committee Provisions This title assumes the provisions of H.R. 2337 . It includes provisions that would regulate wind impacts on wildlife, require a study of transmission capacity to help foster ocean wave, tidal, and current energy projects, create grants for studies of alternative energy development on the outer continental shelf, and establish pilot programs to use federal lands to harvest woody biomass and install concentrating solar power facilities. Subtitle A—Energy Policy Act of 2005 Reforms Subtitle A would repeal subsections 365(g) and 365(i) of EPAct 2005 regarding recovery of permit processing costs. It would require the Secretary of the Interior to impose fees on the oil and gas industry to recover costs associated with the streamlining of permits during the pilot project established by EPAct to improve federal permit coordination. A new 45-day deadline would be imposed for the consideration of applications for permits under section 366 of EPAct 2005. Section 369 of EPAct would be amended by removing two deadlines related to oil shale research and development and the preparation of a final environmental impact statement for commercial oil shale and tar sands leasing on public lands. H.R. 3221 would limit section 390 of EPAct, which allows for a rebuttleable presumption regarding the application of categorical exclusion under the National Environmental Policy Act (NEPA) for oil and gas exploration and development activities, and adhere to the regulations issued by the Council on Environmental Quality. And a Best Management Practices (BMP) provision would require BLM to allow for public comment and review before lease stipulation waivers are granted. (More details on Subtitle A can be found in CRS Report RL34111, Energy Policy Reform and Revitalization Act of 2007, Title VII of H.R. 3221: Summary and Discussion of Oil and Gas Provisions .) Subtitle B—Federal Energy Public Accountability, Integrity, and Public Interest Chapters 1 through 3 would require a minimum of 550 audits annually, and increase fines for royalty payment violations under the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA). Surface owner protection would be enhanced under split estates where the federal government owned and leased minerals. Onshore oil and gas reclamation and bonding requirements would become more stringent. Additional requirements for the protection of water resources are included and new fees would be assessed to lessees of federal lands as a disincentive to hold and not develop those lands. (More details on Chapters 1 through 3 of Subtitle B can be found in CRS Report RL34111, Energy Policy Reform and Revitalization Act of 2007, Title VII of H.R. 3221: Summary and Discussion of Oil and Gas Provisions .) Chapter 4 on Wind Energy would require the Department of the Interior to form a wind turbines guidelines advisory committee to study and recommend guidance for wind energy developers to mitigate the impact of turbines on birds and wildlife. State laws and regulations would not be preempted. Chapter 5 on Enhancing Energy Transmission would direct DOE to study transmission capacity in California, Oregon, and Washington to determine whether it could support new electricity generation from ocean wave, tidal, and current energy projects that could contribute up to 10% of total electricity use in those states. Subtitle C—Alternative Energy and Efficiency A grant program would be created for studies of alternative energy development on the outer continental shelf. The Department of the Interior would be directed to assess and report to Congress on the potential for using leasing of federal lands and other means to help develop rights-of-way and infrastructure along Bureau of Reclamation canals to support solar and wind energy production. A program would be established to research methods for improving the energy efficiency of reverse osmosis technology that is used for water desalination, water recycling, and clean up of water contamination. A pilot program would be created to develop a strategic solar reserve, and would identify and assess potential sites on federal lands for concentrating solar power systems. The National Oceanic and Atmospheric Administration would be directed to issue regulations necessary to implement its authority to license offshore thermal energy conversion facilities. A program would be established to use biomass from federal forest lands. Subtitle D—Carbon Capture and Climate Change Mitigation Chapter 1 would direct the Department of the Interior to develop a methodology for an assessment of the national potential for geological storage of carbon dioxide. Chapter 2 would direct the U.S. Geological Survey to estimate the potential for increasing carbon sequestration in natural systems through management measures or restoration activities in each ecosystem. A report to Congress would be required. Chapter 3 would direct the Bureau of Land Management to maintain records on, and an inventory of, the amount of carbon dioxide stored in geological structures on federal lands. A report to Congress would be required that estimates the potential capacity for such storage on federal lands. Chapter 4 would direct the Department of the Interior to establish an interagency National Resources Management Council on Climate Change to address the impacts of climate change on Federal lands, the ocean environment, and the federal water infrastructure. The Council would prepare a national plan that would be presented to Congress. Also, a national policy would be established that directs the federal government to cooperate with state, tribal, and affected local governments, other concerned public and private organizations, landowners, and citizens to use all practicable means and measures to assist wildlife populations and their habitats in adapting to and surviving the effects of global warming. A national strategy would be developed, an advisory board would be formed, and a state and tribal grants program would be established. Chapter 5 would direct the Department of Commerce to develop a national strategy to support coastal state and federal agency efforts to predict, plan for, and mitigate the impacts on ocean and coastal ecosystems from global warming, relative sea level rise, and ocean acidification. Further, it would be directed to develop a coastal climate change resiliency planning and response program to prepare for and reduce the negative consequences that may result from climate change in the coastal zone, and provide financial and technical assistance and training. Also, a National Integrated Coastal and Ocean Observation System would be established to improve the Nation's capability to measure, track, explain, and predict events related directly and indirectly to weather and climate change. Subtitle E—Royalties Under Offshore Oil and Gas Leases This Subtitle would require that the Secretary of the Interior accept a lessee's request to modify certain leases established in 1998 and 1999 without price thresholds ("covered leases") to include price thresholds. Lessees holding "covered leases" would not be eligible for new oil and gas leases in the Gulf of Mexico unless the covered leases are modified to include price thresholds or the lessee would agree to pay a newly established "conservation of resources fee." The Subtitle would repeal royalty relief provisions established by sections 344 and 345 of the Energy Policy Act of 2005 ( P.L. 109-58 ). It would also "reaffirm" the Secretary's authority to impose a price threshold in certain leases. This Subtitle is nearly identical to Title II of the House-passed version of H.R. 6 . (More details on Subtitle E can be found in CRS Report RS22567, Royalty Relief for U.S. Deepwater Oil and Gas Leases .) Subtitle F—Additional Provisions Subtitle F would establish an Oil Shale Community Impact Assistance Fund. Also, for certain existing federal leases, it would prohibit surface occupancy for oil and gas drilling on Colorado's Roan Plateau, which is federal land formerly designated as Naval Oil Shale Reserves. (More details on oil and natural gas provisions in Subtitle F can be found in CRS Report RL34111, Energy Policy Reform and Revitalization Act of 2007, Title VII of H.R. 3221: Summary and Discussion of Oil and Gas Provisions .) Also, the Minerals Management Service would be directed to report to Congress on the status of regulations required by the Outer Continental Shelf Lands Act with respect to wind energy production on the outer continental shelf. Title VIII—Transportation and Infrastructure This title assumes the provisions of H.R. 2701 . It would promote energy efficient transportation and public buildings and create incentives for the use of alternative fuel vehicles and renewable energy. On June 20, 2007, the House Committee on Transportation and Infrastructure ordered reported H.R. 2701 by voice vote. Subtitle A—Department of Transportation (DOT) A Center for Climate Change and Environment would be established to plan, coordinate, and implement strategies to reduce transportation-related energy use, mitigate the effects of climate change, and address the impacts of climate change on transportation systems and infrastructure. Subtitle B—Highways and Transit Part 1 provides support for public transportation systems. Federal grants up to 100% of costs would be made available to improve public transportation services that involve fare reductions. For projects that involve acquiring clean fuel or alternative fuel vehicle-related equipment or facilities for the purposes of complying with the Clean Air Act, federal grants would be made available that cover up to 100% of net costs. The Surface Transportation Board's mediation capacity would be expanded to assist public transportation agencies seeking track rights of way with rail carriers. DOT would be directed to create a pilot program to conduct vanpool demonstration projects in three urbanized areas and two non-urbanized areas to increase vanpool use and the number of vanpools in service. Part 2 provides support for federal-aid highways. The federal share for congestion mitigation and air quality (CMAQ) projects would be increased up to 100% of project or program cost. A sense of Congress would be established that in constructing new roadways or rehabilitating existing facilities, state and local governments should employ policies designed to accommodate all users, including motorists, pedestrians, cyclists, transit riders, and people of all ages and abilities. Subtitle C—Railroad and Pipeline Transportation Part 1 would direct DOT, in coordination with EPA, to establish and conduct a pilot grant program to assist railroad carriers in purchasing hybrid locomotives, including hybrid switch locomotives, in order to demonstrate the extent to which such locomotives increase fuel economy, reduce emissions, and lower costs of operation. Also, DOT would be directed to create a program of capital grants for the rehabilitation, preservation, or improvement of railroad track (including roadbed, bridges, and related track structures) of class II and class III railroads. Part 2 would direct DOT to conduct feasibility studies for the construction of pipelines dedicated to ethanol transportation. A report to Congress would be required. Subtitle D—Maritime Transportation Part 1 would direct DOT to establish a short sea transportation program and designate short sea transportation projects to be conducted under the program to mitigate landside congestion. Short sea shipping activities would be made eligible for support from DOT's capital construction fund. A report to Congress on the short sea transportation program would be required. Part 2 would strengthen certain provisions that aim to prevent pollution from ships. Subtitle E—Aviation DOT, in coordination with EPA, would be directed to establish a pilot demonstration grant program to reduce noise, airport emissions, greenhouse gas emissions, or water quality impacts. Each project grant would be limited to a maximum of $2.5 million. Subtitle F—Public Buildings Under Part 1, for each prospective project to construct, alter, acquire, or lease a building, the General Services Administration (GSA) would be directed to prepare estimates of the future energy performance of the building and a description of the use of energy efficient and renewable energy systems, including photovoltaic systems, in carrying out the project. The period for calculating life-cycle cost effectiveness in federal buildings would be extended from 25 years to 40 years. GSA would be directed to use up to $30 million authorized from unobligated balances of the Federal Buildings Fund to support the installation of a solar photovoltaic system for the DOE headquarters building in Washington, DC. Part 2 would prohibit, except under certain circumstances, the purchase of incandescent light bulbs for use in Coast Guard office buildings. Part 3 would allow the Architect of the Capitol (AOC) to perform a feasibility study regarding construction of a photovoltaic roof for the Rayburn House Office Building. The AOC may construct a fuel tank and pumping system for E—85 fuel at or within close proximity to the Capitol Grounds Fuel Station. To the maximum extent practicable, the AOC would be required to include energy efficiency measures, climate change mitigation measures, and other appropriate environmental measures in the Capitol Complex Master Plan. For the purpose of reducing carbon dioxide emissions, the Architect of the Capitol would be directed to install technologies for the capture and storage or use of carbon dioxide emitted from coal combustion in the Capitol Power Plant. AOC would be directed to operate the steam boilers and chiller plant at the Capitol Power Plant in the most energy efficient manner possible to minimize carbon emissions and operating costs. Subtitle G—Water Resources and Emergency Management Preparedness Part 1 would declare a federal policy that all federal water resources projects reflect national priorities for flood damage reduction, navigation, ecosystem restoration, and hazard mitigation and consider the future impacts of increased hurricanes, droughts, and other climate change-related weather events. A 21 st Century Water Commission would be established to project future water supply and demand, impacts of climate change to the nation's flood risk and water availability; and associated impacts of climate change on water quality. EPA would be directed to arrange with NAS for a study that will identify the potential impacts of climate change on the nation's watersheds and water resources, including hydrological and ecological impacts, including the potential impacts of climate change on water quality. The Secretary of the Army would be directed to ensure that water resources projects and studies carried out by the Corps of Engineers take into account the potential short and long term effects of climate change. Part 2 would direct the Federal Emergency Management Agency (FEMA) to conduct a comprehensive study of the increase in demand for FEMA's emergency preparedness, response, recovery, and mitigation programs and services that may be reasonably anticipated as a result of an increased number and intensity of natural disasters affected by climate change, including hurricanes, floods, tornadoes, fires, droughts, and severe storms. Title IX—Energy and Commerce This title assumes the provisions of a draft bill adopted by the House Committee on Energy and Commerce on June 28, 2007. Subtitle A—Promoting Energy Efficiency This subtitle has nine parts. Part 1 on appliance efficiency would set new efficiency standards for residential clothes washers, dishwashers, dehumidifiers, refrigerators, refrigerator-freezers, freezers, electric motors, and residential boilers. DOE would be allowed to establish regional variations in standards for heating and air conditioning equipment. DOE would be required to complete a rulemaking process for furnace fans by 2013. Federal agencies would be directed to purchase devices that limit standby power use. DOE would be directed to issue a final rule that sets energy conservation standards for battery chargers. Certain energy efficiency measures for walk-in coolers and walk-in freezers would be set by legislation. Also, several procedural changes would be made to expedite the DOE rulemaking process. Part 2 would set a mandatory target for lighting efficiency, set a standard for incandescent reflector lamps, and require federal agencies to replace incandescent lights with more efficient ones. Energy efficiency standards would be set by legislation for metal halide lamp fixtures designed to be operated with lamps rated between 150 watts and 500 watts. Part 3 on residential buildings would encourage stronger state building codes, require improved codes for manufactured housing, and reauthorize the DOE Weatherization program. DOE would be directed to conduct a study of the renewable energy system rebate program described in §206(c) of the Energy Policy Act of 2005. The study would determine the minimum funding the program would need to be viable and require a proposed implementation plan. Part 4 on commercial and federal buildings would create an Office of High Performance Green Buildings at DOE. The office would be required to use life-cycle costing and allow agencies to retain cost savings. Federal procurement of green building materials would be increased. Federal agencies would be required to identify energy- and water-saving measures. Demonstration projects would be required at federal facilities and universities. A national goal would be set to achieve zero-net-energy use for new buildings constructed after 2025. Public outreach would be established, including green building technical assistance and information. An EPA program would be established to improve energy efficiency in data centers. Certain green building renovation projects would be eligible for loan guarantees under §1703 of EPACT. GSA would be directed to use available appropriations to support a program to accelerate the use of geothermal (ground source) heat pump equipment in federal facilities. In each purchase of meeting and conference services, federal agencies would be required to consider the environmentally preferable (green) features and practices of a vendor in a manner similar to that already implemented by EPA. A grant program would be established to provide up to $1 million in support of energy efficiency projects at universities. Part 5 on industrial energy efficiency would direct EPA to identify the potential for economically feasible waste energy recovery, create a grant program to support waste energy recovery, and strengthen "clean energy centers" that analyze waste energy recovery. Part 6 on energy efficiency of public institutions would promote combined heat and power systems in public institutions through federal revolving fund loans. EPA would be directed to conduct a study of how sustainable building features, such as energy efficiency, affect perceived indoor environmental quality for students in K-12 schools. Part 7 on energy savings performance contracting (ESPC) would allow use of appropriated funds for ESPCs, eliminate the ESPC program sunset, require training for federal agency contract officers, direct that energy savings be measured, and create a DOE advisory committee to assist with deployment strategies. Part 8 would create an advisory committee on energy efficiency financing. Part 9 would establish an energy efficiency block grant program. Subtitle B—Smart Grid Facilitation This subtitle would create an electric grid modernization commission to study and propose policies on "Smart Grid" technology implementation. A federal 25% matching grant program would be created to support implementation. DOE would be directed to help deploy technologies and perform cooperative demonstration projects with electric utilities. States would be required to consider regulatory standards that would allow utilities to recover smart grid investments through rates and "decouple" utility profits from electricity sales volume. Subtitle C—Loan Guarantees This subtitle would amend EPACT Section 1702(c) on loan guarantees to clarify that DOE should approve project amounts likely to attract other investment, may not establish a loan guarantee limit below 80% of total project cost, and should require assurances that construction workers will be paid prevailing wage rates. Also, categories of projects deemed eligible in EPACT Section 1703 could not be excluded by language in appropriations bills. Subtitle D—Renewable Fuel Infrastructure and International Cooperation Part 1 of this subtitle would direct DOE to create a grant program to help establish or convert infrastructure to use renewable fuels, including E85 (85% ethanol). The EPACT authorization for grants to support cellulosic ethanol production would be increased. A grant program would be created to support production of flexible-fueled vehicles. Studies would also be required on the market penetration of flexible-fueled vehicles, the feasibility of constructing dedicated ethanol pipelines, the feasibility of using greater percentages of ethanol in fuel blends, and the adequacy of railroad transportation for delivery of ethanol fuel. Part 2 of this subtitle would establish a grant program and advisory board for U.S.-Israel energy cooperation. The provisions of this Subtitle are identical to those of H.R. 3238 . Subtitle E—Advanced Plug-In Hybrid Vehicles and Components This subtitle would establish a loan guarantee program for advanced battery development, grant programs for plug-in hybrid vehicles, incentives for purchasing heavy duty hybrids for fleets, and credits for various electric vehicles. Subtitle F—Availability of Critical Energy Information This Subtitle would improve data collection needed by the DOE's Energy Information Administration to support efficient energy markets. Subtitle G—Natural Gas Utilities Each natural gas utility would be required to make energy efficiency a priority resource and integrate energy efficiency into its plans and planning processes. Further, state regulators would be directed to consider crafting rate policies that align utility revenue recovery measures with incentives for energy efficiency measures. This Subtitle was added by floor amendment ( H.Amdt. 755 ), which was approved by voice vote. Subtitle H—Federal Renewable Portfolio Standard (RPS) This Subtitle would modify Title VI of the Public Utility Regulatory Policies Act of 1978 to establish an RPS for retail electric utilities that would be administered by DOE. For each retail supplier that sells more than one billion kilowatt-hours (kwh) per year, the RPS would set a minimum electricity production requirement from renewable resources. The standard would start at 2.75% in 2010 and then rise annually until reaching a peak of 15% in 2020. Electricity savings from energy efficiency measures would be allowed to compose a maximum of 25% of the standard in any given year, rising to a peak of 4% of the 15% total in 2020. Many provisions in this Subtitle are similar to those of H.R. 969 . This Subtitle was added by floor amendment ( H.Amdt. 748 ), which was approved by a vote of 220 to 190. (More details on Subtitle H can be found in CRS Report RL34116, Renewable Energy Portfolio Standard (RPS): Background and Debate Over a National Requirement .) Subtitle I—Large and Small Scale Hydropower Congress expresses its recognition and support for renewable energy. In particular, this recognition and support is conferred on clean, consistent, pollution-free large and small scale conventional hydropower energy. This Subtitle was added by floor amendment ( H.Amdt. 755 ), which was approved by vote of 402 to 9. H.R. 3221, Division B: "Renewable Energy and Energy Conservation Act of 2007" (formerly H.R. 2776) Title XI—Production Incentives This Title would extend the renewable electricity production tax credit (PTC) for four years, expand the PTC to include ocean thermal and hydrokinetic (wave, tide, and current) energy, extend the 30% business energy tax credit for solar and fuel cell equipment for eight years, authorize $2 billion of clean renewable energy bonds, and remove the cap on the tax credit for residential solar and fuel cell equipment. (For more discussion of these tax provisions see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) Title XII—Conservation Subtitle A—Transportation Transportation fuel incentives would set a $4,000 credit for plug-in hybrid vehicles, establish a 50 cent per gallon production tax credit for cellulosic ethanol fuel, extend the biodiesel production tax credit for two years, increase the alternative refueling stations tax credit, create a fringe benefit for bicycle commuters, and modify depreciation and expensing rules to close a loophole for gas guzzlers by making the incentives available for fuel efficient vehicles. (For more discussion of these tax provisions see CRS Report RL33578, Energy Tax Policy: History and Current Issues , by [author name scrubbed].) Subtitle B—Other Conservation Provisions Other energy efficiency provisions include a tax credit bond for community programs to reduce greenhouse gases, a tax credit bond for states to provide loans and grants for home improvements and residential equipment, an extension of the tax deduction for commercial buildings, an extension and modification of the appliance credit, and the establishment of a five-year depreciation period for smart electric meters. Also, the bill would clarify that the $1 per gallon production credit for renewable diesel would be available only for fuel produced from biomass. A study of biofuels' future production potential and possible domestic impacts would be required. (For more discussion of these tax provisions see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) Title XIII—Revenue Provisions Subtitle A—Denial of Oil and Gas Tax Benefits (For discussion of these tax provisions see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) Subtitle B—Clarification of Eligibility for Certain Fuel Credits (For discussion of these tax provisions see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) Title XIV—Other Provisions Subtitle A—Studies (For discussion of these tax provisions see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) Subtitle B—Application of Certain Labor Standards on Projects Financed Under Tax Credit Bonds (For discussion of these tax provisions see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) Appendix B. Senate-Passed Version of H.R. 6 : "Renewable Fuels, Consumer Protection, and Energy Efficiency Act" The proposed Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007 ( H.R. 6 ) is an omnibus energy policy bill that consists mainly of provisions for energy efficiency and renewable energy. The House version of H.R. 6 was amended on the Senate floor. S.Amdt. 1502 , an amendment in the nature of a substitute, replaced the House version with the text of S. 1419 . Several second degree amendments to S.Amdt. 1502 were adopted. The Senate approved the amended bill by a vote of 65-27 on June 21, 2007. Key Provisions Adopted and Rejected A description of some key provisions and amendments follow: Renewable Fuel Standard (RFS). Section 111 would increase RFS to 8.5 billion gallons per year by 2008, rising to 36 billion gallons by 2022. Corporate Average Fuel Economy (CAFE) Standards. The CAFE standard in Section 502 was modified by S.Amdt. 1792 . The adopted provision proposes increases to the combined average fuel economy standard for cars and light trucks that would reach 35 miles per gallon (mpg) by 2020. This would be an increase of about 10 mpg over current standards. The amendment (as modified by S.Amdt. 1843 ) was adopted by voice vote. Oil Savings Provision. S.Amdt. 1505 established this provision as Section 251. The provision calls for development of a plan to cut U.S. oil use by 2.5 million barrels per day (mbd) by 2016, rising to 10 mbd by 2031, about 35% of projected demand for that year. The amendment was adopted by a vote of 63-30. Renewable Portfolio Standard (RPS). S.Amdt. 1537 would have added a new title to create an RPS that would reach 15% by 2020. Certain energy efficiency measures would have also been allowed to help fulfill the RPS. The amendment was never considered for a vote and, after a successful cloture vote on S.Amdt. 1502 , the RPS amendment was ruled non-germane. Also, S.Amdt. 1538 would have amended S.Amdt. 1537 to create a 20% "clean portfolio standard" that included renewables, efficiency, coal, and nuclear energy. The amendment was tabled by a vote of 56-39. Tax Provisions. S.Amdt. 1704 would have added a new tax title that included some of the provisions for renewables and energy efficiency in S. 1531 . The proposed amendment included a five-year extension of the renewable electricity production tax credit. It also included many provisions for biofuels and some provisions for oil, coal, and vehicles. The amendment failed to achieve cloture by a vote of 57-36, and was subsequently ruled non-germane. A brief summary of each of these eight titles in the Senate-passed version of H.R. 6 follows. Title I—Biofuels for Energy Security and Transportation Title I would increase the renewable fuel standard, set some standards for greenhouse gas emissions reductions, and provide support for fuel infrastructure, feedstocks, and biorefineries. Subtitle A—Renewable Fuel Standard Subtitle A would extend and increase the renewable fuel standard (RFS), which establishes minimum annual levels of renewable fuel in gasoline. The modified standard would start at 8.5 billion gallons in 2008 and rise to 36 billion gallons in 2022. Starting in 2016, an increasing portion of the requirement would have to be met with advanced biofuels, including cellulosic ethanol, biobutanol, and other fuels derived from unconventional biomass feedstocks. Renewable fuels produced from new biorefineries would be required to achieve at least a 20% reduction in life cycle greenhouse gas emissions relative to life cycle emissions from gasoline (§ 111[a][1][i][II]). A voluntary labeling program would be established for renewable fuels, based on life cycle greenhouse gas emissions (§ 111[i]). Fuel produced from biorefineries that displaces more than 90% of the fossil fuels used in a biofuel production facility would qualify for additional credits under the RFS (§ 112). Subtitle B—Renewable Fuels Infrastructure Subtitle B would provide grants for renewable fueling infrastructure (§ 121), increase the Department of Energy (DOE) bioenergy R&D funding authorization (§ 122), establish 11 bioenergy research centers (§ 123), provide loan guarantees for renewable fuel facilities (§ 124), provide research grants for states with low rates of ethanol production (§ 125), provide grants for infrastructure for transportation of biomass to local refineries (§ 126), establish a biorefinery information center (§ 127), create an alternative fuels database (§ 128), set a labeling requirement for alternative fuels (§ 129), and set a national biodiesel fuel quality standard (§ 130). Subtitle C—Studies Subtitle C would require that several studies be conducted, covering specialized topics on biofuels, ethanol, electric vehicles, and biodiesel. Subtitle D—Environmental Safeguards DOE would be directed to create a grant program to encourage production of advanced biofuels (§161). Grant awards would be made to projects that would have the greatest reduction in lifecycle greenhouse gas (GHG) emissions. The projects must also reduce GHG emissions by at least 50%. Studies, and subsequent reports to Congress, would be required on environmental impacts of increased use of renewable fuels attributable to the provisions of this bill (§162). Specific aspects would include air and water quality, land use patterns, deforestation rates, GHG emissions, and the long-term capacity to produce biomass feedstocks. Also, EPA would be directed to study whether the volumes of renewable fuel required under Subtitle A would adversely impact air quality. Title II—Energy Efficiency Promotion Title II would set some new standards for energy efficient equipment, establish goals for fuel savings, strengthen federal energy efficiency requirements, and authorize several new programs for vehicles and grants. Subtitle A—Promoting Advanced Lighting Technologies Subtitle A would promote advanced lighting technology by requiring all federal lighting to be Energy Star rated by 2010 (§ 211), expanding efficiency standards for incandescent reflector lamps (§ 212), creating the "Bright Tomorrow" lighting prizes for solid state (LED) lighting developments (§ 213), and establishing a "Sense of the Senate" to pass mandatory energy efficiency performance targets for lighting products (§ 214). Also, the Committee markup added a notable provision that did not appear in S. 1115 . That provision would authorize grants to support construction of solar, wind, geothermal, ocean, biomass, landfill gas, and Alaska small hydropower projects (§ 215). Subtitle B—Expediting New Energy Efficiency Standards Subtitle B would establish, by statute, new energy efficiency standards for residential boilers (§ 227), electric motors (§ 229), and some home appliances (§ 230). DOE would be directed to set standards by rulemaking for furnace fans (§ 223). Also, DOE would be allowed to set standards for multiple components (§ 221) and regional standards for heating and cooling equipment (§ 222). Further, this subtitle would authorize R&D on improved efficiency for appliances and buildings in cold climates (§ 231) and provide incentives for the manufacture of high-efficiency consumer products (§ 232). Other provisions would guide expedited rulemakings (§ 224), clarify limits to federal preemption of state standards (§ 225), and require Energy Guide labels for several types of consumer electronic products (§ 226). Also, the Committee markup added a provision that would direct DOE to establish a program that supports, develops, and promotes the use of new technologies to improve energy efficiency in materials manufacturing and energy-intensive industries (§ 233). Subtitle C—Promoting High Efficiency Vehicles, Advanced Batteries, and Energy Storage Subtitle C would promote high-efficiency vehicles, advanced batteries, and energy storage. DOE would be authorized to fund an R&D program on light-weight materials (§ 241). A loan guarantees program would be created for facilities that manufacture fuel-efficient vehicles (§ 242). Funding awards for qualified investments would be authorized to refurbish manufacturing facilities that produce advanced technology vehicles (§ 243). A 10-year R&D program would be authorized to support U.S. competitiveness in global energy storage markets, and a five-year R&D program would be authorized for electric drive technologies (§ 244). Also, the Committee markup added a provision that would direct DOE to establish a competitive grant program for state, regional, and local government entities to demonstrate electric drive vehicles. DOE would also be required to establish a program to deploy technologies that would achieve near-term oil savings in the transportation sector (§ 245). Subtitle D—Setting Energy Efficiency Goals Subtitle D would set several energy efficiency goals that include reducing gasoline use 45% by 2030 (§ 251) and improving energy productivity by 2.5% in 2012 and each year thereafter through 2030 (§ 252). Also, DOE would be authorized to conduct a four-year national media campaign to educate consumers to save energy and reduce oil use (§ 253), and federal agencies would be authorized to carry out programs for demonstration and use of advanced electricity transmission and distribution technologies (§ 254). Subtitle E—Promoting Federal Leadership in Energy Efficiency and Renewable Energy Subtitle E would promote federal leadership in energy efficiency and renewable energy. Federal and state fleets would be required to reduce petroleum use 30% by 2016 (§ 261). The renewable energy share of federal energy purchases would increase to 15% by 2015 (§262). The authorization for federal agencies to use Energy-Saving Performance Contracts (ESPCs) would be extended permanently (§ 263). Federal buildings would be required to reduce energy use 30% by 2015 (§ 264). DOE would be directed to identify federal sites for installing combined heat and power (§ 265). Federal buildings would be required to reduce fossil energy use by 50%, compared with similar buildings from the past that were not subject to the standard (§ 266). The Department of Housing and Urban Development (HUD) would be required to update efficiency standards for all public and assisted housing (§ 267). DOE would be authorized to conduct R&D and deployment activities that help increase the energy-efficiency of commercial buildings (§ 268). Subtitle F—Assisting State and Local Governments in Energy Efficiency Subtitle F would improve energy efficiency assistance to state and local governments by increasing the authorization for the DOE Weatherization program (§ 271), reauthorizing the State Energy program (§ 272), requiring state utility regulatory commissions to consider federal standards to promote energy efficiency (§ 273), authorizing the National Renewable Energy Laboratory (NREL) to provide technical assistance (§ 274), authorizing grants to local governments (§ 275), authorizing grants to universities for demonstration projects (§ 276), authorizing workforce training programs (§ 277), and authorizing funds for education programs to reduce school bus idling (§ 278). Subtitle G—Marine and Hydrokinetic Renewable Energy Promotion DOE would be directed to create an R&D program focused on technology that produces electricity from waves, tides, currents, and ocean thermal differences (§291-292). A report to Congress would be required. Also, DOE would be directed to establish national ocean energy research centers at one to six universities (§293). Title III—Carbon Capture and Storage R&D and Demonstration Title III would call for large-scale testing of carbon dioxide (CO 2 ) storage in geological formations, establish competitive funding awards, direct that a national storage capacity assessment be conducted, and require that the Department of Energy (DOE) demonstrate the use of large-scale capture technologies at industrial facilities. Title IV—Cost-Effective and Environmentally Sustainable Public Buildings Subtitle A—Public Buildings Cost Reduction Subtitle A would direct the General Services Administration (GSA) to establish a program to speed the use of cost-effective energy-efficient lighting equipment and other technologies and practices (§402). Further, GSA would be required to prepare a five-year plan to replace inefficient lighting in GSA buildings using available funds. Also, an EPA matching grant program would be created to help local governments renovate buildings to improve energy efficiency (§403). For this program, $20 million would be authorized. Subtitle B—Photovoltaic System for DOE Headquarters GSA would be directed to use up to $30 million would be authorized from unobligated balances of the Federal Buildings Fund to support the installation of a solar photovoltaic system for the DOE headquarters building in Washington, D.C. Subtitle C—High Performance Green Buildings Part 1 would direct GSA to establish an Office of High-Performance Green Buildings and a Green Building Advisory Committee to support R&D and outreach to spur the federal government toward the construction of high performance green buildings. A green building information clearinghouse would be established. The Office would be directed to establish a standard for certification of green buildings. A report to Congress would be required. Part 2 would create a program for Healthy High-Performance Schools that aims to involve states, local governments, and school systems building green schools. EPA, in consultation with the Department of Education, would be allowed to provide grants to state agencies to provide technical assistance and help with the development of state plans for school building design. Also, EPA would be directed to develop model voluntary guidelines for school site selection. In addition to other environmental aspects, the grants and guidelines would have a focus on energy efficiency, natural daylighting, and other energy-related features. Part 3 on Strengthening Federal Leadership would direct the Office of Green Buildings to identify incentives that would encourage the use of green buildings in federal operations. Incentives could include recognition awards and agency retention of cost savings (§451). The Office of Federal Procurement Policy would be directed to revise acquisition regulations to require that acquisition, construction, and major renovations employ green design and to give preference in leasing to buildings that are energy-efficient (§452). The Comptroller General would be directed to conduct an audit of the implementation of this Subtitle and submit a report to Congress that describes the findings (§453). Strategies for addressing storm water runoff would be required for federal facility development projects (§454). Part 4 would call for a Demonstration Project. The Office of Green Buildings would be directed to prepare guidelines for the implementation of a federal demonstration project that would contribute to the research goals of the Office. Funding would be authorized at $10 million per year over five years. Title V—Corporate Average Fuel Economy Standards Title V, the Ten-in-Ten Fuel Economy Act of 2007 , would require that the corporate average fuel economy standard (CAFE) for new cars and light trucks be increased to 35 miles per gallon (mpg) by 2020 and require a 4% annual increase for 10 years thereafter. Starting in 2011, a 4% annual increase would also be required for medium- and heavy-duty trucks. Title VI—Price Gouging Title VI would criminalize price gouging in fuel markets during an energy emergency. Title VII—Energy Diplomacy and Security Title VII would express the sense of Congress on several aspects of international energy cooperation, with a special emphasis on increasing the use of sustainable energy sources. The Department of State would be encouraged to establish four new types of administrative mechanisms. One type of mechanism would be strategic energy partnerships with the governments of major energy producers and consumers, and with governments of other countries. A second type would be petroleum crisis response mechanisms with the governments of China and India. A third would be a Western Hemisphere energy crisis response mechanism. A fourth would be a regionally-based ministerial Hemisphere Energy Cooperation Forum. Also, the Department of State would be encouraged to approach other governments in the Western Hemisphere to cooperate in establishing a "Hemisphere Energy Industry Group" of industry and government representatives, which would be coordinated by the U.S. government. The President would be encouraged to introduce the topic of "the merits of establishing an international energy program application procedure" for discussion at the Governing Board of the International Energy Agency. Also, the bill would establish a "Hemisphere Energy Cooperation Forum," that would be encouraged to implement an Energy Crisis Initiative, an Energy Sustainability Initiative, and an Energy for Development Initiative. Title VIII—Miscellaneous Title VIII, Miscellaneous , would require that DOE study and report on the laws and regulations that affect the siting of privately owned electric distribution wires on and across public rights-of-way. Senate Amendment 1704 (Energy Tax Provisions) A package of tax provisions ( S.Amdt. 1704 ) was considered during Senate floor action on the proposed substitute to H.R. 6 . The proposed tax package amendment included incentives for renewable energy and energy efficiency as well as oil and natural gas revenue offset provisions. The proposed revenue offsets were similar to, but more extensive than, the offsets proposed in Title XIII, Subtitle A, of H.R. 3221 . However, S.Amdt. 1704 failed by a vote of 57-36 on a cloture motion to limit debate. Part I—Advanced Electricity Infrastructure Part I would have extended the PTC for 5 years and expanded it to include ocean thermal and hydrokinetic (wave, tide, and current) energy. Also, it would have extended the 30% business energy tax credit for solar and fuel cell equipment for 8 years and repealed the public utility exclusion. It would have authorized $3.6 billion of CREBs, and raised the cap on the tax credit for residential solar and fuel cell equipment. A new credit would have been created for residential wind equipment. Two incentives for electric transmission would have been established. Also, Part I would have improved depreciation for energy management devices. Part II—Carbon Dioxide Sequestration Part II would have created three tax incentives for carbon dioxide sequestration. Part III—Domestic Fuel Security Part III would have provided several tax incentives for production of cellulosic ethanol and certain other biofuels. Part IV—Advanced Technology Vehicles Part IV would have created a credit for plug-in hybrids, capped at $7,500 to $15,000, depending on vehicle weight. The credit for alternative-fueled vehicles would have been extended for 2 years. An exclusion from heavy truck tax would have been established for idling reduction units and certain truck insulation measures. Part V—Conservation and Energy Efficiency Part V would have extended the existing home efficiency retrofit credit for 2 years, the new home credit for 3 years, the commercial building credit for 5 years, and the home appliance credit would have been extended and expanded. Part VI—Accountability Studies Part VI would have called for a cost-benefit study of pollution reduction, a study of the effect of tax benefits for prices on consumer goods, and a study of tax-credit bonds. Part VII—Other Provisions Subtitle A on Energy Advancement and Investment had two subparts. Subpart A would have established certain tax measures for timber property. Subpart B would have set out certain tax measures for coal. Subtitle B on Revenue Raising Provisions included several tax modifications that aimed to reduce certain subsidies for oil and natural gas development. The resultant funds would have been used to offset the costs associated with the new tax incentives for energy efficiency and renewable energy. Clean Renewable Energy Incentives Act ( S. 1531 ) The proposed Clean Renewable Energy and Economic Development Incentives Act of 2007 ( S. 1531 ) is an omnibus energy tax policy bill that consists mainly of provisions for renewable energy. It has two titles. Title I proposes Tax Incentives for Energy Conservation and Exploration. Title II proposes Investment Tax Credits with Respect to Solar Energy Property and Manufacturing . On the Senate floor, S.Amdt. 1704 would have added a new tax title that included some of the provisions for renewables and energy efficiency in S. 1531 . The amendment failed to achieve cloture by a vote of 57-36, and was subsequently ruled non-germane. Title I—Tax Incentives for Energy Conservation and Exploration Title I of S. 1531 would extend three existing tax incentives and establish six new ones. Section 101 would extend the renewable energy electricity production tax credit (PTC) for 10 years, to the end of 2018. For certain large facilities, such as geothermal and biomass power plants, credit eligibility could be extended for up to two years after the placed-in-service deadline. Section 102 would extend the clean renewable energy bonds (CREBs) for 10 years. The national total bond limit would be $1.2 billion per year for 2007 through 2008 and $1.0 billion per year for 2009 through 2018. Section 103 would establish a tax credit bond for water conservation. Section 104 would create a 10% investment tax credit for geothermal exploration. For residential installations of small wind equipment, Section 105 would establish a 30% investment tax credit, with a limit of $1,000 per kilowatt (kw). Section 106 would extend for five years the investment tax credit for the construction of new energy efficient homes. Section 107 would create a 20% investment tax credit for manufacturing equipment used to produce advanced batteries. Section 108 would establish renewable school energy bonds, with a national bond limit of $50 million in 2008, $100 million in 2009, and $150 million in 2010. Under Section 109, bonds would be issued to finance new renewable energy facilities, including equipment that uses tidal, wave, current, and ocean thermal energy. Title II—Investment Tax Credit with Respect to Solar Energy Property and Manufacturing Title II of S. 1531 would permanently extend two tax incentives for solar energy equipment and establish three new incentives for solar equipment. Subtitle A—Solar Energy Property Section 201 would extend permanently the 30% value of the investment tax credit for business installations of solar equipment. In Section 202, the investment tax credit for solar (30%) and geothermal (10%) equipment would be made available to public utilities. Under Section 203, the 30% residential energy efficiency investment tax credit would be extended permanently. Further, the cap would be raised to $3,000/kw for solar electric equipment, $2,000 for solar heating and cooling equipment, and $500 for fuel cells. Section 204 would make certain solar equipment eligible for a three-year accelerated depreciation period. Subtitle B—Promotion of Solar Manufacturing in the United States Section 211 would establish a 30% investment tax credit for facilities that manufacture solar energy equipment. (For more discussion of the provisions in this bill see CRS Report RL33578, Energy Tax Policy: History and Current Issues .) | In the first session of the 110th Congress, the House and the Senate passed two markedly different versions of omnibus energy efficiency and renewable energy legislation. This report compares major provisions in House-passed H.R. 3221 and Senate-passed H.R. 6. Key legislative challenges remain. First, there are significant differences between the two bills. Second, because the House and Senate have passed different measures, further action will be required in at least one chamber before a conference committee could be arranged. Third, concerns about certain oil and natural gas provisions, and the lack of measures to support increased oil and gas production, have led the Administration to threaten to veto each bill. Highlights of major provisions include: Renewable Fuels Standard (RFS). The Senate bill would set a modified standard that starts at 8.5 billion gallons in 2008 and rises to 36 billion gallons by 2022. The House bill has no RFS provision. Corporate Average Fuel Economy (CAFE). The Senate bill would set a target of 35 miles per gallon for the combined fleet of cars and light trucks by model year 2020. The House bill has no CAFE provision. Renewable Energy Portfolio Standard (RPS). The House bill would set a minimum standard that would start at 2.75% in 2010 and rise steadily to a peak of 15% in 2020. The Senate bill has no RPS provision. Offshore Oil and Gas Royalties. The House bill would establish royalties, or alternative payments, for certain federal leases established in 1998 and 1999. The Senate bill has no provision. Repeal of Oil and Gas Tax Incentives. The House bill would obtain tax revenue offsets by reducing subsidies for oil and natural gas production. The Senate bill has no provision. Renewable Energy Electricity Production Tax Credit (PTC). The House bill would extend the PTC for four years, and expand it to include some additional resources. The Senate bill has no provision. Other Tax Incentives. The House bill would extend several investment tax credits covering solar energy and energy efficiency in residential and commercial sectors. The Senate bill has no provision. Energy Efficiency Equipment Standards. Key differences involve standards for residential refrigerators, freezers, refrigerator-freezers, metal halide lamps, and commercial walk-in coolers and freezers. Loan Guarantees. The House bill would give new loan authority to a wider variety of projects. The Senate bill would prevent appropriations acts from limiting the use of non-appropriated funds. |
Comprehensive immigration reform was debated in the 109 th and 110 th Congresses, but no comprehensive legislation was enacted. The Speaker of the House and the Senate majority leader pledged to take up immigration reform legislation in the 111 th Congress. In the past, comprehensive bills addressed border security, enforcement of immigration laws within the United States (interior enforcement), employment eligibility verification, temporary worker programs, permanent admissions and, most controversially, unauthorized aliens in the United States. Although the 111 th Congress did not take up a comprehensive reform bill, it did consider a narrower DREAM Act bill to legalize the status of certain unauthorized alien students. On December 8, 2010, the House approved a version of the DREAM Act as an amendment to an unrelated bill, the Removal Clarification Act of 2010 ( H.R. 5281 ), on a vote of 216 to 198. Ten days later, a cloture motion in the Senate to agree to the House DREAM Act amendment failed on a 55-41 vote. The 111 th Congress considered various other immigration-related measures and enacted a number of targeted immigration provisions. It passed legislation ( P.L. 111-8 , P.L. 111-9 , P.L. 111-68 , P.L. 111-83 ) to extend the life of several immigration programs—the E-Verify electronic employment eligibility verification system, the Immigrant Investor Regional Center Program, the Conrad State J-1 Waiver Program, and the special immigrant visa for religious workers—until September 30, 2012. Among the other subjects of legislation enacted by the 111 th Congress were border security ( P.L. 111-5 , P.L. 111-32 , P.L. 111-83 , P.L. 111-230 , P.L. 111-281 , P.L. 111-376 ), refugees ( P.L. 111-8 , P.L. 111-117 ), and Haitian migrants ( P.L. 111-212 , P.L. 111-293 ). This report discusses these and other immigration-related issues that received legislative action or were of significant congressional interest in the 111 th Congress. Department of Homeland Security (DHS) appropriations are addressed in a separate report and, for the most part, are not covered here. Employment eligibility verification and worksite enforcement have been mainstays of recent debates over comprehensive immigration reform. They are widely viewed as essential components of a strategy to reduce unauthorized immigration. Under Section 274A of the Immigration and Nationality Act (INA), it is unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to be so employed. Employers are further required to participate in a paper-based (I-9) employment eligibility verification system in which they examine documents presented by new hires to verify identity and work eligibility, and to complete and retain I-9 verification forms. Employers violating prohibitions on unlawful employment may be subject to civil and/or criminal penalties. Enforcement of these provisions is termed "worksite enforcement." While all employers must meet the I-9 requirements, they also may elect to participate in the E-Verify electronic employment eligibility verification system. E-Verify is administered by DHS's U.S. Citizenship and Immigration Services (USCIS). Participants in E-Verify electronically verify new hires' employment authorization through Social Security Administration (SSA) and, if necessary, DHS databases. At the start of the 111 th Congress, E-Verify was scheduled to expire on March 6, 2009. Prompted by the approaching expiration, the House and Senate considered several provisions related to electronic employment eligibility verification and enacted a series of extensions. The Omnibus Appropriations Act, 2009 ( P.L. 111-8 ) extended E-Verify until September 30, 2009, and the Continuing Appropriations Resolution, 2010 ( P.L. 111-68 , Division B, §128) extended the program until October 31, 2009. With the enactment of the Department of Homeland Security Appropriations Act, 2010 ( P.L. 111-83 , §547), E-Verify is currently authorized until September 30, 2012. This extension represented a compromise between the House-passed version of the underlying bill ( H.R. 2892 ), which would have extended the program until September 30, 2011, and the Senate-passed version which would have made E-Verify permanent. P.L. 111-83 also included language on E-Verify that was in both the House-passed and Senate-passed versions of H.R. 2892 to prohibit any funds made available to the DHS Office of the Secretary and Executive Management under the act to be used for any new DHS hires who were not verified through E-Verify (§533). Other E-Verify provisions in the House-passed or Senate-passed versions of H.R. 2892 were not enacted in P.L. 111-83 . The omitted language included two Senate-passed provisions. One would have allowed any employer participating in E-Verify to verify the employment eligibility of existing employees. The other Senate provision would have directed federal departments and agencies to require, as a condition of contracts they entered into, that the contractors use E-Verify to verify the employment eligibility of all individuals hired during the term of the contract to work in the United States and all individuals (whether new hires or existing employees) assigned to perform work in the United States under the contract. Other bills introduced in the 111 th Congress would have more broadly changed existing law on employment verification. For example, the Secure America Through Verification and Enforcement Act of 2009 (SAVE Act; H.R. 3308 ) would have made E-Verify permanent and would have phased in a requirement that all employers use it to verify the employment authorization of new hires and current employees. A similar bill of the same name ( S. 1505 ) was introduced in the Senate. DHS is charged with protecting U.S. borders from weapons of mass destruction, terrorists, smugglers, and unauthorized aliens. Border security involves securing the many means by which people and things can enter the country. Operationally, this means controlling the official ports of entry (POE) through which legitimate travelers and commerce enter the country, and patrolling the nation's land and maritime borders to safeguard against and interdict illegal entries. Border security was an important immigration issue for the 111 th Congress. There was much debate about whether DHS had sufficient resources to fulfill its border security mission. A number of bills were introduced that would have added resources for Customs and Border Protection (CBP), the lead agency at DHS charged with securing U.S. borders at and between official ports of entry (POE). At ports of entry, CBP officers are responsible for conducting immigration, customs, and agricultural inspections on entering aliens. Between ports of entry, the border patrol, a component of CBP, enforces U.S. immigration law and other federal laws along the border. In the course of discharging its duties, the border patrol patrols over 8,000 miles of U.S. international borders with Mexico and Canada and the coastal waters around Florida and Puerto Rico. The following discussion focuses on key provisions on border resources that were enacted by the 111 th Congress and selected other provisions. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) provided an emergency supplemental appropriation of $680 million for CBP during FY2009. The funding for CBP included $160 million for salaries and expenses, of which $100 million was designated for the procurement and deployment of nonintrusive inspection technology and $60 million was designated for the procurement and deployment of tactical communications equipment and radios. The act included $420 million for the construction and modification of ports of entry. In response to the drug-related violence on the Mexican side of the Southwest border, Congress appropriated additional resources for border activities. Title VI of the FY2009 Supplemental Appropriations Act ( P.L. 111-32 ) contained $140 million to support activities along the Southwest border with Mexico in response to reports of increasing drug-related violence. This funding included $40 million for CBP for various activities and $5 million for CBP Air and Marine to support additional air operations along the Southwest border. Moreover, the FY2010 DHS Appropriations bill ( P.L. 111-83 ) included funding for 50 additional CBP Officers and 10 support positions to enhance the Southwest border outbound operations. On August 13, 2010, the President signed into law P.L. 111-230 , making $600 million in FY2010 emergency supplemental appropriations available for border security, of which $394 million was allocated to DHS, $196 million to the Department of Justice (DOJ), and $10 million to the federal judiciary. Within DHS, P.L. 111-230 provided CBP with a total of $306 million, including $39 million for CBP officers at ports of entry on the Southwest border and $10 million to support integrity and background investigation programs. The remaining funding for DHS was to be focused largely on efforts between ports of entry, as discussed below. Another CBP-related law, the Anti-Border Corruption Act of 2010 ( P.L. 111-376 ), requires that within two years after enactment all applicants for law enforcement positions within CBP receive polygraph examinations before being hired. In addition, the act requires that that CBP initiate background reinvestigations for all of its law enforcement personnel within 180 days of enactment. Legislation related to border patrol resources garnered some attention in the 111 th Congress. For example, P.L. 111-83 funded the hiring in FY2010 of an additional 100 border patrol agents (and 23 associated support personnel), and the ARRA included $100 million for the deployment of SBInet technology to the border. The Administration requested $574 million for the deployment of SBInet-related technologies and infrastructures in FY2011, a decrease of $226 million over the FY2010 enacted level of $800 million. This reduction occurred, in part, because the management and deployment of SBInet had come under scrutiny. DHS Secretary Napolitano ordered a department-wide assessment of the SBInet technology project, but continued to support the deployment of border supervision and protection technologies. Additionally, P.L. 111-83 imposed reporting requirements on the Secretary of Homeland Security to identify "additional border patrol sectors that should be utilizing Operation Streamline programs" and the resources needed to make the program more effective, and to report on improvements of cross-border inspection processes. The Coast Guard Authorization Act of 2010 ( P.L. 111-281 ) included provisions to establish a program in the maritime environment for the mobile biometric identification of suspected individuals, and to conduct a cost analysis of expanding the Coast Guard's biometric identification capabilities for use by other DHS maritime vessels and units. This law also directed the Secretary of Homeland Security to study the use by the Coast Guard and other DHS agencies of a combination of biometric technologies, including facial and iris recognition and emerging biometric technologies, to identify individuals for security purposes. Maritime biometric identification was also the subject of another bill passed by the House ( H.R. 1148 ). As mentioned above, P.L. 111-230 provided DHS with a total of $394 million in FY2010 emergency supplemental funding, including $306 million for CBP. The majority of this CBP funding was allocated to border patrol activities between ports of entry, with $176 million provided for additional border patrol agents, $14 million for tactical communications, $32 million for unmanned aerial vehicle (UAV) acquisition and deployment, and $6 million for the construction of forward-operating bases for the border patrol. Outside CBP, the DHS funding in P.L. 111-230 included $80 million for Immigration and Customs Enforcement (ICE), of which $30 million was directed toward efforts to reduce the threat of violence along the Southwest border and $50 million was for additional ICE personnel. Additionally, $8 million was designated for CBP and ICE basic training at the Federal Law Enforcement Training Center (FLETC). Congress has repeatedly shown interest in the deployment of barriers along the U.S. international land border. In 1996, Congress passed the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA), which, among other provisions, explicitly gave the Attorney General broad authority to construct barriers along the border and specified where fencing was to be constructed. In 2008, Congress included provisions in P.L. 110-161 requiring DHS to construct reinforced fencing or other barriers along not less than 700 miles of the Southwest border, in locations where fencing was deemed most practical and effective. In carrying out this requirement, the Secretary was further directed to identify either 370 miles or "other mileage" along the Southwest border where fencing would be most practical and effective in deterring smugglers and illegal aliens, and to complete construction of fencing in identified areas. Although no legislation to amend this requirement moved beyond committee referral in the 111 th Congress, border fencing continued to be a source of contention in Congress as numerous Members called for the deployment of at least 700 miles of double-layered fencing designed to delay and deter pedestrian crossings. Unauthorized immigration remains a vexing issue for policymakers. The number of unauthorized aliens living in the United States in early 2009 was estimated at about 11 million. While many observers believe that the unauthorized alien population is decreasing, the sheer number of such aliens commands attention and has elicited a range of ideas about the appropriate policy response. Some legislative proposals in the 111 th Congress for addressing the unauthorized population focused on enforcement and included provisions on border security, worksite and other interior enforcement, and employment eligibility verification. H.R. 3308 and S. 1505 in the 111 th Congress were examples of these types of proposals. Other policymakers have taken a different approach and support some type of legalization program for unauthorized aliens—which they often term "earned adjustment"—sometimes in combination with enforcement measures. Legalization programs were included in some of the comprehensive immigration reform bills considered in the 109 th and 110 th Congresses, and were featured in some measures before the 111 th Congress, such as the Comprehensive Immigration Reform for America's Security and Prosperity (CIR ASAP) Act of 2009 ( H.R. 4321 ). Other bills before the 111 th Congress containing legalization programs included similar Senate and House Agricultural Job Opportunities, Benefits, and Security (AgJOBS) Acts of 2009 ( S. 1038 , H.R. 2414 ) and the DREAM Act bills discussed in the next section. Unauthorized alien students compose a subpopulation of the larger unauthorized alien population in the United States. Legislation commonly referred to as the "DREAM Act" (whether or not a particular bill carries that name) was introduced in the past several Congresses to provide relief to this group in terms of both educational opportunities and immigration status. In the aftermath of failed efforts to enact comprehensive immigration reform in the 110 th Congress, some supporters of comprehensive reform argued for an incremental approach, in which components of reform, such as DREAM Act legislation, would be pursued individually. An attempt in the Senate to enact a DREAM Act bill in the 110 th Congress ( S. 2205 ) was unsuccessful. Multiple DREAM Act bills (including S. 729 , S. 3992 , H.R. 1751 , and H.R. 6497 ) were introduced in the House and Senate in the 111 th Congress. While the bills differed, they all would have enabled eligible unauthorized students to obtain legal permanent resident (LPR) status in the United States through a two-stage process. In the first stage under all the bills, eligible aliens would have gone through an immigration procedure known as "cancellation of removal" to obtain a conditional legal status. Some of the bills also would have repealed a provision of current law (§505 of the Illegal Immigration Reform and Immigrant Responsibility Act) that restricts the ability of states to provide postsecondary educational benefits to unauthorized aliens. In the 111 th Congress, the House approved a version of the DREAM Act as an amendment to an unrelated bill, the Removal Clarification Act of 2010 ( H.R. 5281 ), on a vote of 216 to 198. The House-approved language, which was the same as H.R. 6497 , did not include the §505 repeal. Unlike most of the other DREAM Act bills introduced in the 111 th Congress, the House-approved version of the DREAM Act would have required beneficiaries to pay surcharges, submit biometric data, and satisfy federal tax liabilities, among other requirements. A cloture motion in the Senate to agree to the House DREAM Act amendment failed on a 55-41 vote on December 18, 2010. The admission of refugees to the United States is a perennial immigration issue. Refugee admission and resettlement are authorized by the INA. Under the INA, a refugee is a person who is outside his or her country and who is unable or unwilling to return 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. Refugees are processed and admitted to the United States from abroad. The Department of State (DOS) handles overseas processing of refugees, and DHS/USCIS makes final determinations about eligibility for admission. After one year in refugee status in the United States, refugees are required by law to apply to adjust to LPR status (see " Other Legislation Receiving Action " section below for related legislation). The Foreign Relations Authorization Act, Fiscal Years 2010 and 2011 ( H.R. 2410 ), as passed by the House, proposed a number of changes to the U.S. refugee admissions and resettlement program. Division A, Title II, Subtitle C of the bill would have authorized the admission of refugees at the start of a fiscal year, as specified, in the absence of a timely presidential determination setting the refugee ceiling for that year. It would have directed DOS to expand the training of U.S. embassy and consular personnel and nongovernmental organizations to enable them to refer individuals to the refugee admissions program. It also would have required DOS to establish overseas programs in the English language and in cultural and work orientation for refugees who were approved for U.S. resettlement. A Senate bill ( S. 3113 ), which was the subject of a Senate Judiciary Committee hearing, would have made various changes to the refugee admissions and asylum processes. Special legislative provisions facilitate relief for certain refugee groups. The "Lautenberg amendment," first enacted in 1989 and regularly extended, requires the Attorney General (now the Secretary of DHS) to designate categories of former Soviet and Indochinese nationals for whom less evidence is needed to prove refugee status, and provides for adjustment to LPR status for certain former Soviet and Indochinese nationals denied refugee status. P.L. 108-199 amended the Lautenberg amendment to add a new provision, known as the "Specter amendment," to direct the Attorney General to establish categories of Iranian religious minorities who may qualify for refugee status under the Lautenberg amendment's reduced evidentiary standard. P.L. 111-8 (Division H, Title VII, §7034(g)) extended the Lautenberg amendment through FY2009, and the Consolidated Appropriations Act, 2010 ( P.L. 111-117 , Division F, Title VII, §7034(f)), extended it through FY2010. The 111 th Congress did not pass legislation to re-enact the Lautenberg amendment for FY2011. The "McCain amendment," first enacted in 1996, made the adult children of certain Vietnamese refugees eligible for U.S. refugee resettlement. P.L. 107-185 revised the amendment for FY2002 and FY2003. Among its provisions, this law enabled adult children previously denied resettlement to have their cases reconsidered. The amendment, as revised, was regularly extended in subsequent years. P.L. 110-161 (Division J, §634(f)) extended the amendment through FY2009, and in the 111 th Congress, P.L. 111-8 (Division H, Title VII, §7034(d)) extended it through FY2010. This latter extension, however, was repealed by P.L. 111-117 (Division F, Title VII, §7034(d)), and the McCain amendment is no longer in effect. Beyond the formal refugee program, other immigration mechanisms have been established over the years to facilitate the admission to the United States of foreign nationals who have worked for or been closely associated with the U.S. government, including the U.S. military. The 111 th Congress created one such program for refugee-like Afghans as part of P.L. 111-8 (see " Special Immigrants " section below). The Department of Health and Human Services' Office of Refugee Resettlement (HHS/ORR), within the Administration for Children and Families, administers an initial transitional assistance program for temporarily dependent refugees and Cuban/Haitian entrants. P.L. 111-117 (Division D, Title II) provided $730.9 million for refugee assistance for FY2010. For FY2011, the President requested $877.6 million for refugee assistance. Needy refugees are also eligible for federal public assistance programs. The devastation caused by the January 12, 2010, earthquake in Haiti focused world attention on the humanitarian crisis and prompted U.S. leaders to reconsider policies on Haitian migration. On January 15, 2010, DHS Secretary Janet Napolitano announced that Haitians who were in the United States at the time of the earthquake would be given Temporary Protected Status (TPS), a temporary status that provides protection from removal. A separate DHS program was established to grant humanitarian parole to enter the United States to certain Haitian children who were in the process of being adopted by U.S. residents prior to the earthquake (see " Haitian Adoptions " section below). The Supplemental Appropriations Act, 2010 ( P.L. 111-212 ) provided $220 million to HHS to provide services and extend various benefits to Haitian evacuees and migrants, and $10.6 million for USCIS costs associated with processing the Haitian migrants. A related issue for the 111 th Congress concerned Haitians with approved petitions to immigrate to the United States who were waiting for visas to become available. The Haitian Emergency Life Protection Act of 2010 ( S. 2998 / H.R. 4616 ) would have amended the INA to allow Haitian nationals whose petitions for a family-sponsored immigrant visa were approved on or before January 12, 2010, to obtain a nonimmigrant (temporary) V visa. The V visa, which is currently available only to certain spouses and children of LPRs who are themselves petitioning for LPR status, enables beneficiaries to legally enter the United States to wait for their petitions to be approved or their visas to become available. No legislative action was taken on these bills. In intercountry adoptions, the law and process differ depending on whether the child being adopted is from a country where the Hague Convention on Protection of Children and Co-operation in Respect of Intercountry Adoption (the Convention) has entered into force or is from a non-Convention country. P.L. 111-287 attempts to eliminate some of these differences. Among its provisions to equalize Convention and non-Convention country requirements, P.L. 111-287 exempts adopted children emigrating from Convention countries from the requirement that they receive certain inoculations before admission to the United States. Previously, only adopted children from non-Convention countries were exempt from this requirement. In addition, P.L. 111-287 amended the INA to permit the adoption of a child aged 16 or 17 from a Convention country by a U.S. citizen if the child's sibling has been adopted by that citizen. The provision is retroactive to April 1, 2008. Prior to the enactment of P.L. 111-287 , the adoption of a child aged 16 or 17 from a non-Convention country by a U.S. citizen was permissible if the child's sibling was adopted by that citizen when he or she was under the age of 16. Siblings from Convention countries had to be under the age of 16 to be adopted. Two other bills considered in the 111 th Congress— H.R. 5532 , as passed by the House, and S. 2971 , as reported by the Senate Foreign Relations Committee—would have also exempted adopted children emigrating from Convention countries from the requirement that they receive certain inoculations before admission to the United States. In addition, H.R. 5532 would have more broadly amended the definition of child under the INA to allow for the adoption of children under the age of 18. In response to the January 12, 2010, earthquake in Haiti, USCIS established a temporary program to give parole to (1) Haitian children who were legally confirmed as orphans eligible for intercountry adoption by the government of Haiti and who were in the process of being adopted by U.S. citizens prior to the earthquake, and (2) certain Haitian children who were identified by an adoption service provider or facilitator as eligible for intercountry adoption and who were matched with prospective American adoptive parents prior to January 12, 2010. To be eligible for the program, an application for the child had to be filed by April 15, 2010. Under most circumstances, when adopted children immigrate to the United States, they are admitted as LPRs and then automatically acquire U.S. citizenship. P.L. 111-293 made the children who were paroled into the country under the program for Haitian orphans eligible to immediately adjust to LPR status. Since parole does not confer any immigration status, prior to the enactment of P.L. 111-293 the children granted parole under this program would have needed to live with their families in the United States for two years before they would have been eligible to become LPRs (and U.S. citizens). The permanent employment-based immigration system consists of five preference categories. The fourth preference category is known as "special immigrants." Over the years, the special immigrant category has been used to confer immigration benefits on particular groups. There are various subcategories of special immigrants under current law. The 111 th Congress acted to extend an existing special immigrant program for religious workers and to create a new one for certain Afghans employed by, or on behalf of, the U.S. government. Ministers of religion and religious workers make up the largest number of special immigrants. Religious work is currently defined as habitual employment in an occupation that is primarily related to a traditional religious function and that is recognized as a religious occupation within the denomination. While the INA provision for the admission of ministers of religion is permanent, the provision admitting religious workers has always had a sunset date. The provision is currently set to expire on September 30, 2012, in accordance with P.L. 111-83 (§568(a)). P.L. 111-8 (Division F, Title VI) authorizes DHS or DOS, in consultation with DHS, to provide special immigrant status to certain nationals of Afghanistan. An Afghan is eligible if he or she was employed by or on behalf of the U.S. government in Afghanistan on or after October 7, 2001, for not less than one year; provided documented valuable service to the U.S. government; and has experienced "an ongoing serious threat as a consequence of the alien's employment by the United States government." This special immigrant program is capped at 1,500 principal aliens (excluding spouses and children) annually for FY2009 through FY2013. It is modeled on a special immigrant program established for Iraqis in the 110 th Congress. Over the past decade or so, concern about illegal immigration has sporadically led to a reexamination of a long-established tenet of U.S. citizenship, codified in the Citizenship Clause of the Fourteenth Amendment of the U.S. Constitution and §301(a) of the INA, that a person who is born in the United States, and subject to its jurisdiction, is a citizen of the United States regardless of the race, ethnicity, or alienage of the parents. The war on terror and the case of Yaser Esam Hamdi, a U.S.-Saudi dual national captured in Afghanistan fighting with Taliban forces, further heightened attention and interest in restricting automatic birthright citizenship, after the revelation that Hamdi was a U.S. citizen by birth in Louisiana to parents who were Saudi nationals in the United States on nonimmigrant work visas and arguably entitled to rights not available to foreign enemy combatants. More recently, some Members have supported introducing legislation that would revise or reinterpret the Citizenship Clause, or at least holding hearings for a serious consideration it. Furthermore, some state legislators have voiced support for state legislation that would deny birth certificates to persons born to undocumented aliens, with state legislators from Arizona and 14 other states reportedly planning to unveil model legislation in January 2011, intending to set the stage for a U.S. Supreme Court review of the Citizenship Clause. However, some legal scholars think it is unlikely that the Supreme Court will hear such a case. In the 111 th Congress, H.R. 126 ; §301 of H.R. 994 ; H.R. 1868 ; §7 of H.R. 5002 ; and S.J.Res. 6 would have amended the Constitution and/or the INA to exclude from citizenship at birth, persons born in the United States whose parents were unlawfully present in the United States or were nonimmigrant aliens. No legislative action was taken on any of these measures. There is currently one immigrant visa set aside specifically for foreign investors (immigrant investors) coming to the United States. Immigrant investors comprise the fifth employment-based preference category, and the visa is commonly referred to as the EB-5 visa. In 1992, a pilot program was authorized under the EB-5 visa category to achieve the economic activity and job creation goals of that category by encouraging investment in economic units known as Regional Centers. These Regional Centers were designed to more easily facilitate investment, as well as target investment toward specific geographic areas. This pilot program has been extended multiple times, most recently through September 30, 2012, by P.L. 111-83 (§548). The Senate-passed version of the act had included language to permanently reauthorize the EB-5 Regional Center Program but this language was not included in the conference agreement. In July 2009, the Senate Judiciary Committee held a hearing to assess the Regional Center Program. A provision of P.L. 111-83 (§568(c)) repeals the so-called "widow penalty." This penalty was the termination of a pending immigrant relative petition for an alien spouse and of a related, pending application for LPR adjustment of status or an immigrant visa, upon the death of the U.S. citizen spouse, when the couple had been married less than two years. In cases where only the first half of the process had been completed (i.e., the immigrant relative petition had been approved), the petition could be revoked where the related application for LPR status had not been granted or where the alien spouse had not been admitted into the United States on an immigrant visa. This penalty resulted from USCIS's interpretation of the statutory definition of "immediate relative." USCIS interpreted the definition to mean that an alien spouse ceased to be married to a U.S. citizen and to be an "immediate relative" of a U.S. citizen upon the death of the U.S. citizen spouse. Where a couple had been married at least two years at the time of a U.S. citizen's death, however, USCIS converted the immigrant petition filed by a U.S. citizen for an alien spouse into a self-petition by the surviving spouse. The new law enables the surviving alien spouse of a deceased U.S. citizen to self-petition for an immigrant visa/adjustment to LPR status regardless of the length of the marriage as long as the petition is filed within two years of the U.S. citizen's death and the surviving alien spouse has not remarried. As of the date of this report, USCIS has not issued new regulations, although it has issued revised guidelines implementing the new law. USCIS has also issued a draft policy memorandum on which the American Immigration Lawyers Association has commented, but apparently no final memorandum has been issued as of the date of this report. USCIS may extend its practice of converting any pending petitions filed by a U.S. citizen spouse before death into a self-petition for the surviving alien spouse, to include the petitions of previously ineligible alien spouses who were married for less than two years. An alien whose U.S. citizen spouse died before P.L. 111-83 was enacted, and who was previously ineligible to self-petition because of the widow penalty, can now self-petition as long as the petition is filed within two years of October 28, 2009, and the alien has not remarried. In addition to repealing the widow penalty, the new law ( P.L. 111-83 , §568(d)) provides similar relief for surviving relatives who were the beneficiaries or derivative beneficiaries of pending or approved petitions for an immigrant visa/adjustment to LPR status immediately before the death of the relative who was the petitioner or primary beneficiary of the petition. Instead of being terminated or revoked, petitions will be adjudicated despite the death of the relative, as long as the surviving relatives resided in the United States at the time of the death and have continued to reside in the United States. Surviving relatives include the spouse, parent, or minor child of a U.S. citizen; other relatives of a U.S. citizen/LPR eligible for family preference immigrant visas; dependents/derivative beneficiaries of an employment-based immigrant; refugee or asylee relatives; and a dependent/derivative beneficiary of a T (trafficking) or U (crime victim) visa non-immigrant. Prior to the repeal of the widow penalty, several lawsuits, including a class-action lawsuit, challenged the widow penalty on the grounds that, under the INA, a widowed, surviving spouse still qualifies as an immediate relative for the purpose of an immigrant petition and related, pending LPR/visa application, and that therefore the petition should not be terminated. Some of these lawsuits reportedly are still pending. The class action lawsuit has been settled in accordance with new USCIS guidelines implementing the new statute, essentially ordering plaintiffs claims to be processed in accordance with the new statute, as implemented under USCIS guidelines. Class members whose petitions/applications have been denied may have their cases reopened without filing a new application or formal motion with the accompanying fees. Class members are persons with petitions/applications pending or adjudicated by administrative or judicial action in the Ninth Circuit or persons who were residing in the Ninth Circuit at the time of the citizen spouse's death. The new statute resolves the issue presented in a petition for certiorari arising in the Third Circuit that was pending before the U.S. Supreme Court. The issue presented by the petition was whether a noncitizen spouse is automatically disqualified from classification as a "spouse" under the "immediate relative" provision of the INA, notwithstanding a duly filed petition by the citizen spouse, where the couple was married for less than two years at the time of the citizen's death and immigration officials had not yet acted on the petition. The new statute reportedly enabled the petitioner in this case to obtain lawful permanent resident status. The petition was subsequently dismissed upon the joint motion of all parties to the case, pursuant to the Court rules. In response to the new statute and the litigation, USCIS has issued (1) a memorandum providing updated guidance for processing immigrant/LPR petitions of surviving spouses of deceased U.S. citizens and amending the USCIS Adjudicator's Field Manual, (2) a fact sheet, and (3) an updated petition form. Foreign medical graduates (FMGs) may enter the United States on J-1 nonimmigrant visas in order to receive graduate medical education and training. Such FMGs must return to their home countries after completing their education or training for at least two years before they can apply for certain other nonimmigrant visas or LPR status, unless they are granted a waiver of the foreign residency requirement. States are able to request waivers on behalf of FMGs under a temporary program, known as the Conrad State Program. Established by a 1994 law, this program initially applied to aliens who acquired J status before June 1, 1996. The Conrad State Program has been extended several times, most recently by P.L. 111-83 (§568(b)), which makes the program applicable to aliens who acquire J before September 30, 2012. Some contend that the smuggling of aliens into the United States constitutes a significant risk to national security and public safety. Because smugglers facilitate the illegal entry of persons into the United States, some maintain that terrorists may use existing smuggling routes and organizations to enter undetected. In addition to generating billions of dollars in revenue for criminal enterprises, alien smuggling can lead to other collateral crimes. The main alien smuggling statute (INA §274) delineates the criminal penalties, asset seizure rules, and prima facie evidentiary requirements for smuggling offenses. Section 917 of P.L. 111-281 increases the penalties and limits certain defenses in 18 U.S.C. §2237 for individuals on a maritime vessel who fail to heed the orders of a federal law enforcement officer to stop the vessel, or who obstruct boarding by or give false information to federal law enforcement authorities, if the offense is committed in the course of violating INA §274 or certain other provisions related to human trafficking. During the 111 th Congress, the House also passed the Alien Smuggling and Terrorism Prevention Act of 2009 ( H.R. 1029 ), which would have amended the alien smuggling provisions of both the INA and Title 18 of the U.S. Code. It would have essentially expanded the scope of activity prohibited under INA §274. It would, for example, have added a provision to INA §274 affirmatively asserting extraterritorial jurisdiction for acts of alien smuggling. This proposal would also have strengthened the criminal penalties for various smuggling offenses. The bill would also have made amendments to 18 U.S.C. §2237 similar to those made by P.L. 111-281 . The SAVE Act ( H.R. 3308 , S. 1505 ) would have essentially made the same amendments as H.R. 1029 to both the INA and Title 18 of the U.S. Code and, furthermore, would have increased investigative personnel for alien smuggling and established a reward program for information leading to an arrest and conviction for commercial alien smuggling. P.L. 111-5 included a provision (Division A, Title XVI, §1611) that requires H-1B employers receiving Troubled Asset Relief Program (TARP) funding to comply with the more rigorous labor market rules of H-1B dependent companies. This provision is scheduled to sunset in February 2011. P.L. 111-230 temporarily increased the L visa (intracompany transfer) nonimmigrant application filing fee and the fraud prevention and detection fee by $2,250 for applicants that employ 50 or more employees in the United States if more than 50% of the applicant's employees are H-1B or L nonimmigrants. It also increased the H-1B visa application filing fee and the fraud prevention and detection fee by $2,000 for applicants that employ 50 or more employees in the United States if more than 50% of the applicant's employees are H-1B or L nonimmigrants. Generally, the nonimmigrant filing fees are deposited into the Examinations Fee Account, and the fraud prevention and detection fees are deposited into the H-1B and L Visa Fraud Prevention and Detection Fee Account. However, these new fee increases, which are in effect until September 30, 2014, are to be deposited into the General Fund of the Treasury to offset P.L. 111-230 's increase in appropriated funds for border security, as discussed above. P.L. 111-306 amended the INA to require that any language training program that accepts foreign students entering on F visas be accredited by an accrediting agency recognized by the Secretary of Education. Under regulations that predated the enactment of this law, a language training program had to show that it was a licensed, approved, or accredited program as a condition of accepting foreign students. The Improving Assistance to Domestic and Sexual Violence Victims Act of 2009 ( S. 327 ) proposed to amend the Violence Against Women Act of 1994 and the Omnibus Crime Control and Safe Streets Act of 1968 to expand victim protections. As reported by the Senate Judiciary Committee, S. 327 included provisions related to T nonimmigrants (victims of severe forms of trafficking) and U nonimmigrants (individuals who have experienced substantial physical or mental abuse as a result of having been victims of certain criminal activities). After living in the United States for one year, aliens admitted as refugees are required to apply for adjustment to LPR status and aliens granted asylum may apply for adjustment to LPR status. Under INA §209, one year of physical presence in the United States is a requirement for asylees and refugees to adjust status. The Refugee Opportunity Act ( S. 2960 ), as reported by the Senate Judiciary Committee, would have amended the INA to add an exception to the one-year physical presence requirement for adjustment of status for certain refugees and asylees who were employed overseas for up to one year by the U.S. government or a U.S. government contractor. These aliens would have been required to meet other conditions for adjustment to LPR status. S. 3113 also would have amended INA provisions on refugee and asylee adjustment of status. The Return of Talent Act ( S. 2974 ), as reported by the Senate Judiciary Committee, would have amended the INA to establish a process to enable LPRs to temporarily return to their countries of origin to take part in post-conflict or natural disaster reconstruction activities or to temporarily provide medical services in a needy country, as specified. During the temporary absence, the LPR would have been considered to be physically present and residing in the United States for naturalization purposes. This visa category would have been capped at 1,000 aliens annually. The September 11 Family Humanitarian Relief and Patriotism Act of 2009 ( H.R. 3290 ), as reported by the House Judiciary Committee, would have enabled certain spouses and children of aliens who died as a direct result of the September 11 terrorist attacks to adjust to LPR status. These adjustments of status would not have counted against the numerical limits in the INA. A similar bill ( S. 1736 ) was introduced in the Senate, but received no action. | The Speaker of the House and the Senate majority leader of the 111th Congress pledged to take up comprehensive immigration reform legislation, the most controversial piece of which concerns unauthorized aliens in the United States. Although the 111th Congress did not take up a comprehensive immigration bill, it did consider a narrower DREAM Act proposal to legalize the status of certain unauthorized alien students. On December 8, 2010, the House approved a version of the DREAM Act as an amendment to an unrelated bill, the Removal Clarification Act of 2010 (H.R. 5281). A cloture motion in the Senate to agree to the House DREAM Act amendment failed on a 55-41 vote on December 18, 2010. The 111th Congress also considered other immigration issues and enacted a number of targeted immigration provisions. It passed legislation (P.L. 111-8, P.L. 111-9, P.L. 111-68, P.L. 111-83) to extend the life of several immigration programs—the E-Verify electronic employment eligibility verification system, the Immigrant Investor Regional Center Program, the Conrad State J-1 Waiver Program, and the special immigrant visa for religious workers—until September 30, 2012. Among the other subjects of legislation enacted by the 111th Congress were border security (P.L. 111-5, P.L. 111-32, P.L. 111-83, P.L. 111-230, P.L. 111-281, P.L. 111-376), refugees (P.L. 111-8, P.L. 111-117), and Haitian migrants (P.L. 111-212, P.L. 111-293). This report discusses these and other immigration-related issues that have received legislative action or are of significant congressional interest. Department of Homeland Security (DHS) appropriations are addressed in CRS Report R40642, Homeland Security Department: FY2010 Appropriations, and, for the most part, are not covered here. |
This report provides an overview of the current debate over whether a holder of a patent essential to an industry standard, who has promised to license such patented technology on fair, reasonable, and non-discriminatory (FRAND) terms, may nevertheless obtain an injunction from a federal court or an exclusion order from the International Trade Commission against infringing products that implement the industry standard. The report first summarizes several fundamental principles of patent law, then discusses the relationship between standard-setting organizations and FRAND licensing. It continues with an explanation of the role and duties of the International Trade Commission (ITC) and how there are different legal standards that apply to the award of injunctive relief in federal courts and in the ITC. Finally, the report closes with an overview of recent developments relating to standard-essential patents and FRAND licensing that have occurred in several settings, including (1) federal agencies responsible for antitrust enforcement, (2) the ITC, (3) federal courts, and (4) congressional hearings. The U.S. Patent and Trademark Office (PTO) issues a patent to an inventor after PTO examiners approve the submitted patent application for an allegedly new invention. An application for a patent consists of two primary parts: (1) a "specification," which is a written description of the invention enabling those skilled in the art to practice the invention, and (2) one or more claims that define the scope of the subject matter which the applicant regards as his invention. Therefore, these claims define the scope of the patentee's rights under the patent. According to Section 101 of the Patent Act, one who "invents or discovers any new and useful process, machine, manufacture, or any composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title." Thus, in order for an invention to qualify for patent protection, it must fall within one of the four statutory categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. However, the U.S. Supreme Court has articulated certain limits to Section 101 of the Patent Act, stating that "laws of nature, natural phenomena, and abstract ideas" may not be patented. Before a patent may be granted, the PTO examiners must find that the new invention satisfies several substantive requirements that are set forth in the Patent Act. For example, one of the statutory requirements for patentability of an invention is "novelty." For an invention to be considered "novel," the subject matter must be different than, and not be wholly "anticipated" by, the so-called "prior art," or public domain materials such as publications and other patents. Another statutory requirement is that the subject matter of an alleged invention must be "nonobvious" at the time of its creation. A patent claim is invalid if "the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." Finally, the invention must also be "useful," which means that the invention provides a "significant and presently available," "well-defined and particular benefit to the public." The Patent Act grants patent holders the exclusive right to exclude others from making, using, offering for sale, or selling their patented invention throughout the United States, or importing the invention into the United States. Whoever performs any one of these five acts during the term of the invention's patent, without the patent holder's authorization, is liable for infringement. A patent holder may file a civil action against an alleged infringer in order to enjoin him from further infringing acts (by securing an injunction, also referred to as injunctive relief). The patent statute also provides federal courts with discretion to award damages to the patent holder that are "adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer." The usual term of patent protection is 20 years from the date the patent application is filed. At the end of that period, others may use the invention without regard to the expired patent. The U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") is a specialized tribunal established by Congress that has exclusive appellate jurisdiction in patent cases. Parties dissatisfied with the Federal Circuit's rulings may petition the U.S. Supreme Court to review the appellate court's decision. However, the Supreme Court is not required to entertain the appeal; it has discretion to decide whether to grant certiorari to review the case. Products in the information technology (IT) industry usually incorporate many component parts that could be subject to hundreds or thousands of patents, "with no one company holding all the [patent] rights necessary to manufacture a product." Commentators indicate that the IT sector is mired in what they call a "patent thicket," meaning a "dense web of overlapping [patent] rights that a company must hack its way through ... to actually commercialize new technology." According to many observers, the set of potentially relevant patents for any IT product is overwhelming due to both the number of (overlapping and possibly invalid) patents granted in this area and the number of components incorporated in each product. Smartphones, tablets, and other wireless devices comprise many patented technologies that are made to comply with a large number of industry standards that relate to cellular communications, wireless Internet connectivity, and video and audio compression technology. An "industry standard" is a set of technical specifications that provides a common design for a product or process. Standards sometimes arise through government action (such as the Federal Communications Commission) or through the operation of the marketplace (such as a large majority of consumers that choose one product over another). However, private industry groups called standards setting organizations (SSO) or standards developing organizations (SDO) have long been active in promulgating standards for their members. Many technology companies are members of dozens of standards bodies. Standards bodies and their members have increasingly encountered claims that a patent covers an industry standard. If the patent is valid and enforceable, it is possible that the standard cannot be employed without infringing that patent. Industry standards potentially bring economic benefits ranging from a broad range of interoperable products to more robust, competitive markets. In turn, patent rights may promote innovation, the disclosure of new inventions, and technology transfer. Conflicts between industry standards and patent rights require a careful weighing of these competing interests. Many standards bodies have established disclosure and licensing polices to attempt to preempt the potential conflict between industry standards and patent rights. Although these policies vary, they generally require that members of the standards body (1) disclose patent rights that are pertinent to a proposed standard and (2) license the patented invention that is essential to an adopted standard to others, often on "reasonable and nondiscriminatory" terms, a standard commonly known as "RAND licensing" or "FRAND licensing" (some policies call for fair, reasonable, and nondiscriminatory terms). FRAND commitments "facilitate the bilateral licensing of patents that are needed to allow a standard to become successful and to provide assurances to implementers of the standard that the patented technologies will be available to those willing and able to license them." However, SSO policies often do not provide a specific royalty rate for a FRAND license nor do they define what would be considered "reasonable" license terms. As the Federal Trade Commission has observed, "No court has yet directly addressed the definition of FRAND, but a manufacturer that believes a patentee's license offer is unreasonable may raise the issue in a contract dispute." SSO policies regarding FRAND also do not apply or bind patent holders that are not participating in the standard setting process. In the information technology (IT) industry, "products use industry standards to ensure interoperability, necessitating that manufacturers license technology that is essential to the standard." Standard-essential patents (SEPs) are those patents that disclose and claim one or more inventions that are required in order to implement a particular industry standard. SEPs that are subject to a promise by the patent holder to license the technology on FRAND terms will often be referred to in this report as "FRAND-encumbered SEPs." One federal court has explained SEPs and FRAND licensing as follows: Standards are important for several reasons. First, they facilitate the adoption and advancement of technology as well as the development of products that can interoperate with one another. Standards also lower costs by increasing product manufacturing volume, and they increase price competition by eliminating "switching costs" for consumers who desire to switch from products manufactured by one firm to those manufactured by another. They also lead to earlier adoption of new technology. There is, however, one downside to standards: they create "essential patents." The term "essential patents" refers to patents that are essential to a standard – i.e., patents that claim technologies selected by a standards development organization ("SDO"). Once a patent becomes an essential patent, it gains undue significance as a result. Companies that produce products governed by a standard become "locked in" to the technologies included in the standard. Customers have no practical choice other than to buy products that comply with the standard. Thus, the owners of essential patents gain market power.... "FRAND commitments" are intended to prevent owners of essential patents from acquiring too much of the market power that would otherwise be inherent in owning an essential patent. Concerns have been raised by several parties and commentators, including the U.S. Department of Justice and the Federal Trade Commission (FTC), that companies that own FRAND-encumbered SEPs may opportunistically use the threat of an injunction as leverage against other firms (colloquially referred to as a "hold up") in demanding higher royalties after the patented technology has been incorporated into an industry standard than they could have otherwise obtained had the technology not been used in the standard. SEP holders could also try to use its patent to exclude a potential competitor from the U.S. market. As recently explained in a court opinion written by federal Judge Richard Posner, "[O]nce a patent becomes essential to a standard, the [SEP patent holder's] bargaining power surges because a prospective licensee has no alternative to licensing the patent; he is at the patentee's mercy." Patent hold-up can also lead to other problems, such as inducing companies to delay or "avoid incorporating standardized technology in their products" and harming consumers "to the extent that companies implementing the standard pass on higher royalties in the form of a higher price." The FTC has stated that when a court decides to deny an injunction to a patent holder, the question naturally arises of what [monetary] remedy to apply. The court opinions that address the question most commonly require ongoing royalties that allow the manufacturer to continue making the infringing product. The Federal Circuit has held that this remedy can be appropriate in lieu of an injunction.... No consensus on how to set the royalty rate has emerged from the case law, however. The Federal Circuit has stated that district courts must articulate a reasonable basis for determining the amount, and that the award should account for the changed relationship of the parties resulting from an adjudicated finding of infringement of a valid patent. Furthermore, the FTC notes that in the specific context of SEPs, "[w]hen a patentee and implementer of standardized technology bargain for a licensing rate, they do so within a framework defined by patent remedies law. That law sets the implementer's liability if negotiations break down and the parties enter patent litigation, and therefore heavily influences the negotiated amount." Yet, marketplace circumstances often make the determination of an appropriate damages award in patent litigation very difficult. In some cases, the product or process that is found to infringe may incorporate numerous additional elements beyond the patented invention. In such circumstances, a court may apply "the entire market value rule," which "permits recovery of damages based upon the entire apparatus containing several features, where the patent-related feature is the basis for consumer demand." On the other hand, if the court determines that the infringing sales were due to many factors beyond the use of the patented invention, the court may apply principles of "apportionment" to measure damages based upon the value of the patented feature alone. But as American University Washington College of Law Professor Jorge L. Contreras has explained, "the actual scope and contours of FRAND licenses have puzzled lawyers, regulators and courts for years, and past efforts at clarification have never been very successful." He has also further described FRAND as follows: [T]here continues to be significant disagreement among market participants over the meaning of FRAND. This disagreement arises both in reference to the level of royalties that should be considered "reasonable," and whether other tactics, such as seeking injunctive relief, are fair game when FRAND commitments have been made. Such disagreements have serious consequences because a commitment to grant a license on FRAND terms is not itself a license. A license to operate under a patent is not granted until the parties can agree on those "fair, reasonable and non-discriminatory" terms. So, if the parties can't agree on the terms of the FRAND license for a particular "standards-essential" patent, the frustrated licensee must either refrain from implementing the standard (and lose a significant market opportunity) or risk infringing the patent. The typical result: litigation. In a June 22, 2012, ruling by federal Judge Richard Posner that dismissed with prejudice a patent infringement lawsuit between Apple and Motorola, Judge Posner offered his guidance to courts on how to calculate an appropriate royalty for a FRAND-encumbered SEP: The proper method of computing a FRAND royalty starts with what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the function performed by the patent. That cost would be a measure of the value of the patent qua patent.... The purpose of the FRAND requirements ... is to confine the patentee's royalty demand to the value conferred by the patent itself as distinct from the additional value—the hold-up value—conferred by the patent's being designated as standard-essential. In a July 18, 2012, letter from Apple to Senators Leahy and Grassley (the chairman and ranking Member of the Senate Judiciary Committee, respectively), Apple offered its opinion on the proper determination of FRAND royalties: [I]t is wrong to charge FRAND royalties on the end price of a device like the iPhone, whose value arises more from product-differentiating technology than standardized technology, and whose price reflects this. A FRAND royalty on an iPhone should be no higher than a FRAND royalty on any other 3G phone. It is akin to a toll on a highway: the toll is identical for a jalopy and a new sports car—the sports car does not pay more just because it is faster, more stylish, and has a better sound system. Nor is it FRAND to seek royalties based on the mere fact that a particular technology was standardized; a FRAND royalty should be limited to the true technical value of a patented technology, not the artificially inflated value based on the fact that it has been included in a mandatory industry standard. In a policy statement issued on January 8, 2013, the U.S. Department of Justice, Antitrust Division (DOJ), and the U.S. Patent & Trademark Office (USPTO) offered their opinion on the amount of monetary compensation for a FRAND-encumbered SEP: Although we recommend caution in granting injunctions or exclusion orders based on infringement of voluntarily F/RAND-encumbered patents essential to a standard, DOJ and USPTO strongly support the protection of intellectual property rights and believe that a patent holder who makes such a F/RAND commitment should receive appropriate compensation that reflects the value of the technology contributed to the standard. It is important for innovators to continue to have incentives to participate in standards-setting activities and for technological breakthroughs in standardized technologies to be fairly rewarded. Besides seeking legal relief for infringement in the federal courts, U.S. patent holders may also obtain an order from the U.S. International Trade Commission (ITC or Commission) preventing the importation of foreign goods that infringe their rights. The ITC is an independent, nonpartisan, quasi-judicial federal government agency responsible for investigating and arbitrating complaints of violations of Section 337 of the Tariff Act of 1930 (19 U.S.C. §1337), which prohibits unfair methods of competition or other unfair acts in the importation of products into the United States. Section 337 also prohibits the importation of articles that infringe valid U.S. patents, copyrights, processes, trademarks, or protected design rights. (The majority of unfair competition acts asserted under Section 337 involve allegations of patent infringement. ) However, a patent holder must satisfy Section 337's "domestic industry" requirement in order for the ITC to adjudicate a patent dispute. That is, Section 337 declares unlawful the importation into the United States of articles that infringe a U.S. intellectual property right, but only if "an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established." As the Federal Circuit has explained, Congress included the domestic industry requirement because it "recognized that the Commission is fundamentally a trade forum, not an intellectual property forum, and that only those intellectual property owners who are actively engaged in steps leading to the exploitation of the intellectual property should have access to the Commission." A patent holder can satisfy the domestic industry requirement by showing one of the following: 1. significant investment in plant and equipment; 2. significant employment of labor or capital; or 3. substantial investment in its exploitation, including engineering, research and development, or licensing. Congress added the third provision listed above in 1988 in order to help more companies satisfy the domestic industry requirement, including those that lack manufacturing activities but instead engage in licensing and research. The ITC has in rem jurisdiction over accused imported products, and the ITC need not have personal jurisdiction over accused manufacturers or meet venue requirements. The ITC's Administrative Law Judges (ALJs) manage litigation, preside over evidentiary hearings, and make an initial determination (ID) in the agency's investigations involving unfair practices in import trade. The ID as to whether Section 337 has been violated is certified to the Commission (a six-member decision-making body that heads the ITC); the Commission may then review and adopt, modify, or reverse the ALJ's ID; if the Commission declines to review the ID, then the ID becomes the determination of the Commission. The Commission's determination is sent to the President; he may veto such determination "for policy reasons" within a 60-day review period. If the President notifies the Commission of his disapproval of the determination, the determination "shall have no force or effect." If the President does not veto the determination within the 60-day review period, the determination becomes final on the day after the close of the period, or the day on which the President expressly notifies the Commission of his approval. Anyone adversely affected by a decision of the ITC may appeal the decision, within 60 days after the determination becomes final, to the Federal Circuit. The agency's decisions are reviewed in accordance with the standards of judicial deference provided by the Administrative Procedure Act. The largely deferential review standards provide that the court shall uphold the agency's factual findings when the court determines that they are supported by substantial evidence on the record as a whole, and that the agency's action is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. However, the Federal Circuit has held that the construction and interpretation of patent claims are a matter of law that receive de novo review by a reviewing court. In addition, federal district courts do not give res judicata or collateral estoppel effect to ITC decisions; thus, patent holders that win a case before the ITC must relitigate the issue of patent infringement liability before the federal courts. The ITC has the power to order several forms of prospective injunctive relief, including ordering the U.S. Customs and Border Protection (CBP) to stop imports from entering U.S. borders (an exclusion order), or issuing cease and desist orders that prohibit parties from distributing or selling infringing articles from existing U.S. inventory. However, unlike the federal courts, the ITC lacks the statutory authority to award monetary damages for patent infringement (past or future). To prevent the violation of any right secured by a patent, the Patent Act provides that a federal court "may grant injunctions in accordance with the principles of equity ... on such terms as the court deems reasonable." An injunction prevents the adjudicated infringer from practicing the patented invention until the patent expires. Without the right to obtain injunctive relief, "the right to exclude granted to the patentee would have only a fraction of the value it was intended to have, and would no longer be as great an incentive to engage in the toils of scientific and technological research." In practice, for much of its history the U.S. Court of Appeals for the Federal Circuit routinely granted injunctions to patent owners that prevailed in infringement litigation, in keeping with its opinion that "[b]ecause the right to exclude recognized in a patent is but the essence of the concept of property, the general rule is that a permanent injunction will issue once infringement and validity have been adjudged." However, the U.S. Supreme Court in its May 2006 opinion, eBay v. MercExchange, unanimously vacated the Federal Circuit's "general rule" calling for a permanent injunction upon a finding of patent infringement. Writing for the Court, Justice Clarence Thomas explained that traditional principles of equity that govern issuance of injunctive relief "apply with equal force to disputes arising under the Patent Act." Thus, in order for a court to grant injunctive relief, a plaintiff must satisfy a four-factor test by demonstrating 1. that it has suffered an irreparable injury; 2. that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; 3. that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and 4. that the public interest would not be disserved by a permanent injunction. Two concurring opinions, written by Chief Justice John Roberts, Jr., and Justice Anthony Kennedy, were filed in eBay and reveal an apparent disagreement among the Justices. Chief Justice Roberts' concurring opinion, joined by Justices Antonin Scalia and Ruth Bader Ginsburg, predicted that injunctive relief will likely continue to be the usual remedy for patent infringement, consistent with the "long tradition of equity practice." A district court's equitable discretion in granting or denying an injunction in patent cases, therefore, is not unfettered, in the view of these three Justices. While agreeing with Chief Justice Robert's concurrence that "history may be instructive" in applying the traditional four-factor test for deciding whether an injunction should issue or not in patent infringement cases, Justice Kennedy's concurring opinion, joined by Justices John Paul Stevens, David Souter, and Stephen Breyer, suggested that historical practice might not necessarily be helpful for courts to follow when dealing with some patent infringement suits in the current business environment: "[T]rial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases." Justice Kennedy acknowledged the emergence of patent holding companies (so-called "patent trolls") and their impact on patent litigation today: An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.... For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent.... When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. The eBay case "represented a sea change in patent litigation" and helped reduce the problem of patent holdup. Before eBay, "[p]atentees who owned rights in very small pieces of complex, multi-component products could threaten to shut down the entire product. As a result, even a very weak patent could command a high royalty in settlement from defendants afraid of gambling their entire product on a jury's decision." However, in following Justice Kennedy's concurrence in eBay, federal courts have rarely issued injunctions to patent holding companies. In addition, eBay has impacted the availability of injunctive relief for SEP holders that promised to license on FRAND terms. The commissioner of the FTC has observed that because federal courts must apply the eBay equitable analysis in deciding whether to grant injunctive relief, "it may be difficult for RAND-encumbered SEP holders to show that money damages are inadequate because they have already committed to license their intellectual property on RAND terms." As an administrative agency and not an Article III court, the ITC has asserted that the Supreme Court's eBay decision does not apply to ITC remedy determinations under Section 337; thus, the ITC is not required to apply the traditional four-factor test for injunctive relief used by federal district courts. This position was upheld by the Federal Circuit in its December 2010 opinion, Spansion, Inc. v. ITC . According to the Federal Circuit: The legislative history of the amendments to Section 337 indicates that Congress intended injunctive relief to be the normal remedy for a Section 337 violation and that a showing of irreparable harm is not required to receive such injunctive relief. This is shown by two distinct actions of Congress. First, in passing the Tariff Act of 1930, Pub. L. No. 71-361, 46 Stat. 590, Congress eliminated the monetary remedy for intellectual property import violations, representing a legislative determination that an injunction is the only available remedy for violations of Section 337. Second, in 1988, Congress amended Section 337 by passing the Omnibus Trade and Competitiveness Act of 1988, P.L. 100-418 , 102 Stat. 1107, explicitly removing the requirement of proof of injury to the domestic industry and making it unnecessary to show irreparable harm to the patentee in the case of infringement by importation. As contrasted with the remedial scheme established by Congress for proceedings before the Commission, the statutory remedies available in proceedings before the district courts are quite different. In addition to the remedy of damages under 35 U.S.C. Section 284, Congress gave district courts the discretion to grant injunctive relief and in doing so made explicit that such discretion is to be exercised "in accordance with the principles of equity ... on such terms as the court deems reasonable." Section 337 of the Tariff Act of 1930 permits the ITC, in deciding whether to issue an exclusion order, to consider the effect of such exclusion upon 1. the public health and welfare, 2. competitive conditions in the United States economy, 3. the production of like or directly competitive articles in the United States, and 4. United States consumers. Law professors Colleen Chien and Mark Lemley note that although the ITC appears to have sufficient statutory authority to take into account a variety of public interest factors (including consumers and competition) when deciding whether to grant an exclusion order, the ITC rarely has exercised that power. The ITC has refrained from imposing an exclusion order based on these considerations on only three previous occasions, and none in the past quarter century. These cases, however, involved products that are important to human health or other critical national policy goals, including "car parts necessary for improved fuel efficiency, scientific equipment for nuclear physics research, and hospital burn beds." The law professors surmise that the reason the ITC rarely finds that an exclusion order would threaten the public interest is because "the ITC views enforcing patents as in the public interest, with the result that the public interest analyst starts out with a thumb on the scale in favor of the patentee." The Federal Trade Commission (FTC) has observed that "unlike the situation in district court, a finding of infringement in the ITC leads to a nearly automatic exclusion order." Thus, the FTC explained that some parties are "worried that patentees might bring suit in the ITC more frequently in the future in the hope of obtaining exclusion orders in circumstances where injunctions might not have been granted in federal district court." Law professors Chien and Lemley argue that in the aftermath of eBay, patent assertion entities (so-called "patent trolls") "are flocking to the ITC" in search of an injunction or the threat of one. However, in June 2012, the ITC published an analysis of its caseload data that it claims does not support the suggestion that eBay has greatly contributed to an increase in complaint filings by patent trolls at the ITC. Chien and Lemley have noted that "[l]egislative and judicial improvements made to patent law procedures and remedies simply don't apply in the ITC," citing the eBay example as well as the recently enacted Leahy-Smith America Invents Act of 2011 (AIA). The AIA restricts the ability of plaintiffs to sue multiple unrelated defendants for infringement in the same case or same trial "based solely on allegations that they each have infringed the patent or patents in suit," which is a common practice among patent assertion entities ("patent trolls"). However, Congress did not extend this joinder limitation to the ITC, the law professors observed. Thus, "[w]hile the number of defendants per case declined in the district court immediately following passage of the [AIA], it has stayed steady in the ITC." The question arises, and has been the subject of much debate in federal courts, government agencies, scholarly publications, mass media, and congressional hearings, whether the incorporation of a patent into an industry standard should be regarded as limiting the SEP holder's ability to obtain injunctive or exclusionary relief from federal courts and the ITC against alleged infringers. Few would disagree that the SEP holder should be entitled to monetary damages in a situation where an SEP holder offers a FRAND license to an implementer of a standard, but the implementer (believing that the proposed royalty rates are too excessive) refuses to license the SEP and produces the infringing product anyway. However, in such a situation, is injunctive or exclusionary relief appropriate for the SEP holder against any party that wants to practice the standard but does not agree to the SEP holder's licensing terms? The debate on this question generally centers around the "appropriateness" of such relief—those who favor limiting injunctions in this situation would like to see injunctive relief rarely awarded to an SEP holder unless there were extraordinary circumstances. On the other side of the debate are those who oppose a diminishment of the patent holder's right to exclude others from making, using, or selling a patented invention without the patent holder's express authorization, fearing that it would "tip the balance in favor of infringers to the detriment of innovation and ultimately consumers." The U.S. Justice Department Antitrust Division has noted that the acquisitions of substantial patent portfolios by prominent technology companies (Google, Apple, and Microsoft) in 2011 which include SEPs "highlight the complex intersection of intellectual property rights and antitrust law and the need to determine the correct balance between the rightful exercise of patent rights and a patent holder's incentive and ability to harm competition through the anticompetitive use of those rights." A partnership that included Apple and Microsoft purchased 6,000 patents from Nortel Networks in a June 2011 bankruptcy auction, many of which covered wireless communication standards and to which that Nortel had committed to license on FRAND terms. Google entered into an agreement in August 2011 to acquire Motorola Mobility, which holds 17,000 patents, several hundreds of which pertain to wireless Internet and cellular communication standards and to which Motorola Mobility had committed to license on FRAND terms. The Antitrust Division of the Justice Department approved the acquisition of these patent portfolios because it believed that "neither acquisition was likely to substantially lessen competition for wireless devices." Furthermore, the division was reassured by these companies' public commitments to adhere to FRAND licenses, which are excerpted below: Microsoft: "Industry standards are vitally important to the development of the Internet and to interoperability among mobile devices and other computers. The international standards system works well because firms that contribute to standards promise to make their essential patents available to others on fair, reasonable and nondiscriminatory terms. Consumers and the entire industry will suffer if, in disregard of this promise, firms seek to block others from shipping products on the basis of such standard essential patents." Apple: "A party who made a FRAND commitment to license its cellular standards essential patents or otherwise acquired assets/rights from a party who made the FRAND commitment must not seek injunctive relief on such patents. Seeking an injunction would be a violation of the party's commitment to FRAND licensing." The Antitrust Division noted that Google's commitment to FRAND is not as straightforward as Apple's and Microsoft's, explaining that "Google has stated ... that its policy is to refrain from seeking injunctive relief for the infringement of SEPs against a counter-party, but apparently only for disputes involving future license revenues, and only if the counterparty: forgoes certain defenses such as challenging the validity of the patent; pays the full disputed amount into escrow; and agrees to a reciprocal process regarding injunctions." Thus, in the Antitrust Division's view, Google "does not directly provide the same assurance as the other companies' statements concerning the exercise of its newly acquired patent rights." Nevertheless, the Antitrust Division concluded, "[i]f adhered to in practice, these positions could significantly reduce the possibility of a [patent] hold up or use of an injunction as a threat to inhibit or preclude innovation and competition." Two federal court cases have directly addressed the issue of whether injunctive relief should be available to SEP holders. The first was a patent lawsuit between Apple and Motorola involving Motorola-owned SEPs for which Motorola had made a RAND commitment to license. Circuit Judge Richard Posner, sitting by designation on the U.S. District Court for the Northern District of Illinois, dismissed the lawsuit with prejudice. He opined: To begin with Motorola's injunctive claim, I don't see how, given FRAND, I would be justified in enjoining Apple from infringing the '898 unless Apple refuses to pay a royalty that meets the FRAND requirement. By committing to license its patents on FRAND terms, Motorola committed to license the '898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS telecommunications capability—without which it would not be a cell phone . Judge Posner cited Federal Circuit case law that permits an injunction "only when damages would not provide complete relief." In this case, he concluded that "[a] FRAND royalty would provide all the relief to which Motorola would be entitled if it proved infringement of the '898 patent, and thus it is not entitled to an injunction." In a case involving Microsoft's use of SEPs owned by Motorola relating to the H.264 video compression standard, the Ninth Circuit Court of Appeals stated that "injunctive relief against infringement is arguably a remedy inconsistent with the [FRAND] licensing commitment." In addition, the Ninth Circuit held that when an SEP holder makes a commitment to a standard setting organization (SSO) to license such patent on FRAND terms, such a commitment creates a contract enforceable by the members of the SSO and third parties implementing the standard. Thus, such third party beneficiaries have the right to sue for breach of that commitment. The Ninth Circuit found that "[i]mplicit in such a.... promise [to license the SEP on FRAND terms] is, at least arguably, a guarantee that the patent-holder will not take steps to keep would-be users from using the patented material, such as seeking an injunction, but will instead proffer licenses consistent with the commitment made." Several cases before the ITC involve whether a FRAND-encumbered SEP holder is entitled to exclusionary relief. The ITC is currently investigating a case involving Motorola Mobility's claims of patent infringement against Microsoft's Xbox 360 gaming console; at issue is whether to grant an exclusion order in favor of Motorola Mobility, a holder of standard-essential patents relating to video transmission and compression and wireless connectivity, that has previously agreed to license its technologies on FRAND terms and yet has not reached an agreement with Microsoft on reasonable license terms. In May 2012, the ALJ assigned to the case recommended a ban on the importation of Xbox consoles after he had made an earlier determination that the device infringed four patents owned by Motorola. In the wake of the ALJ's initial determination in the Xbox case, several Members of Congress submitted letters to the chairman of the ITC to express their concerns over the potential exclusionary order against the gaming console, while other Members have urged the ITC to protect Motorola's patent rights. A June 7, 2012, letter from the House Judiciary Committee to the ITC signed by Representatives Lamar Smith, John Conyers, and Melvin Watt argued that A party making a RAND commitment for SEPs promises not to deny a license to anyone who implements the standard. Patent owners agree that they will seek reasonable royalties and not pursue a court order or an exclusion order to prevent the importation or sale of an implementer's product. The aims underlying RAND arrangements may be undermined when a patent owner either petitions the Commission for an exclusion order or makes an unreasonable royalty demand. ... In our view, a failure to honor a RAND commitment undermines confidence in the standards system and disrupts competition and innovation. If companies refuse to comply with their RAND commitments and instead treat their SEPs as a weapon to block others from distributing products that implement key standards, they will prevent and inhibit innovation and competition. Ultimately, this behavior threatens to disrupt competition and undermines the creation and adoption of standards that are at the heart of modern communications technologies and the digital networks that are critical to the global economy. Technological innovation, predictable and stable commerce, and strong competition may be harmed by inappropriate assertions of SEP rights through exclusion orders. Several Members of Congress from Illinois, where Motorola is based, wrote in their letter to the ITC: We strongly support vigorous intellectual property right protection, including injunctive and exclusionary relief, that appropriates and reasonably rewards past innovation and encourages new development, which has been and must continue to be the foundation of this country's economic success. Indeed, to maintain a level playing field in circumstances in which entities are found to be infringing U.S. intellectual property rights but will not provide reasonable compensation to the owner and developer of these rights, injunctive and exclusionary relief must be available and rigorously enforced. Denying legitimate patent protection adversely affects domestic commerce and business in a very meaningful way by preventing domestic companies from protecting their innovations, and thus discouraging domestic companies from investing in future innovation. A June 19, 2012, letter to the ITC from Senators Herb Kohl, Mike Lee, Jon Kyl, John Cornyn, Jim Risch, and John Hoeven urged the ITC to consider the public interest arguments carefully in cases in which SEPs are at issue: Any precedent that would enable or encourage companies to include their patented technology in a standard, commit to license included patents on RAND terms, and then seek to secure an exclusion order despite a breach of that commitment would thus implicate significant policy concerns. Such an outcome would severely undermine broad participation in the standards-setting process, which would in turn threaten the meaningful benefits these standards provide for both industries and consumers. On June 29, 2012, the Commission ordered a remand of the Xbox investigation to the ALJ with instructions for the ALJ to apply newly issued Commission opinions that some observers predict may change the ALJ's determination in favor of Microsoft. On January 8, 2013, Motorola asked the ITC to drop the patent claims against Microsoft that involved Motorola's SEPs, thus leaving only one non-standard-essential patent in the Xbox investigation. Motorola made this request as required by an FTC consent order to which Google agreed on January 3, 2013, which is discussed at the end of this report. At issue in this investigation by the ITC is whether Apple infringes certain patents pertaining to 3G wireless technology that are held by Motorola Mobility with its importation into the United States and sale within the United States of iPhone and iPad devices. The ALJ made an initial determination in April 2012 that Apple infringed one of Motorola's patents, which is a FRAND-encumbered SEP. On June 25, 2012, the Commission provided notice that it was planning on reviewing the ALJ's initial determination and requested written submissions from parties (and non-parties) on several questions relating to FRAND, including 1. If the record of an investigation lacks evidence sufficient to support a RAND-based affirmative defense (e.g., equitable estoppel, implied license, waiver, etc.), under what circumstances (if any) should a RAND obligation nonetheless preclude issuance of an exclusion order? 2. Does the mere existence of a RAND obligation preclude issuance of an exclusion order? 3. Should a patent owner that has refused to offer a license to a named respondent in a Commission investigation on a RAND obligated patent be able to obtain an exclusion order? 4. Should a patent owner that has refused to negotiate a license on RAND terms with a named respondent in a Commission investigation be precluded from obtaining an exclusion order? 5. Should a patent owner who has offered a RAND license that the named respondent in a Commission investigation has rejected be precluded from obtaining an exclusion order? The FTC submitted a statement to the ITC that sets forth the potential economic and competitive impact of injunctive relief on disputes involving SEPs: ITC issuance of an exclusion or cease and desist order in matters involving RAND-encumbered SEPs, where infringement is based on implementation of standardized technology, has the potential to cause substantial harm to U.S. competition, consumers, and innovation.... [W]e are concerned that a patentee can make a RAND commitment as part of the standard setting process, and then seek an exclusion order for infringement of the RAND-encumbered SEP as a way of securing royalties that may be inconsistent with that RAND commitment. A submission to the ITC by 19 economics and law professors argued that "ITC exclusion orders generally should not be granted under Section 1337(d)(1) on the basis of patents subject to obligations to license on 'reasonable and non-discriminatory' (RAND) terms" because such an exclusion "would undermine the significant pro-competitive and pro-consumer benefits that RAND promises produce and the investments they enable." The submission contends that "[t]hrough their promises [to license on FRAND terms], [SEP] patent holders have traded the right to exclude for the privilege of being declared essential to the standard." However, the professors recognized that an exception to this general rule might be if "district court jurisdiction is lacking, the patent is valid and infringed, and the public interest favors issuing an exclusion order." On August 24, 2012, the Commission reversed the ALJ's determination that Apple infringed Motorola's SEP. The decision, however, does not discuss the Commission's position on the questions it posed to the parties relating to FRAND and whether an exclusion order is appropriate in cases involving SEPs. In June and July 2012, the 112 th Congress held several oversight hearings that examined the issue of SEPs and the ITC. The U.S. Patent and Trademark Office Director David Kappos offered his views on standard-essential patents in response to questions posed by Senators Patrick Leahy and Mike Lee in a Senate Judiciary Committee hearing held on June 20, 2012. Senator Leahy asked Director Kappos whether holders of SEPs that seek an exclusion order from the ITC after previously committing to FRAND licensing could have anti-competitive effects. Director Kappos stated that the situation is "cause for careful study," but nevertheless he stated that pledges by competitors to adhere to FRAND must be kept. Yet, he also emphasized that a FRAND commitment does not stand for licensing under any terms and conditions. Furthermore, he argued that FRAND should not eliminate all opportunities to enforce a patent because then no company will have any incentive to take a license for the patented technology in the first place. In response to a question posed by Senator Lee, Director Kappos further expressed his concerns about the use of exclusion orders in SEP cases before the ITC. But he noted that there is a need to find a proper balance that is beneficial to both patent owners and those that engage in standard setting. On July 10, 2012, Google sent a letter to Senators Leahy and Grassley in which it urged caution in taking any steps to change the status quo in the area of FRAND-encumbered SEPs: Google agrees that courts and the International Trade Commission (the "ITC") may consider whether a patentee has complied with its licensing obligation as a relevant factor in determining whether the public interest supports awarding exclusionary relief based on a standard-essential patent ("SEP"). ... But at the same time, courts and regulators must avoid the temptation to adopt categorical rules that deprive patentees of the rights that Congress and the Patent Office conferred on them and that the patentees did not intend to relinquish through their FRAND licensing promises." The Senate Judiciary Committee held a hearing on July 11, 2012, with the title, "Oversight of the Impact on Competition of Exclusion Orders to Enforce Standards-Essential Patents." The hearing had two witnesses, Joseph Wayland, the acting assistant attorney general, Antitrust Division of the U.S. Department of Justice, and Edith Ramirez, the commissioner of the Federal Trade Commission. Acting Assistant Attorney General Wayland noted that in the Antitrust Division's review of the 2011 patent portfolio acquisitions by the major technology companies, it "investigated whether patent acquisitions would change the incentives or abilities of the new owners to obtain higher royalties from their competitors, particularly by using the threat of an injunction or exclusion order." In addition, he revealed that the Antitrust Division has "continued closely to monitor the use of F/RAND-encumbered standard-essential patents in the wireless device industry, particularly as they relate to smartphones and computer tablets, to ensure that they do not stifle competition and innovation in this important industry." Commissioner Ramirez stated that SSO members do not typically negotiate licenses for SEPs before a standard is adopted, but rather require SEP owners to agree to license SEPs on FRAND terms "as a quid pro quo for the inclusion of their patents in a standard." She observed, however, that while "[t]his [practice] makes it easier to adopt a standard, [it] also creates the potential for hold-up because it defers the negotiation on price until after the standard is adopted." Commissioner Ramirez argued that the injunctive relief for a FRAND-encumbered SEP holder is likely inappropriate in most cases: "A royalty negotiation that occurs under threat of an injunction or an exclusion order may be weighted heavily in favor of the patent holder in a way that is in tension with the RAND commitment. High switching costs combined with the threat of an exclusion order could allow a patent holder to obtain unreasonable licensing terms despite its RAND commitment, whether or not the invention is highly valuable on its own, because implementers are locked into practicing the standard. This is an even bigger problem when the hold-up creates a very high cost for a very small component of the overall product. In these ways, the threat of injunctive relief, including an exclusion order, may allow the holder of a RAND-encumbered SEP to realize royalty rates that reflect patent hold-up, rather than the value of the patent relative to alternatives. This can raise prices to consumers, distort incentives to innovate, and undermine the standard setting process." Finally, Commissioner Ramirez asserted that the ITC possesses sufficient statutory authority to limit the possibility of hold-up under its obligation to consider several public interest factors before deciding whether to grant an exclusion order to an FRAND-encumbered SEP holder that has not complied with its FRAND obligation. However, she offered that if "the ITC finds that its public interest authority is not flexible enough to allow this analysis, then Congress should consider whether it should amend Section 337 to give the ITC more flexible authority to prevent hold-up." The House Judiciary Subcommittee on Intellectual Property, Competition and the Internet held a hearing on July 18, 2012, entitled "The International Trade Commission and Patent Disputes." Witnesses included Professor Colleen Chien of Santa Clara University School of Law as well as general counsels from several U.S. companies. Unlike the July 11 th Senate Judiciary Committee hearing on SEPs and the ITC, this hearing focused primarily on the impact of non-practicing entities (which include "patent trolls") on the ITC's docket; however, the topic of SEPs was discussed by some of the witnesses. First, Professor Chien explained that "now that most technology products are manufactured abroad and Congress has relaxed the domestic industry requirement [in 1988], nearly every patentee is a potential ITC complainant and nearly every patent defendant is a potential ITC respondent." Furthermore, because many patent holders in the high technology industry are filing complaints with the ITC in the hopes of obtaining injunctive relief that is more difficult to find in federal courts, this litigious behavior "undoes the progress that eBay represents, and it contributes to the favorable climate for patent trolling and holdup present in today's patent system." Finally, she suggested that the ITC could change the way it issues exclusion orders in a way that "minimizes disruption to consumers and the holdup to manufacturers;" for example, the ITC could carefully tailor the scope of the injunction and also delay the effective date of an injunction in order to give time to the infringer to "design around" the patent (if that is a feasible option). However, "designing around" a patent may not be possible in the case of a SEP because doing so may mean that the product does not comply with the standard: Critically, SEPs cannot, by definition, be designed around without sacrificing compliance with the standard. This makes them different than non-SEP patents that, if they cover minor features, can be designed around without sacrificing key functionality. While inventing around does not eliminate the danger of patent hold-up, it does provide a check on the bargaining power wielded by patent holders that seek injunctive relief. This check is much weaker when the patents are standards-essential. There, disabling even a single feature to avoid infringement of an SEP can greatly detract from the value of a product by making it inoperable for its intended purpose, for example, a laptop that cannot connect to a Wi-Fi network. Furthermore, many consumers, counting on standards to provide the functionality they require, are unwilling to purchase noncompliant products. An exclusion order that forces manufacturers to produce noncompliant products would undermine the network effects associated with successful standards and harm consumers. Albert Foer, president of the American Antitrust Institute (AAI), testified that Although it is not feasible to establish perfect rules on what price for licensing a SEP would be fair and reasonable, some minimal standards are appropriate. The AAI agrees with the FTC's promotion of two principles. First, the determination should rest on ex ante incremental value rather than ex post total market value. Second, the royalty base should be the smallest affected component rather than the entire device. Because FRAND commitments are today so generally vague that they do not provide adequate protection against holdup conduct, SSOs should be required to move in the direction of ex ante disclosure of proposed or maximum license terms. Furthermore, Mr. Foer argued that "[a]n injunction is not an appropriate remedy for SEP infringement as a matter of both good law and good policy" and that "SSO rules should make clear that the provider of a FRAND commitment in the course of a standard development proceeding waives any right to seek either injunctive relief in court or an exclusion order at the International Trade Commission." Bernard Cassidy, general counsel of Tessera Technologies, Inc., urged Congress not to make any changes to Section 337 that would weaken the ITC's jurisdiction or powers, because doing so, he claimed, "would benefit foreign economies, foreign competitors, and other foreign manufacturers to the detriment of the U.S. economy." He also rejected arguments by some commentators that Congress apply the eBay case to the ITC because "[g]iven that the only remedy available to the ITC is exclusion orders, mandating application of eBay would substantially weaken the power of the ITC to deal with unfair trade practices." Finally, he predicted that reducing or eliminating the availability of exclusion orders or injunctions for FRAND-encumbered SEP holders would mean that "fewer innovators would participate in SSOs with such IPR rules (or make FRAND commitments if they do participate) or engage in R&D for technologies that may be standardized. Reduced participation in SSOs or reduced funding of R&D would likely result in delay, technologically inferior standards, and reduced information about patents implicated by standards." In an August 2, 2012, letter sent by the American Intellectual Property Law Association (AIPLA) to Representatives Bob Goodlatte and Mel Watt (the chairman and ranking Member of the House Judiciary Subcommittee on Intellectual Property, Competition and the Internet, respectively), AIPLA argued against the application of the eBay rule for ITC proceedings and expressed several concerns about proposals to categorically deny injunctive or exclusionary relief to SEP holders: Like all patent owners, SEP owners should have the right to protect their intellectual property from infringement. Removing this patent enforcement option at the ITC may be harmful to the rapidly growing IT and telecommunications industries that often participate in the SSOs. Additionally, a categorical exclusion of SEPs from Section 337 proceedings would make it easier for foreign companies to import infringing goods into the U.S. On January 3, 2013, the FTC announced that it has accepted, subject to final approval, a consent agreement with Google that would settle an FTC investigation of the company regarding allegations that Google engaged in "anticompetitive conduct resulting from breaches ... of [its] commitments to license standard-essential patents ... on terms that are fair, reasonable and non-discriminatory ... " The Chairman of the FTC explained that under the proposed consent order, Google is required "to stop seeking to exclude competitors using essential patents that Motorola, which Google later purchased, had first promised, but then refused, to license on fair and reasonable terms." As he described it, these particular standard essential patents are "the cornerstone of the system of interoperability standards that ensure that wireless internet devices and mobile phones can talk to one another." He further explained that as part of the legally binding consent decree, Google must "abandon its claims for injunctive relief on any of its standard essential patents with a FRAND commitment, and ... offer a license on FRAND terms to any company that wants to license these patents in the future." Specifically, the FTC's proposed consent order specifies that, in general, Google (through its wholly owned subsidiary, Motorola) may not "obtain or enforce [an injunction or exclusion order] based on a claim of alleged Infringement of a FRAND Patent that is pending on the date this Order is issued, unless and until [Google has] made Qualified Offers to the Potential Licensee against whom the [injunction or exclusion order] is sought." Furthermore, Google must "cease and desist from directly or indirectly making any future claims for" injunctive or exclusionary relief based on an alleged infringement of one of its FRAND patents. However, the proposed consent order provides several exceptions in which Google may still seek injunctive relief in SEP cases without violating the FTC's Order. For example, Google may seek an exclusion order issued by the ITC or an injunction order issued by a federal court against a potential licensee who: 1. is outside the jurisdiction of the U.S. district courts; 2. has stated in writing or in sworn testimony that it will not license the FRAND patent on any terms (although the Order provides that a challenge to the validity, value, infringement, or essentiality of the FRAND patent shall not constitute a statement that the potential licensee will not license the patent); 3. refuses to enter a license agreement on terms that have been set in a final ruling of a court or through binding arbitration; or 4. fails to respond within 30 days of receiving a "FRAND Terms Letter" that Google sends to a potential licensee, in which Google requests that Google and the potential licensee agree to license each other's patents that are essential to complying with standards that each uses on terms that are FRAND and comply with each party's FRAND commitments. The proposed consent order does not prohibit Google from obtaining other forms of legal relief, such as damages for patent infringement. Finally, the proposed consent order states that it shall terminate 10 years after the date the order becomes final. The proposed consent order is subject to public comment for 30 days by interested persons, beginning January 3, 2013 and continuing through February 4, 2013. After the comment period has ended, the Commission will again decide whether to make final the proposed consent order. In a joint policy statement released on January 8, 2013, the U.S. Department of Justice, Antitrust Division (DOJ), and the U.S. Patent & Trademark Office (USPTO) offered several "perspectives" on the issue of whether injunctive relief in judicial proceedings or exclusion orders by the ITC is proper in cases involving FRAND-encumbered SEP. Among other things, the policy statement opines that "the remedy of an injunction or exclusion order may be inconsistent with the public interest," especially "in cases where an exclusion order based on a F/RAND-encumbered patent appears to be incompatible with the terms of a patent holder's existing F/RAND licensing commitment to an [standard setting organization]." However, the policy statement identifies several exceptions to this general rule, offering that an injunction or exclusion order may be appropriate in the following circumstances: 1. where the putative licensee is unable or refuses to take a FRAND license and is acting outside the scope of the patent holder's commitment to license on FRAND terms; for example, if the putative licensee refuses to negotiate with the patent holder to determine FRAND terms or if the putative licensee refuses to pay what has been determined to be a FRAND royalty; or 2. where the putative licensee is not subject to the jurisdiction of a court that could award damages. | An "industry standard" is a set of technical specifications that provides a common design for a product or process. Standardization is crucial to the functioning of the modern innovation-based economy and in particular to the efficient interoperability of technologically complex consumer electronic devices. Standards allow several firms to supply services and products that incorporate the standard, which may help to lower prices and provide greater consumer choices. Standard-setting organizations (SSOs) are voluntary membership organizations in which industry participants collaboratively select particular technical standards to be used by products in that industry. Many SSOs require their members to adhere to licensing policies and bylaws that try to preempt the potential conflict between industry standards and patent rights; such policies generally require that members of the SSO (1) disclose patent rights that are pertinent to a proposed standard and (2) license the patented invention within a standard to others on "fair, reasonable, and nondiscriminatory" terms, a standard commonly known as "FRAND licensing." In the past several years, there has been considerable debate over whether injunctive relief in a patent infringement lawsuit (or exclusionary relief at the International Trade Commission (ITC)) should be available to companies that own patents that cover a particular industry standard (so-called "standard-essential patent" or SEP), when those companies have previously committed themselves to license their patented technology to anyone (corporate partners or competitors) on FRAND terms. The question particularly impacts the computing and telecommunications industries, as consumer electronic products such as smartphones, GPS devices, tablets, and gaming consoles incorporate a number of industry standards that include patented technology. Many high technology companies have been involved in patent infringement lawsuits and cases before the ITC that concern disputes over SEPs and FRAND licensing. Some of the electronic device manufacturers object to what they believe are unreasonably excessive royalty requests by the SEP holder and thus do not reach an agreement to license the SEP. In such a situation, the SEP holder has sought out a judicial determination of the royalty rate or even an injunction (from federal courts) or exclusion order (from the ITC) against the sale or importation of products made by companies that did not obtain a license. Some argue that a company that owns an SEP and that has promised to license such patent on FRAND terms essentially waives its right to seek an injunction against another company that implements the standard but fails to reach a license agreement with the SEP holder. They raise concerns about the potential negative effects on competition and U.S. consumers of allowing injunctive or exclusionary relief in cases involving FRAND-encumbered SEPs. They also believe that the threat of an injunction weighs heavily in negotiations over SEP licensing in a way that disproportionately rewards the SEP holder. However, others argue that an SEP holder is entitled to injunctive relief because an SSO's FRAND agreement does not include a promise not to seek an injunction in appropriate circumstances. Yet, they assert that if an SSO required its members to give up their right to exclude others (which is the primary right that a patent confers), participation in the voluntary standard-setting process may diminish. Furthermore, if SEP holders were limited to only damages and not injunctive relief, implementers of the industry standard may forgo negotiating a license before introducing a product and then wait for a federal court to decide on an award of damages for the infringement. |
On October 1, 2002, the Bush Administration notified Congress of the intention to enter intonegotiations leading to a free trade agreement with five Central American countries (Costa Rica, ElSalvador, Guatemala, Honduras, and Nicaragua). Negotiations for a U.S.-Central America FreeTrade Agreement (CAFTA) were launched in January 2003 and were completed on December 17,2003, although Costa Rica withdrew from the negotiations at the last minute. Negotiations withCosta Rica continued in early January 2004, and were completed on January 25, 2004. On February20, 2004, President Bush notified Congress of his intention to sign the CAFTA pact, and it wassigned on May 28, 2004. In August 2003, the Administration notified Congress of plans to negotiatea free trade agreement with the Dominican Republic and to incorporate it into the free tradeagreement with Central American countries. Negotiations with the Dominican Republic began inJanuary 2004, and were completed on March 15, 2004. The new pact, to be known as the UnitedStates-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), was signed byall seven countries on August 5, 2004. (2) The term "Central America" is often used as a geographical term to apply to all of thecountries in the Central American isthmus, and it is also used to apply to five core countries --Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica -- long associated with each other. These five countries were linked during colonial times and formed a confederation for a number ofyears following independence in 1821. Two other countries in Central America have distinctivebackgrounds. Panama was a part of Colombia until it achieved independence in 1903, and hadspecial links to the United States because of the Panama Canal. Belize was a British territory knownas British Honduras until it achieved independence in 1981, and has close ties to theEnglish-speaking countries of the Caribbean Community (Caricom). In a first wave of regional integration in the 1960s, the five core countries formed the CentralAmerican Common Market (CACM) in 1960 to encourage economic growth. The CACM performed extremely well in the first decade of its existence, but it largely collapsed in the 1970s and1980s as the countries, many with military-controlled regimes, were embroiled in long and costlycivil conflicts that exacerbated the region's economic and social problems. A second wave of regional integration developed in the 1990s, following peace initiativesin El Salvador, Nicaragua, and Guatemala that eventually led to peace accords and democraticallyelected governments. In 1991 and 1993, the presidents of the Central American countries, includingPanama, signed two protocols that created a new integration mechanism known as the CentralAmerican Integration System (SICA) that is designed to facilitate the creation of a customs unionamong the countries and to encourage cooperation in a range of activities. Belize joined the regionalintegration system in December 2000, and the Dominican Republic became an associate member inDecember 2003. (3) The DR-CAFTA partner countries are basically small countries with limited population andeconomic resources, with some differences in level of development (see Table 1). They range insize from El Salvador (with just over 8,000 square miles) to Nicaragua (with over 50,000 squaremiles). The combined population of the countries is 45 million, ranging from Costa Rica with apopulation of 4.1 million to Guatemala with a population of 12.6 million. Table 1. Central American Countries and the DominicanRepublic: Size, Population, and Major Economic Variables,2004 Sources: Area in square miles from State Department Background Notes; population; GrossNational Income (GNI) and Gross Domestic Product (GDP) data from World Bank DevelopmentReport 2005, World Bank Data Profile Tables, and World Bank Country at a Glance Tables. With a combined national income of about $92 billion, the Gross National Incomes (GNI)of the countries range from $4.5 billion for Nicaragua to $26.9 billion for Guatemala. In per capitaterms, the countries range from Nicaragua with a GNI per capita of $790, which the World Bankclassifies as a low-income country, to Costa Rica with per capita income of $4,670, which isclassified as an upper middle-income country. The rest of the countries are classified as lowermiddle-income countries by the World Bank. In terms of rates of growth, Nicaragua, Costa Rica andHonduras experienced growth in 2004 ranging from 3.7% to 4.6%, while El Salvador, DominicanRepublic, and Guatemala experienced growth ranging from 1.7% to 2.7%. In per capita terms, theresults were more modest with three of the countries generating less than 1% growth, while theothers experienced growth ranging from 1.4% to 2.7%. Turning to some key developmental indicators, Table 2 shows that, with the exception ofCosta Rica (which performs at higher levels), the countries generally have similar levels ofperformance, and that performance falls below the Latin America and Caribbean regionalaggregates. Using the United Nations Development Program's Human Development Index, whichmeasures achievements in terms of life expectancy, educational attainment, and adjusted realincome, Costa Rica is classified as having high human development, and is ranked as 47th in theworld. The other countries are classified as having medium human development, and have rankingsthat are fairly similar: Dominican Republic (95), El Salvador (104), Nicaragua (112), Honduras(116), and Guatemala (117). Except for Haiti, which ranks even lower, the DR-CAFTA countriesare among the lowest performers in Latin America and the Caribbean. Table 2. Central American Countries and the DominicanRepublic: Key Development Indicators, 2004 Sources: Human Development Index from UNDP's Human Development Report 2005; all otherdata from World Bank's World Development Indicators database, April 2005, and World BankCountry at a Glance tables, with most recent estimates. In view of the proximity of Central America and the Caribbean, the United States has hadclose, sometimes controversial, ties to the regions for many years. For these regional countries, theUnited States has always been the dominant market, as well as the major source of investment andbilateral assistance, while recent U.S. interest in Central America has been fairly sustained for morethan two decades. In the early 1980s, with a revolutionary regime in Nicaragua and a threatening insurgencyin El Salvador, Congress responded to President Reagan's 1982 call for a Caribbean Basin Initiativeby increasing economic assistance to the Central American and Caribbean region, and by providingone-way duty-free trade preferences for the region for 12 years in the Caribbean Basin EconomicRecovery Act (CBERA). In the mid-1980s, responding to the 1984 report of the National Bipartisan [Kissinger]Commission on Central America, Congress dramatically increased assistance to Central Americaover the next several years (see Appendix 1) As a result of these programs, the United Statesprovided more than $11 billion in economic and military assistance to the Central American regionfrom FY1978 to FY1990, especially assistance to El Salvador. (4) In 1990, Congress responded to continuing concerns in the region by passing the CaribbeanBasin Trade Partnership Act (CBTPA) that expanded and extended the original CBI legislation. In1999, Congress responded again, by providing over a billion dollars of assistance to deal withHurricane Mitch in Central America and Hurricane Georges in the Caribbean. (5) In part because of the CBI legislation, the United States is by far the most important tradingpartner of the regional countries, representing the most important source of imports and the majormarket for exports (see Table 3). With regard to exports, the relationship ranges from Costa Ricawhere 23% of its exports are U.S.-bound, to the other countries that send more than 50%, up to theDominican Republic that sends 79% of its exports to the United States. With regard to imports, therelationship ranges from Nicaragua that receives 25% of total imports from the United States, toHonduras that depends upon the United States for 49% of its imports. Table 3. Central American Countries and the DominicanRepublic: Total Trade and Trade with the United States, 2004 Source: International Monetary Fund's Direction of Trade Statistics Quarterly, June 2005. Completion of Negotiations. The United Statesannounced the conclusion of a U.S.-Central America Free Trade Agreement (CAFTA) with ElSalvador, Guatemala, Honduras, and Nicaragua on December 17, 2003, keeping to the originallyannounced schedule. The delegation from Costa Rica withdrew from the negotiations in the last fewdays to seek further consultations with their government and were not part of the Decemberagreement. The Costa Rican delegation resumed negotiations in early January 2004 and the UnitedStates and Costa Rican delegations announced that they had reached agreement on January 25, 2004. President Bush notified Congress of his intention to sign the pact with the Central Americancountries on February 20, 2004, and the CAFTA pact was formally signed on May 28, 2004. (6) Negotiations with the Dominican Republic began in mid-January 2004, and were completedon March 15, 2004, with the idea that the agreement would be linked to the CAFTA pact and thata single legislative package would be submitted to Congress for approval under the terms of theTrade Promotion Authority in the Trade Act of 2002. The Administration notified Congress of itsintention to sign the agreement on March 25, 2004, and it could have signed the agreement any timeafter June 24, 2004. Representatives of the seven countries met in Washington, D.C. and signed theagreement, to be known as the United States-Dominican Republic-Central America Free TradeAgreement (DR-CAFTA), on August 5, 2004. Overview of Provisions. Under the pact, over80% of U.S. consumer and industrial products will receive duty-free treatment from regionalcountries immediately, and that percentage will rise to 85% within five years and to 100% withinten years. More than 50% of U.S. farm products will have immediate duty free status, and tariffs onmore sensitive products will be phased out within 15-20 years. Textile and apparel will be duty-freeand quota-free if they meet the rules of origin. Consumer and industrial goods from regional partnersalready entering the United States duty free under the Caribbean Basin Trade Partnership Act willhave consolidated and permanent treatment so that nearly all industrial goods will enter the UnitedStates duty free immediately. The agreement also contains provisions on services, intellectualproperty rights, government procurement, and labor and environmental protections. (7) Views of the agreement vary considerably. According to U.S. Trade Representative Zoellick,the original CAFTA agreement "will streamline trade; promote investment; slash tariffs on goods;remove barriers to trade in services; provide advanced intellectual property protections; promoteregulatory transparency; strengthen labor and environmental conditions; and, provide an effectivesystem to settle disputes." (8) The U.S. Business Roundtable said that "this agreement can serve as a model of how developing andindustrial nations can work together to find consensus on trade liberalization." (9) In early January 2005, theNational Association of Manufacturers in announcing its agenda for the 109th Congress urgedapproval of the DR-CAFTA agreement. On January 26, 2005, 151 companies and associationsforming the Business Coalition for U.S. Central America Trade sent letters to House and Senateleaders urging action on the pact to provide "full and reciprocal access" for U.S. producers, ratherthan the unilateral access that presently exists. (10) In testimony before the Senate Finance Committee and theHouse Ways and Means Committee in mid-April 2005, Acting USTR Peter F. Allgeier restatedAdministration arguments that the agreement involved small countries with large and importantmarkets, and USTR-nominee Rob Portman reiterated those arguments in his confirmation hearingbefore the Senate Finance Committee on April 21, 2005. They also argued that the agreement willstrengthen economic reform and democracy in the affected countries. On the other hand, labor and environmental groups and some members of Congress foundthe labor and environmental provisions to be inadequate. (11) The Alliance for Responsible Trade, a coalition ofnon-governmental organizations, criticized the CAFTA for having weak labor and environmentalprovisions while containing strong investor and intellectual property rights for businesses. (12) The DominicanParticipation and Consultation on Free Trade, a coalition of Dominican church and cultural groupsin New York City, expressed similar concerns about the integration of the Dominican Republic intothe CAFTA agreement. (13) On the eve of the signing of the CAFTA pact with CentralAmerican countries on May 28, 2004, several Democratic Members from the House and the Senatecriticized the labor and environmental provisions of the agreement. (14) About the same time,presumptive Democratic presidential candidate John F. Kerry indicated that he would renegotiatethe agreement if he were elected President to strengthen the labor and environment provisions. (15) In mid-December 2004,a number of labor unions and non-governmental organizations filed petitions with the USTRclaiming that Central American countries should be denied GSP benefits because of the failure torespect internationally recognized labor rights. (16) More recently, Representative Sander Levin and Senator JeffBingaman argued that the reports of the International Labor Rights Fund, funded by the U.S.Department of Labor, demonstrate that the countries' labor protections fall short of ILO standards,but the Department of Labor countered that the reports were biased. (17) Major Issues. The four most contentious issueswhen Congress considered the agreement were agriculture, apparel/textiles, and the labor andenvironment provisions. Agriculture. Under the agreement, more than 50%of U.S. farm products will have immediate duty free status in Central American markets, and tariffson more sensitive products will be phased out within 15-20 years. For white corn, recognized as themost sensitive product for Central America because it is produced by subsistence farmers and is usedas a staple in the making of tortillas, a quota equal to the current import level will increase about 2%each year, while the high over-quota tariff will remain in force. While nearly all Central Americanfarm products will have permanent duty-free status in U.S. markets, quotas for more sensitiveproducts (sugar, beef, peanuts, dairy products, tobacco, and cotton) will increase gradually. Forsugar, recognized as the most sensitive product for U.S. negotiators, the regional countries receivedan immediate 107,000 metric tons increase in their current sugar quota and regular yearly increases,but the high over-quota tariffs remain fully in force. USTR notes that the permitted increases insugar imports from regional countries would be equal to about 1.3% of U.S. sugar production in thefirst year, and would grow to only 1.9% in 15 years. While many U.S. commodity organizationssupport the DR-CAFTA agreement, the U.S. sugar industry opposes it on grounds that the increasein the quota sets a precedent for other free trade agreements and would result in a substantial increasein sugar imports that would be damaging to U.S. producers. (18) In mid-June 2005, theAdministration offered to consider ways to ameliorate any possible damage to sugar producers, butmajor sugar growers associations announced on June 23, 2005, that no acceptable agreement hadbeen achieved. (19) Othercritical groups argue that it is unfair to pit highly subsidized U.S. agricultural interests against thepoor subsistence farmers in Central America, and they argue that the result will be that these ruralfarmers will lose their livelihoods as they did in Mexico under NAFTA. (20) On January 27, 2005, theRanchers-Cattlemen Action Legal Fund United Stockgrowers of America (R-CALF USA)representing cattleman and ranchers in 46 states joined the Americans for Fair Trade in calling forCongress to reject the DR-CAFTA pact, primarily because the agreement lacks safeguard provisionsfor U.S. producers in the event of a rapid increase in Central American imports. In conjunction withthe votes in the relevant committees and in the Senate in late June 2005, the Administrationpromised to take measures to limit sugar imports from the region and to study the feasibility of usingsugar for the production of ethanol, but the sugar industry reasserted its opposition to theagreement. (21) Apparel/Textiles. Under the agreement, textiles andapparel will be duty-free and quota-free immediately under more liberal rules of origin, and thecoverage will be retroactive to January 1, 2004. Duty-free treatment will be accorded to someapparel produced in Cental America and the Dominican Republic that contains certain fabrics fromNAFTA partners Mexico and Canada, or from other countries in the case of fabrics and materialsdeemed to be in "short supply" in the United States and Central America. Some U.S. textile groupsannounced early on that they would oppose DR-CAFTA because of the more liberal rules of originthat, in their view, would lead to the closure of more textile mills in the United States. (22) In early May 2005, withindications from the USTR of modifications in provisions dealing with pocketing and linings, theNational Council of Textile Organizations voted to support DR-CAFTA. In conjunction with the lateJuly vote in the House, the Administration promised more favorable provisions for apparel and sockproducers. (23) Labor. According to the USTR, DR-CAFTA laborprovisions go beyond the provisions in the Chile and Singapore free trade agreements to create athree-part strategy to strengthen worker rights. Under the agreement, the countries are required toenforce their own domestic labor laws and that obligation is enforceable through the regular disputeresolution procedures. In addition, the countries agree to work with the International LaborOrganization (ILO) to improve existing laws and enforcement, and technical assistance is providedto enhance the capacity of Central American countries to monitor and enforce labor rights. TheEmergency Committee for American Trade, composed of leading U.S. international businessenterprises, argues that the labor rights protections in the CAFTA pact are as strong or stronger thanthose found in the U.S.-Jordan FTA. (24) The AFL-CIO has argued that the FTA labor provisions are deficient, because they wouldrequire only the enforcement of current domestic labor laws, which are viewed as woefullyinadequate, and would lead to continuing job losses in the United States. The U.S. labororganization argues that the provisions in the agreement are weaker than the existing beneficiaryrequirements under the Generalized System of Preferences and the Caribbean Basin Trade PromotionAct that require that a country be taking steps to afford workers "internationally recognized workerrights." (25) A numberof members of Congress have argued that the agreement should include an enforceable commitmentby the countries to implement internationally recognized labor standards. (26) Seeking to bridge the gap between the critics and the proponents, a scholar at the Center forGlobal Development has argued for greater enforcement of existing laws while continuing tostrengthen workers rights. (27) In keeping with this approach, the Ministers responsible fortrade and labor in the DR-CAFTA countries met in Washington, D.C. on July 13, 2004, andcommitted to strengthen and enhance labor law compliance and enforcement. (28) With assistance from theInter-American Development Bank, the U.S. Department of Labor, and USAID, the countries arestriving to build labor and environmental law enforcement capacity through a $20 million assistancepackage provided by the United States. In mid-December 2004, a number of labor unions and non-governmental organizations filedpetitions with the USTR claiming that Central American countries should be denied GSP benefitsbecause they had failed to make progress in respecting internationally recognized labor rights. (29) More recently, as indicatedabove, Representative Sander Levin and Senator Jeff Bingaman argued that the reports of theInternational Labor Rights Fund, funded by the U.S. Department of Labor, demonstrate that thecountries' labor protections fall short of ILO standards, but the Department of Labor countered thatthe reports were biased. (30) In conjunction with the votes in the relevant committees and inthe Senate in late June 2005, the Administration promised to support assistance of $40 million peryear in FY2006 through FY2009 for regional countries to strengthen the enforcement of labor andenvironmental standards as well as assistance for regional farmers who might be adversely affectedby the pact. (31) Environment. USTR claims that DR-CAFTAcontains an innovative environmental chapter that goes beyond the Chile and Singapore agreementsto develop "a robust public submission process to ensure that views of civil society are appropriatelyconsidered." It also includes provisions on cooperative actions and the establishment of anEnvironmental Cooperation Commission. A number of members of Congress have argued that theenvironmental provisions are weaker than those found in the NAFTA pact, and they have beenarguing for a more effective citizen petition process that could be used to encourage a country'scompliance with environmental laws. (32) Seeking to strengthen environmental monitoring, the sevenDR-CAFTA countries signed two supplemental agreements in February 2005, one to establish anindependent multilateral secretariat to administer public submissions under the pact, and the otheran Environmental Cooperation Agreement (ECA) to encourage regional cooperation onenvironmental matters. (33) As indicated above, the U.S. Congress approved $20 million inFY2005 assistance to enhance the capacities of the DR-CAFTA countries to strengthen and enforcelabor and environmental standards, and the Administration promised in June 2005 to supportassistance of $40 million per year in FY2006 through FY2009 for the same purposes. Early Approvals of Pact. Following the signingof the pact, the regional presidents were required to submit the agreement to their respectivelegislatures for approval, and three of the six countries approved the pact before action by the UnitedStates. The Salvadoran legislature approved the pact, 49-35, on December 17, 2004; the Honduranlegislature approved it, 124-4, on March 3, 2005; and the Guatemalan legislatures approved it,126-12, on March 10, 2005. In the other three countries there was enough opposition that the leaderswere reluctant to press for a vote until it was clear that the pact would be approved by the UnitedStates. U.S. Approval of Pact. The Bush Administrationwas reluctant to submit the implementing legislation to Congress before the November 2004 electionbecause of the crowded legislative calendar and the contentiousness of the issue, but it reemergedas an important issue following President Bush's re-election in November 2004 and hisre-inauguration in January 2005. Submission was complicated as well by U.S. disputes with theDominican Republic and Guatemala and by the vacancy in the leadership of the USTR whenAmbassador Robert Zoellick became the Deputy Secretary of State. The dispute with the DominicanRepublic over the country's October 2004 tax on soft drinks sweetened with imported high fructosecorn syrup (HFCS) was resolved in early January 2005 when that tax was repealed. The dispute withGuatemala over a December 2004 law that limited test data protection for pharmaceutical productswas resolved in early March 2005 when the Guatemalan Congress modified the legislation. Thevacancy in the leadership of the USTR was resolved when the Senate approved, on April 28, 2005,President Bush's nominee Representative Rob Portman of Ohio as the new USTR. Under the new circumstances, the President pressed for passage of DR-CAFTA in mid-2005as a top priority for his Administration and as a key step in future trade negotiations. Hearings onthe agreement were held by the Senate Finance Committee on April 13, 2005, and by the HouseWays and Means Committee on April 21, 2005, with a range of witnesses presenting supportive andcritical perspectives. Hoping to encourage support for the agreement, the Presidents of theDR-CAFTA countries visited various U.S. cities in mid-May 2005, ending with meetings withcongressional leaders and President Bush in Washington, D.C., on May 11-12, 2005. (34) In informal "mock" markups in mid-June, the agreement was approved 11-9 in the SenateFinance Committee on June 14, 2005, and it was approved 25-16 in the House Ways and MeansCommittee on June 15, 2005, after most efforts to add amendatory language were rejected. ThePresident met with bipartisan leaders from former administrations and with Central Americandiplomats on June 23, 2005, to urge congressional support for the implementing legislation( S. 1307 / H.R. 3045 ) as it was submitted by the Administration andintroduced in Congress. S. 1307 was approved by voice vote by the Senate FinanceCommittee on June 29, 2005, and it was approved 54-45 by the Senate on June 30, 2005. H.R.3045 was approved 25-16 by the House Ways and Means Committee on June 30, 2005,and it was approved 217-215 by the House in the late evening of July 27, 2005. Since financemeasures must originate in the House, H.R. 3045 was returned to the Senate, where it wasapproved 55-45 on July 28, 2005. The measure was signed into law ( P.L. 109-53 ) by President Bushon August 2, 2005, in the presence of legislators and regional ambassadors. In conjunction with thelate June votes in the relevant committees and in the Senate, the Administration agreed to takemeasures to limit sugar imports, to study the feasibility of using sugar for the production of ethanol,and to support multi-year assistance to regional countries to strengthen the enforcement of labor andenvironmental standards and to assist regional farmers who might be adversely affected by thepact. (35) In conjunctionwith the late July vote in the House, the Administration promised more favorable provisions forapparel and sock producers, and the House leadership facilitated approval of a bill ( H.R. 3283 ) that established requirements for closely monitoring alleged unfair Chinese tradingpractices. (36) Later Approvals of Pact and Projected Entry intoForce. Following U.S. approval of the pact, two other countries acted to approvethe agreement, leaving Costa Rica as the only non-approving country. In the Dominican Republic,the Senate approved the measure 27-2 in late August 2005, and the Chamber of Deputies approvedit 118-4 on September 6, 2005. In Nicaragua, the legislature approved the pact 49-37 on October11, 2005. In Costa Rica the pact remains controversial and President Pacheco has been reluctant topress for approval with presidential elections approaching in February 2006. According to pressreports, the partner countries have tentatively agreed that the agreement will enter into force onJanuary 1, 2006, for approving countries. (37) Costa Rica is considered the most politically stable and economically developed nation inCentral America. Since its independence in 1848, the country has developed a tradition of politicalmoderation and civilian government despite having some interludes of military rule. A brief civilwar that ended in 1948 led to the abolition of the Costa Rican military by President Jose Figueres,and continuous civilian governments since then. The Constitution, in effect since 1949, prohibitsthe creation of a standing army. The Ministry of Public Security and the Ministry of the Presidencyshare responsibility for law enforcement and national security with a police force including BorderGuard, Rural Guard, and Civil Guard, of approximately 8,400 officers. The United Nations' Human Development Report for 2004 ranks Costa Rica 47th out of 177countries based on life expectancy, education, and income levels. This puts the country far aheadof its Central American neighbors. Life expectancy at birth is 77.9 years. Its population, 4 millionin 2004, is the best educated in Central America, with a literacy rate of 95%. Both the literacy rateand life expectancy are higher than the Latin American average. Some 42% of the country's land isdevoted to agriculture and cattle raising, while 38% consists of jungle, forest or natural vegetation. Its National Protected Areas Scheme encompasses 22% of the total land area, and contributes toCosta Rica's growing reputation as an ecotourism destination. The country is considered a transitpoint for illegal drugs from South America destined for the United States and Europe, althoughCosta Rica cooperates with the United States on drug interdiction issues. It has low levels ofcorruption by regional standards, but during the last year, several previous presidents, and the currentpresident, have been subject to legal proceedings on corruption charges. The current president, Abel Pacheco, was inaugurated in May 2002 to a four-year term. Aleader of the center-right Social Christian Unity Party (PUSC), Pacheco won the election in a secondround of voting against Rolando Araya of the National Liberation Party (PLN). Pacheco ran on ananti-corruption, good governance platform, but has since become embroiled in his own corruptioncharges, forcing him to admit to having received illegal campaign contributions from a Taiwanesebusinessman, and several related businesses. During Pacheco's term, he has been plagued with alarge number of changes in his cabinet, some resulting from disagreements on economic and fiscalpolicies. Public opinion polls show that his support fell precipitously, with 17% of Costa Ricanscharacterizing his administration as "good" or "very good." (39) In April 2003, the Constitutional Court, the country's highest court, ruled that an existingprohibition on the non-consecutive re-election of presidents was unconstitutional. This change willbenefit former President Oscar Arias, who governed from 1986 to 1990, winning the Nobel PeacePrize in 1987 for his work on the peace process in Central America. Arias won the candidacy of theNational Liberation Pary on January 15, 2005, for the presidential election scheduled for February2006. Other candidates include Otton SolÃs of the Citizens Action Party, Ricardo Toledo of thegoverning Social Christian Unity Party, and Antonio Alvarez Desanti of the Union for Change Party. Although Arias is the current front-runner, there are a significant number of undecided voters,according to recent polls. (40) Arias supports CAFTA, while the other candidates havecriticized it. Relations with the other nations of Central America are close. This is due in part to theirattempts at economic integration that date from the creation of the Central American CommonMarket in 1960, to the more recent CAFTA negotiations. During guerrilla conflicts thatcharacterized much of Central America in the 1980s, Costa Rica often served as mediator. Sometensions still remain with Nicaragua over navigation rights on the San Juan River and the growingnumber of Nicaraguan immigrants attracted to Costa Rica's better economic climate. With its stable democracy, relatively high level of economic development, and highlyeducated population, Costa Rica has been cited as the most attractive investment environment inCentral America. (41) Until the 1980s, Costa Rica followed a social-democratic development model that saw a greater rolefor the state in economic development. The state held a monopoly on banking, insurance, telephoneand electrical services, railroads, ports, and refineries. During a regional recession in the 1980s,Costa Rica borrowed heavily, to the point that it defaulted on its foreign debt in 1983. Succeedingstructural adjustment agreements with the International Monetary Fund and other internationalfinancial institutions brought about a liberalization of the economy, and the privatization of most ofits state-owned enterprises. However, insurance, telecommunications, electricity distribution,petroleum distribution, potable water, sewage, and railroad transportation industries are stillstate-owned sectors. State monopolies of telecommunications and insurance posed difficulties in Costa Rica'sparticipation in CAFTA, and led to Costa Rica withdrawing from the negotiations on December 16,2003. In January 2004, bilateral negotiations between the United States and Costa Rica resumed,and on January 25, then U.S. Trade Representative, Robert Zoellick, announced that an agreementhad been reached to include Costa Rica. Under the agreement, Costa Rica committed to opening itsprivate network services and Internet services by January 2006, and its cellular phone market by2007. Liberalization of the insurance market is targeted to begin in phases to be completed by 2011. Costa Rica invested about 6.9% of gross domestic product (GDP) between 1990 and 1998in public health, one of the highest rates in the developing world. Costa Rica also developed a moreequitable distribution of income than its neighbors, a situation that exists to this day. In recentdecades, the country has pursued foreign direct investment, the development of its export sector, anddiversification from agriculture-based exports. GDP amounted to $18.5 billion in 2004, with agrowth rate of 4%, despite a downturn in prices for two of its major agricultural exports -- bananasand coffee -- and a decrease in demand for computer components. The country has developed athriving computer sector in recent years since attracting U.S. companies to locate manufacturingplants there. In 2001, more than half of US foreign direct investment in Central America was inCosta Rica. The country's unemployment rate in 2004 was 6.5%. Manufacturing represents nearly21% of GDP, with agriculture contributing 9% and services and utilities 66%. (42) Costa Rica is the world's second largest banana exporter after Ecuador. Coffee is its secondmost important agricultural export. Both are grown on small- and medium-sized farms. Apparelexports are not as important to Costa Rica as to its Central American neighbors. The country hasbeen successful in attracting foreign high technology companies to locate operations in Costa Ricathrough the establishment of free trade zones. In 1998 and 1999, Intel constructed two plants toassemble computer chips, providing the country with a major export generator that has attractedadditional foreign direct investment. Intel announced in November 2003 that it would invest $110million more in its Costa Rican operations, increasing its employment from 1,900 to 2,400. Intelexpected its operations at these two plants to generate $1.2 billion in exports in 2003. (43) In 2001, Microsoftawarded a major software development project to a Costa Rican firm, Artinsoft, and several otherCosta Rican firms have strategic alliances with major U.S. and European companies. The export ofhigh technology electronics grew by 52.8% in 2003, earning $1.4 billion in revenues, andrepresenting 22.5% of the country's total export earnings. Microprocessor exports account for about15% of the country's exports. The export of medicine and medical equipment is also important,representing 10.4% of total exports. (44) Other industries that are important to the economy are foodprocessing, chemical products, textiles, and metal processing. Relations with the United States have been strong. President Pacheco supported the U.S.military mission in Iraq, despite Costa Rica's traditional neutrality. He came under severe criticismfrom the public and previous presidents for this support. Former President Oscar Arias, who isrunning for the presidency in 2006, was especially vocal in his criticism of U.S. policy in Iraq. (45) Costa Rica initially joinedthe G20 group of nations whose opposition to the U.S.-EU positions precipitated the collapse of theWTO Ministerial Conference in Cancun, Mexico, September 2003, but it subsequently withdrew inOctober, as did El Salvador and Guatemala. Soon after Cancun, U.S. Trade Representative RobertZoellick traveled to Central America where he suggested that if Costa Rica did not open its servicesector, specifically its telecommunications and insurance sectors, it could be left out of CAFTA. Asdiscussed below, privatization of the telecommunications and electricity monopoly is opposed bymost Costa Ricans, and Zoellick's comments were not well received. (46) On December 16, 2003,one day before a CAFTA agreement was announced, Costa Rica withdrew from the negotiations,citing a lack of resolution on these sensitive issues. Subsequent negotiations between the UnitedStates and Costa Rica in January 2004 produced an agreement to include Costa Rica in the regionalpact. Costa Rica is not a major U.S. aid recipient. It received some economic assistance duringthe early 1990s, averaging about $25 million from 1990 to 1996. Since 1997, economic assistancehas averaged less than $1 million per year. In FY2003, it received less than $400,000 inInternational Military Education and Training (IMET) funds. Although Costa Rica has no military,IMET funds are used to train law enforcement officers and coast guard personnel. In FY2004 andFY2005, Costa Rica received no IMET funds. For FY2006, the Administration has requested$50,000. The Peace Corps has an active program in Costa Rica. The country receives no direct,bilateral U.S. counterdrug funds, although State Department regional programs support strengtheninglaw enforcement capabilities. In response to recent floods that have also affected other countries inCentral America, the United States announced that it would provide Costa Rica with $50,000 indisaster assistance. U.S. Trade and Investment. The United Statesis Costa Rica's major trading partner. It annually sends approximately 50% of its exports to theUnited States and imports 53%. A sizeable portion of U.S. investment in Central America is foundin Costa Rica. The stock of U.S. foreign direct investment (FDI) totaled $.1.8 billion in both 2002and 2003, invested largely in the manufacturing sector. (47) Despite the country's efforts to attract foreign investment, aWorld Bank report notes that Costa Rica has heavier regulation of business than many otherdeveloping countries, which causes inefficiency, delays, higher costs, and opportunities forcorruption. (48) As ofDecember 2003, Costa Rica temporarily halted the importation of U.S. beef in response to a case ofBovine Spongiform Encephalopathy (BSE) in the United States. In May 2004, Costa Rican officialsindicated that some imports could be resumed, but Costa Rica's plant-by-plant inspection andcertification requirements have prevented their effective resumption, according to the Office of theU.S. Trade Representative. Major U.S. companies currently invested in Costa Rica include the following by sector. (49) In the agriculture sector,companies include Chiquita, Dole, Standard Fruit, Fresh Del Monte. Manufacturing companiesinclude 3M, Unilever, Colgate-Palmolive, Gillette, Eaton, Novartis Consumer Health, Heinz,Kimberly-Clark, Xerox, Bridgestone Firestone, Alcoa, Conair, H.B. Fuller, and Phillip Morris. There are also a number of producers of medical products and pharmaceuticals, such as AbbottLaboratories, Baxter Health Care, GlaxoSmithKline, and Eli Lilly. The high technology sector haslocated several facilities in the country and include Intel, Microsoft, Hewlett Packard, Cisco Systems,Lucent, Oracle and Unisys. Other companies from other sectors such as business services, chemicalsand tourism include Deloitte & Touche, KPMG, Price Waterhouse Coopers, DHL, FedEx, UPS,Citibank, Ernst & Young, Procter & Gamble, Bristol-Myers Squibb, H.B. Fuller, Monsanto,Marriott, Radisson, and Hampton Inns. Costa Rican leaders across the political spectrum generally support liberalized trade, evenwhile there has been internal debate on the benefits of CAFTA. Since the conclusion ofnegotiations, approval of the agreement in Costa Rica has been problematic. Disagreements withthe United States with regard to opening the state-owned telecommunications and insurance sectorsled Costa Rica to withdraw from the initial CAFTA negotiations one day before the final agreementwas announced. Following bilateral negotiations between the United States and Costa Rica inJanuary 2004, Costa Rica was included in the CAFTA agreement. Costa Rica also has signed freetrade agreements with Canada, Chile, Mexico, the Dominican Republic and the Republic of Trinidadand Tobago. The countries of Central America now have tariff-free access to the U.S. market onapproximately three-quarters of their products through the Caribbean Basin Trade Partnership Act( P.L. 106-200 , Title II) which expires in September 2008. (50) The DR-CAFTA agreements would make the arrangementpermanent and reciprocal. While the five Central American nations agreed to present a unifiednegotiating position to the United States, each had its own interests and objectives. Costa Ricasought greater foreign investment in certain strategic areas, such as electronics assembly, health careproducts and business service centers. While agricultural products have been important to itseconomy, their decreasing export value has meant that the focus instead has shifted tomanufacturing. Costa Rica also anticipated that an FTA with the United States would have apositive impact both on tourism and the productivity of its export sector. (51) Telecommunications and Insurance. Thetelecommunications sector is the most sophisticated in Central America, but unlike its neighboringcountries, it is state-owned, and proposals for privatization have been very controversial. The useof the Internet and electronic commerce is relatively advanced, but the system is inadequate giventhe demand. Although most of the country's state-owned companies were privatized in the 1990s,Costa Ricans strongly oppose privatizing the Costa Rican Electricity Institute (ICE), which operatesboth power and telecommunications. President Pacheco is interested in restructuring ICE in someform in order to reduce its burden on the national budget and to modernize its infrastructure to attractmore high technology firms to the country. Intel's General Manager has stated that the lack ofmodernization, especially Internet connections and speed, were directly hindering the company'sgrowth in Costa Rica. (52) The U.S. negotiating position was that all suppliers of telecommunications and insuranceservices be compatible and that there is non-discriminatory treatment between domestic and foreignsuppliers. Costa Rica's has long resisted calls to liberalize its telecommunications and insurancesectors. This disagreement came into sharper focus during U.S. Trade Representative RobertZoellick's trip to the region in early October 2003 during which he stated to Costa Rican officials thatan open telecommunications sector was necessary in order to conclude an agreement, and that aCAFTA agreement could proceed without Costa Rica. These comments were met with displeasurefrom both Costa Rican union leaders and business executives who argued that the NAFTAagreement allows Mexico to maintain state ownership of oil and the U.S.-Chile Free TradeAgreement allows Chile the same privilege in regard to copper. They contend that this sets aprecedent for Costa Rica to keep its state monopoly. At the final round of CAFTA negotiations, Costa Rica decided that the agreement, as it stood,was not in its best interests, and its negotiators withdrew. Later comments from U.S. officialsclarified that complete privatization of the telecommunications sector would not be necessary as longas the private sector could participate in some telecommunications activities, such as mobile phoneand internet service. (53) The issue of insurance was not raised until the last round of negotiations, and Costa Rica believedthere was not enough time remaining to resolve differences. The United States had called for totalaccess to the insurance industry. The final agreement between the United States and Costa Ricaprovides for access to private network services and Internet services by January 2006, and to wirelessservices by 2007. Opening the insurance market would be accomplished in phases between 2008and 2011. Apparel. Costa Rica's apparel industry is lessimportant to its economy than its neighbors. Nonetheless, Costa Rica supported the region's singlenegotiating position of wanting a more liberal rule than is now included in the Caribbean BasinTrade Preference Act, which provides for a "yarn forward" rule in which U.S. made fabrics must befrom U.S. produced yarn. For a CAFTA agreement, the Central Americans preferred that apparelmakers could acquire yarn from the United States, Central America, or third countries that have tradeagreements with either. This means that potential suppliers could also be from Mexico, Canada, orChile. U.S. negotiators proposed a rule allowing for the use of third country providers wherecomponents are in short supply. The Central Americans wanted tariff preference levels to provideduty-free access, under a negotiated cap, for apparel that is assembled in the region from fabric thatis made elsewhere. This position was opposed by the U.S. textile industry. (54) Agriculture. Agricultural issues presented somedifficulties in negotiations, as the Central Americans wanted the United States to address its farmsubsidies, while they wanted unhindered access to the U.S. market for their agricultural products. Costa Rica's two main agricultural exports, bananas and coffee, have experienced declining priceson the world market in recent years. In the final agreement, Costa Rica is to eliminate tariffs onnearly all agricultural products within 15 years, on chicken leg quarters within 17 years, and on riceand dairy products within 20 years. Costa Rica also negotiated an increase in its sugar export quotathat will reach 14,860 tons by the 15th year of the agreement and won general protection for freshonions and potatoes in the agreement. Trade of these latter two products will be liberalized throughexpansion of a tariff-rate quota. Environment. With the signing of twoenvironmental agreements on February 18, 2005, at least one Costa Rican environmentalorganization, the Global Alliance for Humane Sustainable Development, has endorsed theDR-CAFTA agreement. According to a report by the Office of the U.S. Trade Representative, CostaRica has a full complement of domestic environmental laws. Legislation enacted in 1994 createdthe post of Environmental and Maritime Land Attorney, who is tasked with taking legal action toguarantee a healthy and ecologically sound environment, and to ensure the enforcement ofinternational treaties and national laws. The 1995 Environment Act requires environmental impactstudies for most construction projects, including commercial and residential construction, andmining projects. The government can halt projects and impose fines for non-compliance withenvironmental laws. Costa Rica is party to 68 multilateral, regional and bilateral environmentalagreements, including the U.N. Convention on Biological Diversity, the Convention on theInternational Trade in Endangered Species of Wild Flora and Fauna, the U.N. FrameworkConvention on Climate Change, the Kyoto Protocol, and the Montreal Protocol on Substances thatDeplete the Ozone Layer. (55) Costa Rica has been a pioneer of "clean air exports" in whichit sells credits to companies in developed countries who need to offset their greenhouse gasemissions as part of the 1992 Rio Earth Summit and the 1997 Kyoto Protocol commitments. Labor. The power of organized labor hasdeclined since the 1980s. The strongest unions represent civil servants, teachers, public utilitiesemployees, and oil refining and ports employees. According to the State Department's CountryReports on Human Rights Practices covering 2004, Costa Rican law guarantees the right of workersto join unions, and workers are able to exercise this right. The report estimates that 12% of the laborforce is unionized, and that some 80% of all union members are public sector employees. Unionsoperate independently of the government. The International Labor Organization (ILO) noted delaysin addressing workers' formal grievances and the enforcement of reparations. A recent report byCentral American trade officials reported that the Constitution and labor code provide strongprotections for fundamental labor rights. (56) The Constitution and Labor Code restrict public sector workersfrom striking, although a 2000 Supreme Court ruling clarified that public sector strikes wereallowed, but only if a judge approved them in advance and found that necessary services for thepublic's well-being would not be affected. There are no restrictions on private sector unions beingable to bargain collectively or to strike, although few private sector employees belong to unions. The Constitution provides for a minimum wage that is set by a National Wage Council,composed of representatives from government, business, and labor. The Ministry of Labor wasreported to have enforced minimum wages in the area of the capital, San Jose, but was less effectivein rural areas in 2002. The State Department reports that the minimum wage was not sufficient toprovide a worker and his family at the lower end of the wage scale with a decent standard of living. Costa Rican law on health and safety in the workplace requires industrial, agricultural andcommercial firms with ten or more workers to establish a joint management-labor committee onworkplace conditions, and allows the government to inspect workplaces and to fine employers. TheState Department reports that insufficient resources have been provided to the Ministry of Labor toenforce health and safety legal requirements. In December 2004, the International Labor RightsFund petitioned the Office of the U.S. Trade Representative to review Costa Rica's eligibility underthe Generalized System of Preferences (GSP) for violations of workers' rights. Intellectual Property. Costa Rica is party to theWTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) and has enacted oramended its regulations to harmonize them with its international obligations. The U.S. TradeRepresentative's 2004 Foreign Trade Barriers Report noted that enforcement remains a problem withregard to the protection of copyrights, patents, and trademarks and that the country's criminal codelimits effective deterrence of intellectual property crimes. Despite this, USTR placed Costa Rica onits less severe Special 301 Watch List in 2002, 2003, and 2004. The International IntellectualProperty Alliance, a U.S.-industry organization, also cites Costa Rica's insufficient enforcementactivities and levels of fines, which they argue do not deter the infringement of intellectual property. The group estimates that trade losses due to piracy in Costa Rica totaled $17.6 million in 2002, thelatest year for which an estimate is provided. (57) Approval Status. In September 2005, PresidentPacheco announced that he would send the DR-CAFTA agreement to the unicameral Costa RicanLegislative Assembly for consideration. The delay in sending the agreement to the legislature wasdue to President Pacheco wanting a fiscal reform package of legislation to be considered first. (58) The reform bill has beenstalled in the legislature for more than two years. With low public opinion for his administration andapproaching national elections, Pacheco has run into difficulties in obtaining approval of hisproposals. There are groups in the country that oppose the agreement for fear that it will negativelyaffect the agriculture and textile sectors and the environment. These groups have been quite vocaland have held public demonstrations. (59) President Leonel Fernández of the Dominican Liberation Party (PLD), who served aspresident previously (1996-2000), took office on August 16, 2004. President Fernández continuesto enjoy relatively strong popular support and has restored some confidence in the Dominicaneconomy. On February 1, 2005, President Fernández signed a new $665 million loan agreement withthe IMF. During the first half of 2005, GDP growth in the Dominican Republic reached 5.8%. Inflation has declined, and the currency has regained most of its value. The Fernándezadministration has struggled, however, to deal with high crime rates, corruption, and persistentelectricity shortages. Human rights organizations have criticized the Dominican government forseveral recent massive repatriations of illegal Haitian migrants. On September 6, 2005, theDominican Republic approved the U.S.-Dominican Republic-Central American Free TradeAgreement (DR-CAFTA). Background. During the 1990s, the DominicanRepublic underwent rapid economic growth and developed stronger democratic institutions. The"Pact for Democracy"in 1994 paved the way for free and fair elections by removing the agingJoaquin Balaguer from power in 1996 after a shortened two-year term and preventing consecutivepresidential re-elections. Balaguer, a six-term president and acolyte of the deceased dictator, RafaelTrujillo, dominated Dominican politics for decades until his death in 2002. In 1996, LeonelFernández of the PLD, a center-left party of middle-class professionals, succeeded Balaguer andpresided over a period of strong economic growth. After top PLD officials were charged withmisusing public funds, Hipólito MejÃa (2000-2004), an agrarian engineer of the populist DominicanRevolutionary Party (PRD), easily defeated the PLD candidate by promising to promote ruraldevelopment. He lost popular support, however, by spending excessively and deciding to bail outall deposit holders after three massive bank failures in 2003 at a cost of between 15 and 20% ofGDP. (61) Observersnoted that MejÃa focused more on his re-election bid, which required a constitutional amendmentreinstating presidential re-election, than on resolving the country's deep economic crisis. (62) 2004 Presidential Elections. On May 16, 2004,Leonel Fernández won a convincing first-round victory with 57% of the popular vote compared toMejÃa (PRD) receiving 34% and Eduardo Estrella of the Social Christian Reformist Party (PRSC)receiving 9%. Record numbers of Dominicans turned out to support Fernández, whom theyassociated with the country's economic boom of the 1990s. Fiscal Reform and DR-CAFTA. In September2004, the Dominican legislature, which is dominated by the PRD, passed the President's fiscalpackage. The fiscal bill contained important provisions, including an increase in sales taxes and a20% cut in public spending. (63) Its passage opened the way for negotiations that resulted in a new$665 million stand-by agreement with the International Monetary Fund (IMF), signed in January2005. The 28-month agreement should pave the way for additional multilateral disbursements ofsome $500 million per year. Although the Dominican government has met most of the IMF's fiscaltargets, it has yet to enact further tax reforms needed to compensate for the loss of tariff revenue thatis expected to result from DR-CAFTA. Corruption. In October 2004, an officialinvestigation found that Hipólito MejÃa was able to increase his personal wealth by $800,000 duringhis four-year presidential term. (64) MejÃa, officials of all major political parties, and otherindividuals reportedly received money and gifts from Ramon Baez, owner of the now defunct BancoIntercontinental (Baninter). (65) The MejÃa government later took control of Baninter's associatedcompanies, including Listin Diario, the country's largest publishing company, and fired many editorsand management officials, even if they were not party to the scandal. There are corruption casespending against Mr. Baez and other prominent Dominican bankers associated with the scandals. Inlate November 2004, the Fernández administration charged 12 former PRD officials withembezzlement, fraud, and misuse of public funds. In April 2005, following up on the October 2004forced retirement of 300 to 400 police officers, many of whom were accused of misconduct, theDominican state prosecutor started proceedings against police and military officials accused ofappropriating luxury cars for personal use. Despite these apparent efforts to root out corruption,President Fernández has lost popular support as of late for failing to improve the country's extremelylow prosecution rate for officials accused of corruption. (66) Human Rights. According to the StateDepartment's Country Report on Human Rights Practices covering 2004, although the Dominicangovernment has made some progress, it still has a poor human rights record. Local press reportsindicate that Dominican police killed 160 more people in 2004 than in 2003. (67) In addition to thecontinued use of torture and physical abuse, prison conditions range from "poor to harsh" as 13,500prisoners are currently being held in overcrowded prisons designed to hold only 9,000 inmates. OnMarch 7, 2005, rival gangs set a fire in one Dominican prison that resulted in 133 deaths and 26injuries. Finally, despite the enactment of an anti-trafficking in persons law in August 2003, theState Department has placed the Dominican Republic on a Tier 2 Watch List for failing to arrest andprosecute those accused of human trafficking. Status of Haitians and Dominican-Haitians. TheDominican government continues to receive international criticism for its treatment of an estimatedone million Haitians and Dominican-Haitians living within its borders. (68) Each year thousands ofmigrants, many without proper documentation, flock from Haiti, the poorest country in thehemisphere, to the Dominican Republic. The Dominican economy, especially the sugar andconstruction industries, has long profited from a constant influx of cheap Haitian labor. More than90% of the country's seasonal sugar workers and two thirds of its coffee workers are Haitians orDominicans of Haitian origin. (69) In 2002, the Dominican Directorate of Migration forciblydeported more than 12,000 Haitians, including children born of Haitian parents in the DominicanRepublic. (70) Accordingto most Dominican officials, including President Fernández, the recent crisis in Haiti, which resultedin the removal of President Jean-Bertrand Aristide in early 2004, has accelerated the level of illegalmigrants heading to the Dominican Republic and placed further strain on the struggling Dominicaneconomy. (71) Despiteprotests from NGOs and human rights organizations, the Dominican government has asked theinternational community for help in securing its border with Haiti and ordered two massiverepatriations of Haitian illegal immigrants. Some 4,000 individuals were repatriated in May andmore than 1,000 more in August 2005. (72) Fueled by rapid expansion in both the tourism and free-trade zone (FTZ) sectors, theDominican economy grew rapidly throughout the 1990s at an annual rate of 6-8%. Despite theincreased employment and earnings in those two sectors, mining and agriculture continued to be thecountry's highest export earners. Remittances from Dominicans living abroad contributed anadditional $1.5 billion per year to the country's stock of foreign exchange. Economic expansion wasalso facilitated by the passage of several market-friendly economic reforms in the late 1990s by thenPresident Leonel Fernández. One critical reform was a 1997 law allowing the partial privatizationof unprofitable state enterprises. Since that time, several state-owned entities have been privatized,including a flour mill, an airline, a hotel chain, sugar mills, and three state-owned regional electricitydistribution companies. Some observers criticized Fernández's privatization of the electric sector,however, noting that it failed to remedy power shortages and financial difficulties. (73) The success of both tourism and export-processing zones is extremely dependent upon theglobal economy. Although the Dominican tourism industry has recovered since late 2002, it suffereda significant decline in 2001-2002, as a result of the global recession, a weak euro, and the aftermathof the September 11, 2001 terrorist attacks. More significantly, the country's free trade zones havehad to compete with cheaper goods coming from Central America and China. The trade deficit ofthe Dominican Republic with the Central American countries stood at $85.6 million in 2003. In 2002, the Dominican economy, despite strong performance in the mining andtelecommunications sectors, entered a recession. The country's public finances were placed understrain after President MejÃa elected to bail out the country's third largest bank in violation of themonetary code, Banco Intercontinental (Baninter), which collapsed in May 2003 after a record fraud. The Baninter scandal was a direct result of weak banking regulations that enabled bank executivesto defraud depositors and the Dominican government of U.S. $2.2 billion worth of account holdings-- an amount equal to almost 67% of the Dominican Republic's annual budget. Ramon Baez, theformer president of Baninter, paid out more than $75 million worth of gifts and payments togovernment officials, including President MejÃa and Leonel Fernández. (74) The MejÃa administrationnegotiated a $600 million loan from the IMF in August 2003 to counter the effects of the Baninterbailout but only received $120 million before failing to comply with conditions. A renegotiation inFebruary 2004 allowed a disbursement of an additional $66 million but the administration soon fellout of compliance with targets. In addition to the failure of Baninter, two other commercial bankswere bailed out in late 2003, resulting in approximately $700 million in losses to the DominicanCentral Bank. By the end of 2003, inflation reached 42%, unemployment stood at 16.5%, and the peso hadlost more than half of its value. Since August 2004, the peso has more than regained its pre-crisisvalue, inflation has decelerated, and a late recovery helped the economy grow 2% in 2004. Thefiscal bill should help cut the budget deficit, but measures of austerity that will be necessary to meetfiscal targets that may have deleterious consequences on the country's poor and middle classes,especially the elimination of a subsidy on propane gas, have been postponed. Moreover, electricityproviders, saddled with dollar-denominated debts, are still struggling to provide service to aDominican populace angry at expensive power bills and continued blackouts. Although the NationalSalary Council recently negotiated a 25% salary increase for private sector employees below acertain wage cap, this increase will not compensate for the purchasing power they have had in thepast year due to 40% inflation. Public sector wage increases are unlikely to occur until later in 2005.In FY2004, the U.S. Coast Guard intercepted some 5,014 undocumented Dominican migrants at seaen route to Puerto Rico, providing further evidence of the severity of the economic crisis. (75) The Dominican Republic enjoys a strong relationship with the United States that is evidencedby extensive economic, political, and cultural ties between the two nations. The DominicanRepublic is one of the most important countries in the Caribbean, because of its large size,diversified economy, and close proximity to the United States. Reforms of the Dominican justicesystem, as well as a number of market-friendly economic laws, were well received by the U.S.government. Despite these reforms, and the country's strong economic performance during the1990s, the Baninter scandal, the economic crisis in 2003, and the recent rise in crime against foreigntourists have concerned investors and policy-makers in the United States. Although the DominicanRepublic withdrew its contribution of 300 troops to the coalition in Iraq in May 2004, the BushAdministration has expressed appreciation to the Dominican government for its participation. TheUnited States hopes to assist the Fernández Administration in restoring economic prosperity throughfree trade, building solid democratic institutions, fighting crime and corruption, and promotingregional stability. Foreign Aid. The United States is the largestbilateral donor to the Dominican Republic, followed by Japan, Venezuela, and Germany. ForFY2005, the United States allocated an estimated $29 million to the Dominican Republic, and theAdministration has requested $28 million in assistance for FY2006. These amounts include supportfor a variety of Development Assistance and Child Survival and Health Programs, a Peace Corpsstaff of some 185 volunteers, and a small military aid program. In response to a May 24, 2004, floodthat left 414 dead and more than 1,600 families homeless in the Dominican-Haitian border regionof Jimani, USAID donated a total of $300,000 to various NGOs, such as World Vision and the RedCross. Counter-Narcotics Issues. In September 2005,President Bush designated the Dominican Republic a major drug transit countries in the Caribbean,with 8% of all the cocaine entering the United States flowing through the Dominican Republic. Tocounteract those illicit activities, the Dominican government, acting with U.S. officials, has steppedup drug-related seizures, arrests, and extraditions. The Dominican Republic is also on the StateDepartment's list of major money-laundering countries. In 2002, the Dominican Republic enacteda tough anti-money-laundering law aimed at combating drug trafficking, corruption, and terrorism. In September 2004, the Dominican government adopted a new Criminal Procedure Code based onan accusatory system aimed at speeding up the processing of criminal cases. Trade and Investment. The United States is theDominican Republic's main trading partner. The United States exported $4.3 billion in goods to theDominican Republic in 2004, with apparel and clothing (12%) and textiles (13%) among the leadingitems. In the same year, the United States imported $4.5 billion in goods, almost the same value asexports. Just under half (45%) of U.S. imports were apparel and clothing, and the majority (57%)of all imports entered under Caribbean Basin Initiative-related programs . The Dominican Republichas benefitted more from its involvement in CBI than any other Caribbean country. It was also oneof the first countries in the region designated to participate in the expanded trade benefits of theCaribbean Basin Trade Partnership Act (CBTA) of 2000. It has a U.S. sugar quota of 180,000 tons,the largest of any of our trading partners. More than 254 U.S. companies operate in the DominicanRepublic's 51 free trade zones (FTZs), which were the engine for the country's rapid growththroughout the 1990s. By signing DR-CAFTA, the Dominican Republic hopes to improve accessfor its exports to the U.S. market and to encourage new investment in its FTZs. It is also likely toincrease trade with the Central American nations that are party to the agreement: Costa Rica, ElSalvador, Guatemala, Honduras, and Nicaragua. On March 15, 2004, the United States and the Dominican Republic concluded a free-tradeagreement (FTA) that would integrate the Dominican Republic into the recently concluded CAFTA. Negotiations were held in three rounds in January, February, and March 2004. The DominicanRepublic signed the DR-CAFTA agreement on August 5, 2004 in Washington, D.C. In a Fact Sheet on the Dominican Republic FTA, the USTR explained that the DominicanRepublic is the largest economy in the Caribbean and notes that adding the Dominican Republic toCAFTA "will become the second largest U.S. export market in Latin America." (76) Under the market accessprovisions of the FTA, 80% of U.S. exports of consumer and industrial goods would becomeduty-free immediately, with the remaining tariffs phased out over 10 years. More than half of currentU.S. agricultural exports would become duty-free immediately, and tariffs on most U.S. agriculturalproducts would be phased out over 15 years, with total elimination by 20 years. Sugar exports fromthe Dominican Republic would have a higher U.S. quota, but the increase would be less than forCentral American sugar exports. Most Dominican products already enter duty-free under CBERA. Corn Syrup Tax and DR-CAFTA. Acontroversial issue in U.S.-Dominican relations in 2004 was the Dominican tax on drinks containinghigh fructose corn syrup (HCFS), a major U.S. product. The HCFS tax appeared to be a measureto protect Dominican sugar producers. Enacted in September 2004 as part of a fiscal bill containingreforms necessary to restart the suspended IMF agreement, the HCFS tax threatened the country'schances of being included in DR-CAFTA. On December 27, 2004, the Dominican Chamber ofDeputies voted to repeal the tax after a unanimous vote against the tax in the Senate. PresidentFernández signed the measure into law on December 28, 2004. The Dominican government mustnow find a way to appease the country's sugar producers, who employ some 80,000 people (mostlyundocumented Haitian immigrants) without jeopardizing the country's finances. In 2003, there were531 companies in the Dominican Republic's free-trade zones (FTZs) that employed some 173,379people. Employment in FTZs is the Dominican Republic's second largest employer after the tourismindustry. Manufacturers in the FTZs are strongly in favor of DR-CAFTA. (77) Textiles and Apparel. Under the FTA, textile andapparel products would be traded duty-free and quota-free immediately, if they met the rules oforigin. The Dominican Republic would fall under the CAFTA cumulation provisions, which providebenefits for incorporating Mexican or Canadian inputs, as long as certain conditions are met. Oneof the chief benefits of an FTA to the Dominican Republic would be to ensure U.S. preferentialtreatment for textiles and apparel. This benefit is important, since the Dominican Republic hasreportedly lost U.S. market share to China since global textiles were eliminated on January 1, 2005. Dominican authorities recently estimated that 19,000 Dominican textile workers in the FTZs havelost their jobs since November 2004 as a result of the quota elimination. (78) An unresolved issue would be apparel made under co-production arrangements with Haiti. CBTPA benefits expire the earlier of (1) September 30, 2008; or (2) the date on which the FTAAor another FTA as specified enters into force between the United States and a CBTPA beneficiarycountry ( P.L. 106-200 , Section 211). Thus, if the FTA between the Dominican Republic and theUnited States enters into force, articles co-produced by Haiti and the Dominican Republic might nolonger qualify under CBTPA. The Administration said it would work with the Congress so that Haiticould continue to be eligible under CBTPA for apparel with inputs from the Dominican Republic. Environment. The Dominican Republic is partyto a number of multilateral agreements related to the environment, including the Convention onBiological Diversity, the Convention on the International Trade in Endangered Species of Wild Floraand Fauna, the Vienna Convention, and the Kyoto Protocol. Although erosion and deforestationwere major problems during the 1980s, the Dominican government and civil society took steps toexpand public awareness on environmental issues during the 1990s. This process culminated in thepassage of the Environmental Law (64-00) and the establishment of the Secretariat for theEnvironment in late 2000. Despite this progress, a new National Parks bill that was passed in July2004, despite protests from environmental groups, a number of foreign embassies and the dissentingPLD may open up to 20% of the country's protected areas to foreign tourism developers. (79) In addition, observers havenoted that the disastrous floods that resulted in hundreds of deaths in Jimani in June may haveresulted from deforestation in Haiti and the building of towns on dry riverbeds in the DominicanRepublic. Labor. The Constitution of the DominicanRepublic and its 1992 Labor Code provide for broad worker rights, but there are problems withputting these rights into practice. In a 2004 report on human rights practices, the U.S. Departmentof State states that although workers in the Dominican Republic are free to organize labor unions,the penalties for violating worker rights were insufficient to prevent employers from firing unionorganizers or using intimidation to prevent union activity, especially in the FTZs. It also explainedthat collective bargaining is legal, but continued that the International Labor Organization consideredthe requirements for collective bargaining rights to be excessive. It mentioned the same situation-- a guarantee of legal rights, with problems in practice -- for court action on labor disputes. Onchild labor, the State Department report said "the Labor Code prohibits employment of children lessthan 14 years of age and places restrictions on the employment of children under the age of 16;however, child labor was a serious problem." According to data in the report, almost one-fifth ofchildren ages 5 to 17 work, primarily in the informal economy, small businesses, sugarcane fields,and in forced prostitution. The Ministry of Labor is working with the ILO and other internationalorganizations to combat child labor. Representatives of the AFL-CIO and the Dominican labor group Consejo Nacional de UnidadSindical (CNUS) have testified that there are serious violations of worker rights in the DominicanRepublic. (80) They pointout that the most serious violations are in the export processing zones and that there are problemsalso in the sugar industry. The AFL-CIO representative claimed that reviews under unilateral U.S.programs, such as the Generalized System of Preferences, helped to monitor labor practices and thatthis oversight would be lost under an FTA. Human Rights Watch reports that women "who becomepregnant are routinely fired from jobs and shut out of employment in the Dominican Republic'sexport-processing sector," and such abuses of workers would be allowed to continue, becauseCAFTA does not prohibit workplace discrimination. (81) Workers' groups also fear the loss of protections under currentU.S. unilateral trade programs such as CBI. (82) Proponents of DR-CAFTA have responded to these criticisms by noting that the agreementhas provisions providing for the enforcement of domestic labor laws and creating cooperative waysto bring those laws up to international standards. For example, on July 14, 2004, the DominicanRepublic's Ministers of Trade and Labor, along with their counterparts from the other DR-CAFTAcountries, formed a Working Group that, with support from the Inter-American Development Bank,is working to ensure that progress is made on improving labor standards in the region. On April 5,2005, the Ministers met again in order to endorse the strategy developed by that Working Group tostrengthen labor law compliance and improve the capacity of labor institutions in the DR-CAFTAcountries. Intellectual Property. Annually from 1998through 2002, the Dominican Republic was put on the USTR's Special 301 "Priority Watch List,"which is a mid-level list of countries that, according to the USTR, deny adequate protection ofintellectual property rights. In 2003, the Dominican Republic was moved to the lower-level "WatchList," where it remained in 2004. The USTR notes that although the Dominican Republic hasrelatively strong legislation and an adequate regulatory framework to enforce intellectual propertyrights, "United States industry representatives continue to cite lack of IPR enforcement as a majorconcern." (83) TheInternational Intellectual Property Alliance (IIPA), a coalition of trade associations representing thecopyright industries, estimates that total U.S. industry losses due to piracy in the DominicanRepublic totaled $16.3 million in 2004. (84) Approval Status. On August 14, 2004, formerPresident MejÃa sent DR-CAFTA to the Dominican Congress. President Fernández came out insupport of the DR-CAFTA agreement soon after taking office on August 16, 2004. After a series ofpublic hearings and several months of deliberation, the Senate of the Dominican Republic approvedDR-CAFTA on August 26, 2005, by a vote of 27-2. The Chamber of Deputies followed byapproving the measure on September 6, 2005, by a vote of 118 to 4. The Dominican governmentmust now find a way to appease the country's sugar producers without jeopardizing the country'sfinances. El Salvador achieved notable stability and economic growth in the 1990s, but its growth hasstagnated for the past five years, making it increasingly dependent on remittances from citizensliving abroad. (86) A1992-negotiated peace accord brought the country's protracted 12-year civil war, which had resultedin 75,000 deaths, to an end. The agreement formally assimilated the former guerrilla forces, theFMLN, into the electoral process. The current president, Antonio (Tony) Saca, was elected in March 2004, along with Ana Vilma de Escobar, El Salvador's first female Vice President, and wasinaugurated as President on June 1, 2004 for a five-year term. He is the fourth consecutive,democratically-elected president from the conservative ARENA party that has governed the countrysince 1989. In March 2004, Saca (ARENA), a well known businessmen and sports announcer, won theSalvadoran presidential election handily with 57.7% of the vote. He soundly defeated his nearestrival, Shafick Handal, an aging former guerrilla and Communist party member, of the FMLN whoobtained 35.7% of the vote. The failure of either of the two third party candidates to receive even5% of the vote reflected the continuing polarization of the country between the FMLN and ARENA. Throughout the campaign, Handal vocally opposed ARENA's free market economic policies,including various privatization schemes, the dollarization of the economy, participation inDR-CAFTA, and the sending of Salvadoran troops to Iraq. Throughout the campaign, Shafick Handal vocally opposed ARENA's privatization schemes,the dollarization of the economy, participation in DR-CAFTA, and sending Salvadoran troops toIraq. President Saca's first round victory was a serious setback and cause for assessment for theFMLN that had gone into the campaign with high expectations based on the party's strongperformance in the March 2003 legislative and municipal elections. In those elections, the FMLNwon more seats in the Legislative Assembly than ARENA, the mayoralty of San Salvador for thethird consecutive time, and 7 of the 14 departmental capitals. Despite Handal's poor electoralshowing, his orthodox faction of the FMLN, led by ex-guerilla Medardo Gonzalez, prevailed overa more moderate candidate (the mayor of Santa Tecla, Oscar Ortiz) in the party's internal leadershipelections on November 7, 2004. Tensions within the party have resulted in mass defections fromthe FMLN and the creation of a new party, the Democratic Revolutionary Front (FDR), which nowclaims 7 seats in the Assembly. (87) President Saca is maintaining the free market economic policies of his predecessors, but isalso looking for ways to increase tourism and to build up his country as a logistical hub in order toboost employment and economic growth. At his inauguration, boycotted by the FMLN, he calledfor dialogue to achieve consensus and invited the FMLN to the presidential palace for a meeting.Less than three weeks after his inauguration, President Saca crafted an agreement that led to thepassage of the long-stalled 2004 budget, largely by agreeing to spend more funds on health andeducation sectors and to channel a larger share of the funds to the municipalities. The budgetapproval was followed quickly by an increase in the country's minimum pension, and, in late July,by the unanimous approval of the "Super Firm Hand" package of anti-gang reforms. Designed alongthe lines of former President Flores's "Firm Hand" plan passed in July 2003, the package includesreforms stiffening the penalties for gang membership and especially gang leadership. The anti-ganglegislation was approved despite vocal criticisms by the United Nations and other religious andhumanitarian groups that its tough provisions, especially those allowing convictions of minors under12 years of age, violate international human rights standards. (88) Although some 54% of Salvadorans approve of President Saca's overall job performance, hewill face a number of significant challenges in 2005. In October 2004, the FMLN, withdrew itssupport from the multiparty commission developed by President Saca to discuss important nationalsocial, economic, and political issues. On December 17, 2004, Saca was able to muster enoughsupport in the legislature from small parties to ratify the DR-CAFTA agreement over FMLNobjections. On January 27, 2005, the country's 2005 budget was finally approved. The budget hadstalled in El Salvador's Legislative Assembly amidst FMLN opposition to its provisions for increasedforeign borrowing. Although the FMLN is also likely to oppose any proposals for furtherprivatization, or to change El Salvador's public health or education programs, with only 24 of 84seats in the Assembly, the party does not pose as big an obstacle to President Saca's agenda as it didbefore. In the 1990s, El Salvador adopted a "neo-liberal" economic model, cutting governmentspending, privatizing state-owned enterprises, and adopting the dollar as its national currency. ElSalvador is considered the 12th most open economy in the world. (89) The economy averagedan annual growth rate of 4.5% between 1990 and 2001 but registered only 2% growth the past fewyears. While remittances and reconstruction projects remained steady in 2004, high oil prices anda slump in the maquiladora sector (large assembly plants operating in free-trade zones) kept growthat a modest 1.8% in 2004. Remittances now contribute 15% of El Salvador's annual GDP, and thecountry's economic success has become increasingly dependent on the success of the globaleconomy. El Salvador's recent economic stagnation may be linked to disruptions that resulted fromHurricane Mitch in 1998, two major earthquakes in 2001, a decline in coffee prices, and theslowdown in the U.S. economy following September 11, 2001. The earthquakes in particular causedthe country significant damage, leaving more than 100,000 people homeless and tens of thousandswithout jobs. Total damage estimates were placed as high as $3 billion. (90) This series of naturaldisasters occurred as El Salvador's coffee industry was recording record losses when internationalcoffee prices fell nearly 70% since 1997. Since the United States is El Salvador's most importanttrading partner, the U.S. recession and sluggish recovery in 2001- 2002 lowered the demand forSalvadoran exports. Although the U.S. economy has recovered since 2003, increasing competitionfor access to the U.S. market from Asian and other producers has limited the demand for Salvadoranexports. Although El Salvador has fared better than other countries in the hemisphere, whenpopulation increases are taken into account, the country's modest growth, averaging 2% or less forthe past four years, is not enough to produce dramatic improvements in standards of living. With48% of the population living in poverty and more than 25% reportedly feeling they must migrateabroad in search of work, some critics have argued that the average Salvadoran household has notbenefitted from neoliberalism. (91) Dollarization has raised the cost of living while its primarybenefits, lower interest rates and easier access to capital markets, have not resulted in an overalldecline in poverty levels. Between 1989 and 2004, poverty levels actually rose from 47% to51%. (92) With pricesrising, privatization has been vigorously opposed. A nine-month doctors' strike, the longest in thecountry's history, ended in June 2003, when the privatization of the country's social security systemwas halted. Finally, the fruits of stable economic growth have not been equitably distributed as theincome of the richest 10% of the population is 47.4 times higher than that of the poorest 10%. (93) Gangs and Violence. (94) Pervasive poverty andinequality, combined with 15% unemployment and significant underemployment, have contributedto the related problems of crime and violence that have plagued El Salvador since its civil war. Asmany as 30,000 Salvadoran youth belong to maras (street gangs). (95) In 2004, the SalvadoranNational Police estimated that 2,756 homicides were committed in the country, 60% of which weregang-related. (96) Thesegangs are increasingly involved in human trafficking, drug trafficking, and kidnaping, and pose aserious threat to the country's stability. The Salvadoran government reported that its "Super FirmHand" anti-gang legislation led to a 14% drop in murders in 2004. However, El Salvador recordeda total of 1,715 murders in the first six months of 2005, 36.5% more than during the same period in2004. (97) In February2005, El Salvador's Legislative Assembly passed an amendment tightening gun ownership laws,especially for youths, to complement its existing anti-gang measures. On March 18, 2005, PresidentSaca of El Salvador and President Oscar Berger of Guatemala agreed to set up a joint security forceto patrol gang activity along their common border. Although most of El Salvador's anti-ganginitiatives have focused on improving law enforcement and stiffening penalties for gang activities,NGOs have urged the Salvadoran government to focus more on rehabilitation of gang members andless on enacting tough measures that criminalize youth and may violate human rights. Throughout the last two decades, the United States has maintained a strong interest in thepolitical and economic situation in El Salvador. During the 1980s, El Salvador was the largestrecipient of U.S. aid in Latin America as its government struggled against the armed FMLNinsurgency. After the 1992 peace accords were signed, U.S. involvement in El Salvador shiftedtowards helping the government transform the country's struggling economy into a model offree-market economic development. Since that time, successive ARENA governments havemaintained a close relationship with the United States. On December 17, 2003, El Salvador, signedthe CAFTA, which later was changed to now include the Dominican Republic and is referred to as"DR-CAFTA," that should strengthen the economic linkages between all parties to the agreement. On December 17, 2004, despite strong opposition from the FMLN, El Salvador became the firstcountry in Central America to ratify DR-CAFTA. El Salvador has maintained a troop presence inIraq since 2003 despite protests from the FMLN and terrorists threats against the ARENAgovernment from an extremist group claiming to be linked to Al-Qaeda. (98) The United States is inthe process of establishing an International Law Enforcement Academy (ILEA) based in El Salvadorto train police officials from across Latin America. U.S. Foreign Aid. In the 1990s, total U.S. foreignassistance to El Salvador declined from wartime levels ($570.2 million in 1985), and shifted frommilitary aid towards development assistance and disaster relief. Military aid to El Salvador reacheda peak of $196.6 million in 1984, but fell to $0.4 million a decade later. The United States provided$37.7 million in assistance to El Salvador following Hurricane Mitch in 1998 and an additional$168 million in reconstruction assistance since the two earthquakes in 2001. For FY2005, Congressappropriated an estimated $40.2 million for El Salvador, and the Administration has requested $42.5million in assistance for FY2006. These amounts support a wide variety of Development Assistanceand Child Survival and Health Programs, as well as 169 Peace Corps volunteers. Counter-Narcotics Issues. Not a major producerof illicit drugs, El Salvador serves as a transit country for narcotics, mainly cocaine and heroin,cultivated in the Andes and destined for the United States. El Salvador, along with Ecuador, Aruba,and the Netherlands Antilles, serves as a Forward Operating Location for U.S. anti-drug forces. In2004, El Salvador's National Police seized 2,703 kilograms of cocaine, 20% more than in 2003. Also in 2004, the FOL facilities helped seize 2.2 metric tons of narcotics and prevented the deliverof 71 metric tons of narcotics to the rest of the region. (99) Support for U.S. Military Operations in Iraq. ElSalvador immediately supported the United States following the September 2001 terrorist attacksand sent a first contingent of 360 soldiers to Iraq in August 2003 and a replacement contingent of380 soldiers in February 2004. While all other Spanish-speaking countries have withdrawn theirtroops, a third contingent of 380 Salvadoran troops departed for Iraq on August 19, 2004. Despitethe fact that 60% of Salvadorans surveyed oppose their country's involvement in Iraq, President Sacasent a fourth contingent of troops to Iraq on February 10, 2005. (100) Migration Issues. The United States respondedto the recent natural disasters in El Salvador by granting Temporary Protected Status (TPS) to anestimated 290,000 undocumented Salvadoran migrants living in the United States. On January 6,2005, the U.S. government extended the TPS of undocumented Salvadoran migrants living in theUnited States until September 9, 2006. TPS is an important bilateral issue for El Salvador, whosemigrants living in the United States sent home roughly $2.5 billion in remittances in 2004. Theexodus of large numbers of poor migrants to the United States has also eased pressure on theSalvadoran social service system and labor market. U.S. Trade and Investment. For the past decade,the United States has played a pivotal role in helping El Salvador develop a market-friendly economybased on the principles of privatization, foreign investment, and free trade. Few sectors remainunder government control, the U.S. dollar is the country's legal tender, and tariffs on foreign goodsaverage just 7.4%. The United States is El Salvador's main trading partner, purchasing 60% of its exports andsupplying 50% of its imports. More than 300 U.S. companies currently operate in El Salvador, manyof which are based in the country's 17 free trade zones. The composition of U.S. imports from ElSalvador have changed dramatically since the gradual expansion of the Caribbean Basin Initiative(CBI) trade preference system. In 2000, El Salvador, along with the other countries of CentralAmerica, got duty free access to the U.S. market on approximately three-quarters of its products asa result of the Caribbean Basin Trade Partnership Act or CBTPA ( P.L. 106-200 , Title II), whichexpires in September 2008. (101) In 1990, traditional products, such as coffee and spices,accounted for the bulk of the $237.5 million worth of Salvadoran exports to the United States. By2002, however, exports jumped to $1.98 billion, with apparel products accounting for 79% of thattotal. DR-CAFTA would make permanent and reciprocal the duty- and quota-free treatment statusprovided by CBTPA for apparel made in Central America from U.S. fabrics formed from U.S. yarns. The agreement would relax the CBTPA's "yarn forward" provision, which limits duty free access toCentral American apparel made with U.S. materials, by extending that status to garments made frommaterials originating in either the United States or Central America. Finally, for some products(boxers, nightgowns), duty-free access would be given for apparel that is assembled in the regionfrom imported fabric. By vigorously supporting DR-CAFTA, El Salvador hopes to promote greater U.S. investmentinto developing its local capacity to produce paper/paperboard, plastic materials/resin, and processedfoods. Because of its interest in securing U.S. investment, some observers maintain that El Salvadorfolded to pressure from the United States when it withdrew from the G-20 group of developingcountries at the World Trade Organization's meeting in Cancun in September 2003. These reportswere denied, however, by El Salvador's Economy Minister, Miguel Lacayo, who stated, "El Salvadorresponds to its own interests, and the consensus of G-21 did not respond to its interests." (102) The G-20 group,which includes powerful countries such as Brazil, India, and China, challenged the United States andEuropean countries to remove agricultural subsidies as part of the trade negotiations. President Flores tried to develop favorable markets for El Salvador's non-traditional exports.Accordingly, El Salvador has signed bilateral free trade agreements (FTAs) with Mexico, Chile,Panama, and the Dominican Republic, and is in the process of negotiating a larger FTA with Canadaand four other countries in the region. As noted above, El Salvador is one of the leading proponentsof DR-CAFTA. On December 17, 2004, El Salvador became the first country in the region to ratifythe agreement. However, critics within the country warn that without adequate safeguards,DR-CAFTA may make El Salvador's small farmers more vulnerable to downturns in the globaleconomy, and that those farmers may be unable to compete against highly subsidized producers inthe United States. Others note that given the high level of liberalization already present in thecountry, El Salvador stands the least to gain from DR-CAFTA of any country in CentralAmerica. (103) Anumber of sensitive issues arose in the negotiations, which are summarized below. Apparel. The bulk of exports from El Salvadorto the United States are apparel or related goods. In 2004, apparel and related goods comprised some85% of El Salvador's $2.1 million worth of exports to the United States. The government of ElSalvador reportedly fears that although it would still benefit from the CBTPA and its proximity tothe United States, fierce Asian competition could overtake its nascent textile industry. To date,CBTPA has had a minimal effect on the Salvadoran apparel sector. (104) Early predictions thatsurrounded the legislation -- 150,000 new jobs to be created, 25% growth in the maquila industry,and the establishment of a larger local textile industry -- never materialized. Salvadoran officialshope that DR-CAFTA, combined with favorable external circumstances, can help achieve some ofthe lofty targets previously predicted for CBTPA and protect the apparel sector from Chinesecompetition. El Salvador also seeks to develop its textile industry beyond simple cutting and sewingoperations into firms capable of producing finished goods. Environment. In May 1997, the government ofEl Salvador passed an Environmental Law to complement its existing domestic environmentalprovisions protecting the country's remaining flora and fauna. El Salvador is also a signatory ofmore than 51 international environmental agreements, including the Convention on BiologicalDiversity, the Convention on the International Trade in Endangered Species of Wild Flora andFauna, and the Kyoto Protocol. Despite these conservation measures, some observers argue that ElSalvador has the worst environmental situation in Central America. (105) According to thisreport, El Salvador is the second most deforested country in Latin America, 90% of its river wateris contaminated, soil erosion is pervasive, and air pollution is increasing. A lack of forest cover hasincreased El Salvador's vulnerability to natural disasters, evidenced by the disastrous effects ofHurricane Mitch and the earthquakes of 2001. El Salvador's environmental problems areexacerbated by the fact that it is the most densely populated country in the region. As in the Chilean free trade agreement, DR-CAFTA requires countries to enforce their ownenvironmental laws. Observers note that this type of environmental provision may be inadequate,however, as many countries in the region do not effectively enforce their environmental laws. OnFebruary 18, 2005, El Salvador, along with the other signatories of DR-CAFTA, signed anAgreement on Environmental Cooperation and an Understanding Regarding the Establishment ofa Secretariat for Environmental matters to enforce the environmental provisions of the agreement. Labor. El Salvador has ratified the InternationalLabor Association's (ILO) conventions against discrimination, forced labor and child labor. It hasnot, however, signed the ILO conventions protecting trade union rights. As a result, Human RightsWatch reported that, as of December 2003, only 5% of the labor force in El Salvador is unionized,and even those that are unionized are minimally protected by a weak Ministry of Labor (MOL) anda corrupt judicial system. (106) In June 2001, the ILO Committee on Freedom of Associationnoted that the country's existing labor code restricts freedom of association. (107) The labor coderequires burdensome union registration procedures, prohibits union formation and strikes amongpublic sector employees, and does not require the reinstatement of workers unfairly dismissed. (108) Unions are weakest inthe Export Processing Zones (EPZs), as factories have no collective bargaining agreements in placewith the 18 unions active in that sector. The State Department's Country Report on Human RightsPractices covering 2004 asserts that "workers in a number of plants reported verbal abuse, sexualharassment, and, in several cases, physical abuse," and that the Ministry of Labor, which isresponsible for enforcing the country's labor laws, has "insufficient resources to cover all the EPZs." Opponents of DR-CAFTA point out that the agreement may serve to perpetuate these abusesas its weak provisions merely require signatories to enforce their existing labor laws, rather thanreforming those laws to meet international standards. They further assert that the penalties forcountries not enforcing their labor laws are relatively weak. In December 2004, the InternationalLabor Rights Fund (ILRF) submitted a petition to the Office of the USTR questioning El Salvador'seligibility for trade preferences under the Generalized System of Preferences (GSP) given its weaklabor laws. (109) On November 5, 2004, Gilberto Soto, a Salvadoran-born U.S. union leader was murderedoutside his mother's home in El Salvador. Mr. Soto was scheduled to meet with port workers in ElSalvador the following week. On December 4, 2004, the Salvadoran government arrested Soto'smother-in-law and two accomplices in connection with the murder. Some local and internationalhuman rights organizations, as well as the AFL-CIO, have expressed concern that the governmentof El Salvador has failed to investigate the possibility that Mr. Soto's murder was connected to hisunion activities. On December 27, 2004 the Salvadoran human rights prosecutor's office complainedof irregularities in the government's investigation of the case including the accused's accusations thatthey were "subjected to illegal interrogations and physical and psychological torture." (110) Labor and humanrights advocates have noted that this case may have serious repercussions for workers' human rightsin El Salvador. (111) Despite these obstacles, there have been some positive successes for the Salvadoranworkforce in recent years, some of which may have been hastened by the CAFTA negotiations. Following the publication of an internal report on the deplorable conditions in the maquila sectorwritten in August 2000 by the MOL, the Salvadoran government acknowledged the problems in themaquila sector and stepped up its monitoring efforts. A second positive step for the Salvadoran laborforce occurred when El Salvador was selected as one of the first countries to get Department ofLabor funding (through the ILO) for a program to stop the worst forms of child labor. On July 14,2004, El Salvador's Ministers of Trade and Labor, along with their counterparts from the otherDR-CAFTA countries, formed a Working Group that, with support from the Inter-AmericanDevelopment Bank, would ensure that progress is made on improving labor standards in the region. On April 5, 2005, the Ministers met again in order to endorse the strategy developed by that WorkingGroup to strengthen labor law compliance and improve the capacity of labor institutions in theDR-CAFTA countries. Intellectual Property Rights. El Salvador is partyto the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) and a bilateralintellectual property agreement with the United States. The government of El Salvador passed anIntellectual Property and Promotion and Protection (IPR) Law in 1993 and was subsequentlyremoved from the U.S. Trade Representative's (USTR) Special 301 Priority Watch List in 1996. The Law of Trademarks and Other Distinctive Signs (2002) was established in order to bring ElSalvador into better compliance with TRIPS. The Attorney General's office is charged withenforcement of these laws, conducting periodic raids against manufacturers and distributors ofpirated goods. As of 2002, the focus of these raids has shifted from software to pirated CDs. Despite better laws protecting intellectual property and increased raids, U.S. companies in ElSalvador incurred trade losses of $4.0 billion in 2003 due to software privacy and $1.5 millionbecause of music piracy. (112) These substantial losses continue to occur due to a lack ofexpeditious court proceedings and tough punishments for pirates in either the criminal or civil courtsin El Salvador. These violations provide a significant barrier impeding increased U.S. trade andinvestment in El Salvador. Approval Status. On December 17, 2004, theLegislative Assembly of El Salvador ratified DR-CAFTA despite strong objections from the FMLN. After more than 19 hours of floor debate and a brief takeover of the chamber by protestors,DR-CAFTA was approved by a vote of 49-35. (113) A simple majority of 43 was all that was needed to pass theagreement. Pro-CAFTA votes were cast by delegates from ARENA, the National Conciliation Party(PCN), the Christian Democratic Party (PDC), and one member of the FMLN. President Saca signedthe bill ratifying DR-CAFTA on January 25, 2005. Since the 1980s, Guatemala has been consolidating its transition from a centuries-longtradition of mostly autocratic rule toward representative government. A democratic constitution wasadopted in 1985, and a democratically-elected civilian government inaugurated in 1986. Eighteenyears later, democratic institutions remain fragile. Of all the conflicts that ravaged Central Americain the last decades of the 20th century, Guatemala's conflict lasted the longest. Guatemala ended its36-year civil war in 1996, with the signing of the Peace Accords between the government andGuatemalan National Revolutionary Unity (Unidad Revolucionaria Nacional Guatemalteca, URNG),a group created in 1982 from the merger of four left-wing guerrilla groups. Some of these groupswere inspired by the ideologies of the Cuban and Nicaraguan revolutions and by liberation theology. Some had bases in the highlands with mostly indigenous populations and incorporated the historicalgrievances of the Mayans into their agendas for social and economic reform. The Peace Accords not only ended the civil conflict but constituted a blueprint for profoundpolitical, economic, and social change to address the conflict's root causes. Embracing 10 otheragreements signed from 1994 to 1996, the accords called for a one-third reduction in the size andbudget of the military; major investments in health, education, and other basic services to reach therural and indigenous poor; and the full participation of the indigenous population in local andnational decision making. They required fundamental changes in tax collection and governmentexpenditures, and improved financial management. The accords also outlined a profoundrestructuring of state institutions, especially of the military, police, and judicial system, with the goalof ending government security forces' impunity from prosecution and consolidating the rule of law. While noting that insufficient enactment of peace accord reforms are mainly the responsibility of thegovernment, the United Nations Verification Mission in Guatemala (MINUGUA) states that civilsociety also shares the blame, such as for failing to support tax increases to fund social programs. Former Guatemala City mayor Oscar Berger, of the center-right coalition Great NationalAlliance, won free and fair elections with 54% of the vote in November 2003. The new presidentwas inaugurated on January 14, 2004, for a four-year term. Since taking office, Berger has launchedmajor initiatives to fight corruption, reduce and modernize the military, enact fiscal reforms, andimplement the Peace Accords. He has pursued corruption charges against his predecessor, AlfonsoPortillo of the Guatemalan Republican Front (FRG), whose administration was widely criticized forinadequate implementation of the peace process, increased human rights violations, increases in drugtrafficking and common crime, extensive corruption, and the slow pace of economic growth. Berger's economic reforms include new income tax rates and a temporary tax to fund programsrelated to the peace process. Despite his decisive loss in the first round presidential elections, retired General Efrain RiosMontt of the FRG remains a destabilizing force. Rios Montt was military dictator from 1982-1983,while the army carried out a counter-insurgency campaign resulting in what is now characterized asgenocide of the Mayan population. Berger's top defense official, General Otto Perez, resigned inMay 2004 to protest negotiations between Berger officials and the FRG, of which Rios Montt is stillleader. Perez charged that Berger offered to protect Rios Montt from prosecution in exchange forhis party's support of fiscal reform legislation (Associated Press, 5/24/04). Berger has beennoncommittal about whether his administration will prosecute the former dictator. On April 4, 2005,however, Rios Montt's grandson was sentenced to over three years in prison for racial discriminationin a case involving verbal abuse of indigenous leader Rigoberta Menchu. Guatemala has the largest population in Central America with 12 million people. Approximately half the population is indigenous, with about 23 different ethno-linguistic groups. The indigenous population is economically and socially marginalized and subject to significantethnic discrimination. Distribution of income and wealth remains highly skewed in Guatemala. According to the World Bank's Poverty Assessment of Guatemala, Guatemala ranks among the moreunequal countries of the world, with the top 20% of the population accounting for 54% of totalconsumption. Indigenous people, constituting about 50% of the population, account for less than25% of total income and consumption. According to the World Bank's report, past free market policies have resulted in the exclusionand impoverishment of the indigenous population. Massive land expropriations, forced labor, andexclusion of the indigenous from the educational system all served to develop coffee as Guatemala'sprimary export crop yet inhibit development among the indigenous rural population. By 1960,Guatemala had double the per capita GDP of neighboring Honduras and Nicaragua, but lower socialindicators, a situation that continues into the present. Guatemala's per capita GDP is $3,630, in the mid-range internationally. Its total GDP, $20.5billion, is the largest in Central America. Yet the World Bank says data suggest that poverty is higherin Guatemala than in other Central American countries. Estimates of the portion of Guatemala'spopulation living in poverty vary: the U.S. State Department reports that 80% of Guatemalans livein poverty, with two-thirds of that number living in extreme poverty. The World Bank reports that54% of the population lives in poverty. (116) Poverty is highest in rural areas and among the indigenous:75% of all people living in the countryside live in poverty, and 25% in this category live in extremepoverty. Poverty is significantly higher among indigenous people, 76% of whom are poor, incontrast to 41% of non-indigenous people. Guatemala's GDP for 2003 was $24 billion. GDP growth rate was 3.3% in 2000, but lowworldwide coffee prices contributed to Guatemala's slowed growth over the last couple of years.GDP growth rate was 2.4% in 2003. Despite the downturn in commodity prices, traditional exportssuch as coffee and sugar continue to lead Guatemala's economic growth. Over the last decade,non-traditional exports, such as assembled clothing, winter fruits and vegetables, furniture, and cutflowers, have grown dramatically. Tourism also has grown, though continued growth may dependon the government's ability to address security issues. Problems limiting growth include illiteracyand low levels of education, high crime rates, and an inadequate capital market. Guatemala's social indicators continue to be among the worst in the hemisphere. Itsmalnutrition rates are among the worst in the world. Its infant mortality rate is 43 per 1,000 livebirths, and its under-5 mortality rate is 58 per 1,000 children. (117) Guatemala's illiteracyrate is extremely high: at 31%, only Nicaragua and Haiti have worse levels in the hemisphere. Theaverage level of schooling is an extremely low 4.3 years; among the poor it is less than two years. Schooling is lowest among women, indigenous people, and the rural poor. As a result ofmalnutrition, 44% of children under five years of age have stunted growth. Drought and low coffeeprices triggered a rural economic crisis beginning in 2001, which has caused severe malnutritionamong the rural poor. Implementation of the elements of the Peace Accords relating to improving the livingconditions and the rights of indigenous people and women are far behind schedule. Access toeducation, according to the Inter-American Commission on Human Rights, is "still far frombecoming a reality." MINUGUA reported in 2003 that the amounts allocated to key social ministries"remained extremely low in relation to the needs of the country." The indigenous population andwomen continue to face limited opportunities and discrimination in the labor market. According tothe World Bank's Poverty Assessment, "The indigenous appear limited to lower-paying jobs,primarily in agriculture," which, the report says, is "unlikely to serve as a major vehicle for povertyreduction." Other obstacles hindering social and economic advancement among the indigenous poor,which the report says the government still must address, are: higher malnutrition rates, less coverageby basic utility services, wage discrimination, and discriminatory treatment by public officials andother service providers. International donors and others have criticized Guatemala for not increasing the tax base tothe minimum target of 12% of GDP agreed upon in the Peace Accords. Guatemala's 2003 tax base,at about 10% of GDP, was one of the lowest in Latin America. (118) At a May 2003 meetingof the Consultative Group for Guatemala, donors told the Guatemalan government it needed toincrease its tax revenue, decrease spending on the armed forces, and increase social spending asmandated in the accords. The Consultative Group is made up of over 20 donor countries andinternational organizations, including the U.S., Canadian, and Japanese governments, the WorldBank, and the IDB. In its report prepared for that meeting, MINUGUA said the organized privatesector shares the responsibility for inadequate social budgets because it systematically opposesefforts to increase taxes, thereby limiting funding available for key social ministries and institutionsof justice. The Berger Administration has taken steps toward implementing the goals set forth by thePeace Accords and the Consultative Group. It has developed a more inclusive development strategy. It dramatically cut the military budget, and is shifting those funds to education and health programs. In June 2004, the Congress passed a tax package which included a Temporary Tax to Support thePeace Agreements. Despite the government's commitment to increase tax revenues to 12 %of GDPby year's end, tax revenues were expected to remain at 10.3% for 2004. (119) U.S. policy objectives in Guatemala, as set forth by the State Department, includestrengthening democratic institutions and implementation of the Peace Accords; encouraging respectfor human rights and the rule of law; supporting broad-based economic growth, sustainabledevelopment, and mutually beneficial trade relations; combating drug trafficking; and supportingCentral American integration through resolution of territorial disputes. (120) Relations betweenGuatemala and the United States have traditionally been close, but strained at times by human rightsand civil-military issues. The Bush Administration repeatedly expressed concerns over the failureof the Portillo Administration to implement the Peace Accords, a perceived high level of governmentcorruption, and lack of cooperation in counter-narcotics efforts. (121) The BushAdministration says that the change of government in Guatemala "affords an important opportunityto reverse negative trends in the country. Donor support will remain essential, however, to keepGuatemala on the positive democratic path and avoid any fall towards a failing state so near to U.S.borders." (122) U.S. Assistance. From 1997 through 2003, U.S.assistance to Guatemala centered on support of the Peace Accords, providing almost $400 millionto support their implementation. There is no longer a project in direct support of the Implementationof the Peace Accords as of FY2004. Some activities, such as the development of justice centers, andefforts to support increased transparency of Guatemalan government institutions, and to reducecorruption, will continue in other programs. U.S. assistance to Guatemala has declined by over athird in the past four years, from almost $60 million in FY2002, to just under $40 million requestedfor FY2006. The estimate for FY2005 includes $11.6 million in Child Survival and HealthPrograms funds; $10.9 million in development assistance, $6 million in Economic Support funds,and $18 million in P.L. 480 Title II food assistance programs. The request for FY2006 includes $9.9million in Child Survival and Health Programs funds; $9.7 million in development assistance, $4million in Economic Support funds, and $16.3 million in P.L. 480 Title II food assistance programs. The Administration has provided $5 million following the devastation of the hurricane thatdemolished entire towns in October 2005. (123) From the inauguration of a democratically-elected government in 1986 to 1990, Congressplaced conditions related to democratization and improved respect for human rights on militaryassistance to Guatemala. It also prohibited the purchase of weapons with U.S. funds. In 1990, theGeorge H. W. Bush Administration suspended military aid because of concerns over human rightsabuses allegedly committed by Guatemalan security forces, especially the murder of a U.S. citizen. Congress has continued to prohibit foreign military financing (FMF) to Guatemala since then,although it has allowed some International Military Education and Training (IMET) assistance. Currently, Congress allows Guatemala only expanded IMET, which is training for human rights, andof civilian personnel in defense matters, and requires notification to the Appropriations Committeesprior to allocation. For FY2006, the House-passed version of the Foreign Operations appropriationsbill ( H.R. 3057 , H.Rept. 109-152 ) would remove restrictions on IMET but would retainthe prohibition of FMF. In recent years Congress has also asked federal agencies to expedite thedeclassification and release of information related to the murder of U.S. citizens in Guatemala. Human Rights. The first of the Peace Accordswas the Comprehensive Agreement on Human Rights, which was signed and became effective in1994. The Peace Accords established a Historical Clarification Commission, commonly referredto as The Truth Commission, to investigate human rights violations and acts of violence thatoccurred during the armed conflict from 1960 to 1996. In its 1999 report, "Guatemala: Memory ofSilence," the Commission reported that more than 200,000 people died or disappeared because ofthe armed conflict, and that over 80% of the victims were indigenous Mayans. The Commissionconcluded that the systematic direction of criminal acts and human rights violations at the civilianMayan population amounted to genocide. The Commission attributed responsibility for 93% of theviolations to agents of the state, principally members of the army, and stated: "The majority ofhuman rights violations occurred with the knowledge or by order of the highest authorities of theState." The Commission concluded that, although much of the state's actions were taken in the nameof counterinsurgency efforts, "[t]he magnitude of the State's repressive response" was "totallydisproportionate to the military force of the insurgency...," and that the vast majority of the state'svictims were not guerrilla combatants, but civilians. (124) Regarding respect for human rights, Guatemala has made enormous strides, but significantproblems remain. The armed conflict has definitively ended, and the state policy of human rightsabuses has been ended. Civilian control over military forces has increased. On the other hand,security forces reportedly continue to commit gross violations of human rights with impunity, andGuatemala must still overcome a deeply embedded legacy of racism and social inequality. The U.N.,the OAS, and the United States have all expressed concern that human rights violations haveincreased over the past several years, and that previous Guatemalan governments have takeninsufficient steps to curb them or to implement the Peace Accords. President Berger has madeimplementing the Peace Accords a top priority. He has slashed the size of the military and its budgetby more than that required by the Peace Accords and is modernizing defense policy. He has alsoinitiated programs to improve the rights of women and of the indigenous population. The previous Guatemalan administration agreed to the establishment of a U.N. HighCommissioner for Human Rights in December 2003, but it has still not been put in place. TheBerger Administration is working to resolve legal obstacles to the establishment of the UNCommission for the Investigation of Illegal Groups and Clandestine Security Organizations(CICIACS), whose mission will be to investigate and prosecute clandestine groups, through whichmany military officers allegedly engage in human rights violations, drug trafficking, and organizedcrime. CICIACS was approved by the Portillo Administration but has yet to be approved by theGuatemalan Congress. The UN Verification Mission in Guatemala (MINUGUA) closed inNovember 2004, after verifying compliance with the Peace Accords for ten years. In September2004, UN Secretary General Kofi Annan said that Guatemala's political process had matured to thepoint where the country should now be able to deal peacefully with all of its unresolved issues. A climate of security remains elusive, however, as violent crime has increased in recentyears. President Berger has called the lack of security the most important problem facing hisadministration. He initiated a "national crusade against violence" in July 2004. (125) Some have criticizedthe effort for removing security forces from one area to increase protection in others. Following themurder of a judge on April 25, 2005, the Guatemalan Supreme Court adopted a plan to protect 25judges who have received death threats. In recent months, suspected gang members are being killedby what appear to be new clandestine vigilante groups conducting "social cleansing" and that,according to the Human Rights Prosecutor's office, may involve police and military officers. (126) Narcotics. Guatemala is a major drug-transitcountry for both cocaine and heroin en route from South America to the United States and Europe. According to the State Department , up to half of all cocaine on its way to Mexico and the UnitedStates passes through Guatemala, the preferred country in Central America for the storage andconsolidation of northward bound cocaine. In January 2003, President Bush designated Guatemalaas one of three countries in the world that "failed demonstrably" during the previous year to fulfillits international counter narcotics obligations. He granted a national interest waiver to allowcontinued U.S. assistance to be provided to Guatemala, however.Eight months later, in September2003, the President determined that Guatemala had made efforts to improve its counter narcoticspractices, and did not include it in the "failed demonstrably" list. Among the steps taken werepassage by the Guatemalan Congress in August 2003 of a measure allowing U.S. security forces toenter Guatemalan airspace and waters during joint counter narcotics operations or when in pursuitof suspected drug traffickers. In July 2004, the Financial Action Task Force, an intergovernmental organization dedicatedto enhancing international cooperation in combating money-laundering, removed Guatemala fromits list of non-cooperative countries . (127) Guatemala had been on the list of nine countries -- the onlyone in the Americas, during the Portillo Administration. (128) The Task Force welcomed progress made by Guatemala inenacting and implementing anti-money laundering legislation. In its March 2005 InternationalNarcotics Control Strategy Report, the Bush Administration reported that "In spite of substantialcounternarcotics efforts by the Government of Guatemala in 2004, large shipments of cocainecontinue to move through Guatemala by air, road, and sea." Guatemala has a growing domestic drug abuse problem. According to the State Department,the Guatemalan government has an aggressive demand reduction program. U.S. Trade and Investment. Guatemala and theUnited States signed a framework agreement on trade and investment in 1991, through which theyestablished a bilateral Trade and Investment Council. The signing of the Guatemalan Peace Accordsin 1996 removed a major obstacle to foreign investment there. Guatemala was certified to receiveexport trade benefits in 2000 under the Caribbean Basin Trade and Partnership Act ( P.L. 106-200 ,Title II), which gives preferential tariff treatment, and also benefits from access to the U.S.Generalized System of Preferences. The United States is Guatemala's top trade partner. Guatemala'sprimary exports are coffee, sugar, bananas, fruits and vegetables, cardamom, meat, apparel,petroleum, and electricity; 55.3% of Guatemalan exports go to the United States. Primary importcommodities are fuels, machinery and transport equipment, construction materials, grain, fertilizers,and electricity; 32.8% of Guatemalan imports are from the United States. (129) The U.S. trade deficitwith Guatemala was $758 million in 2002, with U.S. exports to Guatemala at $2.0 billion, and U.S.imports from Guatemala at $2.8 billion. Guatemala is the 40th largest export market for U.S. goods. U.S. foreign direct investment in Guatemala was $907 million in 2000, and dropped byalmost half, to $477 million, in 2001; it is concentrated in the manufacturing and financesectors. (130) MajorU.S. companies operating in Guatemala include ACS, American Cyanamid Co., Avon Products,BellSouth, Cargill, Citibank, Coastal Power, Colgate Palmolive, Constellation Power, Exxon,Gillette, Goodyear Tire and Rubber, Kellogg Co., Kimberly Clark Corp., Levi Strauss and Co.,Marriott Hotels, 3M, Phillip, Morris, Inc., Proctor and Gamble, Railroad Development Corp.,Ralston Purina, Sabritas-Frito Lay, TECO Power Services, Texaco, Warner Lambert, andXerox. (131) PresidentBerger has made attracting domestic and foreign investment a priority, believing it will revive theeconomy and create jobs. The Guatemalan government supports the DR-CAFTA agreement as a further step towardeconomic integration with its neighbors. It established a free trade area with El Salvador, Honduras,and Nicaragua in 1993, to which the Dominican Republic was later added. Negotiations to add Chileto the group are underway. Along with El Salvador and Honduras, Guatemala implemented a freetrade agreement with Mexico in 2001. Guatemala signed a customs agreement with El Salvador inMarch 2004 as part of a strategy to improve trade within the region. Some observers believe that Guatemalan groups with concerns about possible negativeoutcomes of DR-CAFTA, such as small farmers, were limited in their opposition because of thesecretive nature of the CAFTA negotiations. (132) Despite a foreign investment law passed in 1998 to facilitate foreign investment, under thePortillo administration, "time-consuming administrative procedures, arbitrary bureaucraticimpediments, corruption, and a sometimes anti-business attitude...[were] a reality," according to aU.S. government report. (133) A World Bank report listed Guatemala as one of ninecountries that regulate businesses the most heavily. The report concluded that those countries alsohad the weakest systems for enforcing the laws and were therefore susceptible to bribery andcorruption as well. (134) Agriculture. Those who support DR-CAFTAargue that the agreement will help farmers, especially those who grow non-traditional crops notgrown in the United States. They also argue that it will help slow migration to the United States ofCentral American farm laborers seeking work. Others are not so sure. Central American governments wanted to negotiate the eliminationof U.S. farm subsidies as part of CAFTA talks. They feared that small subsistence farmers will beunable to compete against subsidized, and therefore lower-priced, U.S. commodities. Theyacquiesced to the U.S. position that the issue should be addressed in the World Trade Organization.The executive director of the Central American and Caribbean Agricultural Federation, aGuatemalan, says that Guatemalan farmers "are afraid [CAFTA] is going to be like NAFTA, whichmassacred the campesinos in Mexico." Whether or not NAFTA has hurt subsistence farmers isdisputed, however. A recently-released World Bank report says that NAFTA "has probably had littleimpact on small farmers in the Southern [Mexican] states who have suffered a long history of social,political and economic neglect..." (135) Other analysts are concerned that opening basic food production in Central America tocompetition from U.S. imports will have a negative impact on Central American food security andemployment rates. The Central American governments agreed to include all of these staple foodcrops in the concluded agreement, however. The agreement establishes quotas on sensitiveagricultural commodities imported from the U.S. that will increase over time; by the year 2020, mostquotas and tariffs will be eliminated. White corn, however, will receive some protection inperpetuity. Although a quota on U.S. white corn imports will increase annually, the high tariffs onwhite corn imports above the quota level will remain in place indefinitely. Also of concern to Guatemala was how sugar would be treated in CAFTA. Currently, theU.S. allows a quota of 126,400 metric tons of sugar to enter duty free from the five Central Americancountries every year. About 2/5 of that amount, or 50,546 metric tons, is allocated to Guatemala.Central American sugar growers wanted CAFTA to guarantee an expansion of the quota. Asconcluded, the agreement establishes an additional quota of 32,000 metric tons for Guatemala,one-third of the additional access granted to the five Central American countries, for sugar exportedto the United States. The quota will increase annually in perpetuity, but the tariff on any shipmentsover that quota will remain prohibitively high. (136) Apparel. There are 13 free trade zones operatingin Guatemala, with 7 more authorized to be created. The most frequent beneficiaries of Guatemala'sfree trade/maquiladora laws are textile assembly operations. In 2000 the Caribbean Basin Initiativewas enhanced to give more benefits to the textile industry. Whereas previously garments could onlybe sewn in Guatemala in order to be shipped back into the United States tariff free, since theenhancement, textiles can be cut, sewn, and finished in Guatemala and still receive those tariffbenefits. These benefits would become permanent under DR-CAFTA. Some U.S. producers haveobjected to DR-CAFTA for this reason, saying it will harm their businesses. Corruption. (137) In recent years, theU.S. government, international organizations, and independent watchdog organizations criticizedGuatemala for extensive corruption, which allegedly increased under the Portillo Administration.The Bush Administration called corruption "the number-one obstacle to increasing the effectivenessof all USG[ovt.] programs in Guatemala." Transparency International said Guatemala was perceivedas the 33rd most corrupt country out of 133 countries in 2003. According to U.S. government reports,"corruption is a serious problem that companies may encounter at nearly any level," in Guatemala,and which has tended to be most pervasive in customs transactions. A semi-autonomousSuperintendency of Tax Administration was established in 1999 to improve customs operations, butunder the previous administration corruption apparently increased instead. In 2001, Guatemalaratified the Inter-American Convention against Corruption. President Berger has made improving governance and attacking corruption priorities. Hisadministration introduced a code of ethics for cabinet members and is actively investigatingcorruption under the previous FRG government. The former Vice President, Finance Minister,Comptroller General, and Superintendent of Tax Administration are in jail awaiting trial. FormerPresident Portillo, also under investigation for embezzlement, fled the country in February 2004, theday after his immunity from prosecution was lifted. Partly in response to ongoing investigations, 11FRG legislators have left the legislature. The Berger Administration is making government finances-- including, for the first time, the military budget -- transparent, enacting reforms such as makingprocurement processes publicly available online. Environment. (138) Guatemala is party to57 multilateral, regional, and bilateral agreements related to the environment. It is the only CentralAmerican country not to have ratified the Cartagena Protocol on Biosafety, and one of two not tohave signed the Rotterdam Convention on Prior Informed Consent for Certain Hazardous Chemicalsand Pesticides in International Trade. It is part of the Central American Commission onEnvironment and Development, established in1989 to enhance the development of regionalenvironmental initiatives. According to an environmental review by the U.S. Trade Representative,"Guatemala has not passed a wide spectrum of environmental laws, and lacks specific laws dealingwith the major issues of water, forests, solid wastes, biodiversity, etc. that many of the other [CentralAmerican] countries possess." A general Law for Environmental Protection and Improvement waspassed in 1986, and a forestry law was passed in 1996. There is a Ministry of Environment andNatural Resources, and an Environmental Attorney within the Human Rights Commission to ensurecompliance with constitutional articles related to the environment. As the U.S. Trade Representativereport noted, however, the Central American nations' "ability to effectively implement and enforceenvironmental laws is limited by the lack of fiscal and human resources." Water pollution and deforestation are among Guatemala's greatest environmental problems,and are exacerbated by poverty in the densely populated central highlands. Forest loss over the past10 years has averaged almost 2% annually. Guatemala's tourism sector now contributes more to theeconomy than the coffee sector. While Guatemala's natural environment is an important aspect oftourism, expansion of tourism-based development can add to the degradation of the environment. Tourism-related threats to ecosystems include air and water pollution, solid waste disposal, landdegradation, loss of wildlife habitats and species, and increased demand for limited supplies of freshwater (i.e. for hotels and swimming pools). In October 2005, flooding from a hurricane causedlandslides that destroyed entire Mayan villages and washed out roads near the tourist area of LakeAtitlan. Labor. (139) Legally, Guatemalans'right to freedom of association and to form and join trade unions are protected by the Constitutionand the Labor Code. Practically, however, those rights are inadequately protected by the government.According to the State Department's Human Rights report covering 2003, employees in all sectorsof the economy hesitate to exercise their right of association for fear of reprisals by employers, themost common reprisal being the dismissal of workers for unionizing activities. The report said that"the weakness of labor inspectors, the failures of the judicial system, poverty, the legacy of violentrepression of labor activists during the internal conflict, the climate of impunity, and the deep-seatedhostility of the business establishment toward independent and self-governing labor associationsconstrained the exercise of worker rights." The Guatemalan legislature passed two sets of reformsto the national Labor Code in 2001. Many of the reforms were seen by the labor movement as a"significant step forward" in the protection of workers' rights. Other so-called reforms, such as therequirement that one-half plus one of the workers in an industry must join a union before it can belegally recognized, is seen by labor activists as a practically insurmountable obstacle to theformation of new industrial unions. Critics argue that the labor provisions under DR-CAFTA are less stringent than thosecurrently in place under U.S. preferential trade arrangements. Under the Caribbean Basin Initiativeand the General Agreement on Preferences, the United States may withdraw trade benefits if CentralAmerican governments do not take steps to meet international labor standards. Under DR-CAFTA,critics, such as the AFL-CIO, argue that governments would only be required to enforce theirexisting, flawed laws, but not to reform laws to meet international labor standards. Advocates of DR-CAFTA argue that accompanying technical cooperation programs will helpimprove the enforcement of labor laws in the region. In October 2003, the U.S. TradeRepresentative announced a $6.75 million grant to educate the public in CAFTA countries aboutlabor laws and to ensure that workers' rights are respected, saying that the four-year grant is designedto complement CAFTA. (140) While acknowledging the importance of such technicalassistance, the AFL-CIO maintains that it is insufficient to "change deep-seated indifference andhostility towards workers' rights." Labor rights groups filed a petition in December 2004 with the USTR to review Guatemala'seligibility under the Generalized System of Preferences for violation of internationally recognizedworkers' rights. The groups argue that the review process initiated in 2003 has "failed to bring aboutmeaningful progress" in the areas under review: "judicial impunity with regard to threats andviolence against trade unionists in Guatemala, the systematic failure of the government to enforceexisting labor laws, and the need for further reforms to the country's labor laws in order to bring itinto full compliance with international standards." (141) Although Guatemala's constitution prohibits children under 14 years of age from workingwithout written permission from the Ministry of Labor, MINUGUA reported in 2000 that just overa third of children 7 to 14 years old worked. Most children were employed in the informal economy,including household chores, subsistence agriculture, and family-run enterprises. In November 2002,then-President Portillo created a National Commission for the Elimination of Child Labor tocoordinate the implementation of the National Plan to Eradicate Child Labor. Intellectual Property. Piracy of copyrightedmaterial, especially for business software applications, is widespread in Guatemala. Guatemala hastaken steps to address the piracy issue. It is a member of the World Intellectual PropertyOrganization, and recently ratified two of the organization's agreements. In 2000, the Guatemalanlegislature passed laws to increase the protection of intellectual property rights, including providingpatent protection for pharmaceutical and agricultural products for the first time. In 2001, thegovernment appointed a special prosecutor responsible for pursuing intellectual property rightsviolations. In 2002, Guatemala passed intellectual property rights legislation. The U.S. TradeRepresentative called the laws "greatly improved," but noted that a month after its passage furtherlegislation suspended the processing of pharmaceutical and chemical patents until 2005 andotherwise weakened the protection of intellectual property rights. (142) According to the U.S.State Department's Country Commercial Guide, enforcement of intellectual property rights andprosecution of their violation remains inadequate in Guatemala. In December 2004, the Guatemalan Congress repealed a law that provided for test dataprotection for pharmaceutical products and passed a new law that limits the protection foreigncompanies get for pharmaceutical test data and allows other companies to use that data to attainapproval for, and to produce, generic drugs. Both UNICEF and the Pan American HealthOrganization publicly supported the earlier law's repeal. In early January 2005, the BushAdministration said the new law violated the terms of DR-CAFTA and would cause the process tostall. On January 26, 2005, 11 Democratic Members of the U.S. Congress opposed Administrationefforts to force Guatemala to adopt test data protection provisions, arguing in a letter that suchprovisions undermine the "Doha Declaration" of the Trade Promotion Authority Act of 2002, whichwas meant "to ensure that trade rules on intellectual property do not interfere with the ability ofdeveloping countries to take 'measures to protect public health ... and to promote access to medicinesfor all.'" (143) Theletter went on to say that the data protection provisions could be "especially dangerous" forGuatemala, where over 1% of Guatemala's population is infected with HIV/AIDS. The internationalmedical aid agency Doctors Without Borders also believes that the new intellectual propertyregulations will have a negative impact on local access to HIV/AIDS and other essential medicinesand notes that 6,000 new cases of HIV/AIDS are reported annually in Guatemala. (144) The Administration says its side letter on public health to DR-CAFTA upholds the DohaDeclaration, although the Guatemalan government would have to declare a public health emergencyin order to waive the data protection requirement. President Berger promised to make Guatemalacompliant with its DR-CAFTA obligations quickly. The Guatemalan Congress approved legislationto protect confidential test data for agro-chemicals and pharmaceuticals on March 9, opening the wayfor DR-CAFTA to be voted on. Approval Status. Guatemala became the thirdnation to ratify DR-CAFTA on March 10. The voting was delayed earlier in the week by largeprotests calling for a referendum on the agreement that prevented legislators from reaching theirchambers. The unicameral Congress has 158 members. A simple majority was needed to pass theDR-CAFTA; it passed 126 in favor and 12 against. The Guatemalan Congress held a series ofseminars to educate its members about DR-CAFTA related issues. Public sessions for civil societywere also held. Farmers, union members, students, and social and indigenous groups are amongthose who have continued protests against the agreement around the country since it was passed. Clashes with police led to arrests, injuries, and at least one death. Opposition leaders maintain itfavors capital over labor. (145) In response to the ongoing protests, Berger promised a seriesof measures to offset any negative impact from CAFTA. One of these measures is a concessions billto regulate private sector investment in infrastructure development and social service delivery. Thislegislation has in turn drawn protests from critics who worry the legislation could lead to privatizingpublic services such as healthcare and education. Berger has invited the opposition to meet with himto air counter proposals. Honduras has enjoyed 23 years of uninterrupted civilian democratic rule since the militaryrelinquished power in 1982 after free and fair elections. In the November 2001 presidentialelections, National Party candidate Ricardo Maduro defeated his Liberal Party rival Rafael PinedaPonce 52-44%, a wider margin than some had anticipated, although neither of the two major partiesgained a majority in the 128-member unicameral Congress. For most of this century, the Liberal andNational parties have been the two dominant political parties. Both are considered center-rightparties and there appear to be few major ideological differences between the two. In the electoralcampaign, Maduro -- a Stanford University-educated economist and businessman -- ran on a stronganti-crime platform, which appealed to many Hondurans concerned about the dramatic increase ingang violence in the country over the past several years. Maduro's own son was kidnaped andmurdered in 1997. When he was inaugurated to a four-year term in January 2002, Maduro became the 6th electedpresident since the country's return to civilian rule. President Maduro has faced enormous challengesin the areas of crime, human rights, and improving overall economic and living conditions in oneof the hemisphere's poorest countries. The next presidential elections are scheduled for November27, 2005, but the campaign has been underway for some time. Political parties held primaries onFebruary 20, 2005, with the National Party nominating Porfirio Lobo, the current head of theHonduran Congress, and the Liberal Party nominating Manuel Zelaya, a rancher and former headof the Honduran Social Investment Fund. President Maduro will not be a candidate since under theHonduran Constitution, anyone who has served as president may not be re-elected. Crime and Human Rights. Upon taking office,crime and related human rights issues were some of the most important challenges for PresidentMaduro. Kidnaping and murder had become common in major cities, particularly in the northernpart of the country. Youth gangs known as maras (147) terrorized many urban residents, while correspondingvigilantism increased to combat the crime, with extrajudicial killings increasing. Honduras, alongwith neighboring El Salvador and Guatemala, has become fertile ground for gangs, which have beenfueled by poverty, unemployment, leftover weapons from the 1980s, and the U.S. deportation ofcriminals to the region. (148) President Maduro, who campaigned on a zero-toleranceplatform, increased the number of police officers and cracked down on delinquency. The Madurogovernment signed legislation in July 2003 making maras illegal and making membership in thegangs punishable with 12 years in prison. While the crackdown has reduced crime significantly (forexample, an 80% decline in kidnapping and a 60% decline in youth gang violence (149) ) and is popular withthe public, some human rights groups have expressed concerns about abuses and the effect of thecrackdown on civil liberties. There also have been concerns that poor conditions in alreadyovercrowded prisons will be exacerbated. In May 2004, 104 inmates -- predominately gangmembers -- were killed in a fire in an overcrowded San Pedro Sula prison. On December 23, 2004, a massacre of 28 people on a public bus in San Pedro Sula shockedthe Honduran nation. The Mara Salvatrucha (MS-13) gang was reportedly responsible for thekillings and a number of arrests have been made. Honduran officials maintain that the massacre wasa gang response to the government's zero-tolerance policy. In late July 2005, a U.S. DrugEnforcement Administration agent was killed by two youth gang members in a bungled robbery inTegucigalpa. Security concerns appear to be dominating the 2005 presidential election campaign, withPorfirio Lobo of the National Party calling for tougher action against youth gangs by reintroducingthe death penalty (which was abolished in 1957) and increasing the prison sentence of juveniledelinquents. Manuel Zelaya of the Liberal Party is opposed to reinstating the death penalty andemphasizes that a more comprehensive approach is needed, taking into account the social conditionsthat contribute to crime. The Maduro government has reportedly advocated the concept of a Central Americanregional battalion that would help respond to such threats as natural disasters, gangs, and thetrafficking of drugs and migrants. Some Central American nations, however, have questioned themission of such a force, and some observers have raised concerns about militarizing law enforcementfunctions. (150) Another significant challenge for President Maduro has been his ability to improve theoverall state of the Honduran economy and living conditions. Traditional agriculture exports ofcoffee and bananas are still important for the Honduran economy, but nontraditional sectors, suchas shrimp farming and the maquiladora, or export-processing industry, have grown significantly overthe past decade. With a per capita income of $970 (2003, World Bank estimate), Honduras remainsone of the poorest countries in the hemisphere. Among the country's development challenges are:an estimated poverty rate of 64%; an infant mortality rate of 34 per 1,000; chronic malnutrition (33%of children under five years); an average adult education level of 5.3 years; and rapid deteriorationof water and forest resources, according to the U.S. Agency for International Development. (151) Honduras also has asignificant HIV/AIDS crisis, with an adult infection rate of 1.8%. (152) The Garifunacommunity (descendants of freed black slaves and indigenous Caribs from St. Vincent) concentratedin northern coastal areas has been especially hard hit by the epidemic. Honduras was devastated by Hurricane Mitch in October 1998, which killed more than 5,000people and caused billions of dollars in damage. Amid the country's hurricane reconstruction efforts,Honduras signed a poverty reduction and growth facility (PRGF) agreement with the InternationalMonetary Fund (IMF) in 1999 that was extended through 2002. The agreement imposed fiscal andmonetary conditions requiring Honduras to maintain firm macroeconomic discipline and to developa comprehensive poverty reduction strategy. In February 2004, Honduras signed a three-year PRGFagreement with the IMF that, as of April 2005, made Honduras eligible for about $1 billion in debtrelief under the IMF and World Bank's Highly Indebted Poor Countries (HIPC) Initiative. The IMFacknowledged that broad public support for the PRGF program is crucial for its success. At times,street demonstrations against economic reforms have made it politically costly for the government.In late August 2003, some 12,000 protestors blocked entrances to the capital and forced their wayinto Congress. The government has faced the dilemma of balancing the IMF's calls for reducingpublic expenditures and the public's demands for increased spending. The IMF, in its most recentreview of Honduras' PRGF agreement, maintained that the government's economic program iscontinuing to deliver results and emphasized the importance of Honduras maintaining consensus onthe program through the November 2005 election and transition to a new government in order toprotect higher growth gains and social progress. (153) The United States has had close relations with Honduras over the years, characterized bysignificant foreign assistance, an important trade relationship, a military presence in the country, andcooperation on a range of transnational issues, including counternarcotics efforts, environmentalprotection, and most recently the fight against terrorism. The bilateral relationship became especiallyclose in the 1980s when Honduras returned to democratic rule and became the lynchpin for U.S.policy in Central America. At that time, the country became a staging area for U.S.-supportedexcursions into Nicaragua by anti-Sandinista opponents known as the contras. Today, overall U.S.policy goals for Honduras include a strengthened democracy with an effective justice system thatprotects human rights and promotes the rule of law, and the promotion of sustainable economicgrowth with a more open economy and improved living conditions. If approved, DR-CAFTA wouldlead to increased U.S.-Honduran economic linkages. The Bush Administration views DR-CAFTAas a means of solidifying democracy in Honduras and promoting safeguards for environmentalprotection and labor rights in the country, while those opposed question whether the agreementwould lead to improvements in the protection of the environment and labor rights. U.S. Foreign Aid. The United States hasprovided considerable foreign assistance to Honduras over the past two decades. In the 1980s, theUnited States provided about $1.6 billion in economic and military aid to Honduras as the countrystruggled amid the region's civil conflicts. In the 1990s, U.S. assistance to Honduras began to waneas regional conflicts subsided and competing foreign assistance needs grew in other parts of theworld. Hurricane Mitch changed that trend as the United States provided almost $300 million inassistance to help the country recover from the devastation of the storm. As a result of the newinflux of aid, U.S. assistance to Honduras for the 1990s amounted to around $1 billion. With Hurricane Mitch funds expended by the end of 2001, U.S. foreign aid levels toHonduras declined, but will rise once again because of assistance under the Millennium ChallengeAccount (MCA). Foreign aid funding amounted to $41 million for FY2002, $53 million for FY2003,$43 million for FY2004, and an estimated $41 million for FY2005. The Bush Administrationrequested almost $37 million for FY2006. These amounts include support for a variety ofdevelopment assistance projects, HIV/AIDS assistance, food aid, and a large Peace Corps presencewith over 250 volunteers. In 2004, Honduras became eligible to compete for MCA funding, and onMay 20, 2005, the Millennium Challenge Corporation approved a five-year $215 million compactfor the country with assistance targeted for rural development. Military and Counternarcotics Issues. The UnitedStates maintains a troop presence of about 550 military personnel known as Joint Task Force (JTF)Bravo at Soto Cano Air Base. JTF Bravo was first established in 1983 with about 1,200 troops, whowere involved in military training exercises and in supporting U.S. counterinsurgency andintelligence operations in the region. Today, U.S. troops in Honduras support such activities asdisaster relief, medical and humanitarian assistance, counternarcotics exercises, and search andrescue operations that benefit Honduras and other Central American countries. Regional exercisesand deployments involving active and reserve components provide training opportunities forthousands of U.S. troops. In the aftermath of the Hurricane Mitch in 1998, U.S. troops providedextensive assistance in the relief and reconstruction effort and were involved in delivering reliefsupplies, repairing bridges and roads, rebuilding schools, and operating medical clinics. Morerecently, in mid-October 2005, a disaster response team from Joint Task Force Bravo was sent toGuatemala to help relief efforts after landslides caused by Hurricane Stan. While Honduras is not a significant producer of illicit drugs, the country is a transshipmentpoint (via air, land, and sea) for cocaine from South America destined to the United States. TheState Department's March 2005 International Narcotics Control Strategy report noted that cocaineseizures in 2004 were down from the record high level of the previous year but also noted thatHonduras disrupted one of the most active drug trafficking organizations in the country. The StateDepartment report also asserted that corruption continues to hamper law enforcement efforts. Honduras was among the coalition of the willing supporting U.S. military operations in Iraq,and in July 2003, Honduras began providing a military contingent of 370 troops to Iraq, joiningother contingents from El Salvador, Nicaragua, and the Dominican Republic. The Madurogovernment's proposal to send the troops was approved by the Honduran Congress, but the narrowmargin of 66-62 reflected strong opposition by some sectors, including the opposition LibertyParty. (154) TheHonduran troops served under a brigade commanded by Spain, but when Spain decided to bringhome its troops, Honduras followed suit and removed all its troops by June 1, 2004. Migration Issues. A significant issue in bilateralrelations has been the migration status of some 82,000 undocumented Hondurans living in theUnited States. In the aftermath of Hurricane Mitch in 1998, the United States provided temporaryprotected status (TPS) to the undocumented Hondurans, protecting them from deportation, becausethe Honduran government would not be able to cope with their return. Originally slated to expire inJuly 2000, TPS status for undocumented Hondurans has been extended four times -- most recentlyon November 1, 2004 -- and is now scheduled to expire in July 2006. (155) The undocumentedHondurans send back millions of dollars annually in remittances to their families in Honduras. U.S. Trade and Investment. U.S. trade andinvestment linkages with Honduras have increased since the early 1980s. In 1984, Honduras becameone of the first beneficiaries of the Caribbean Basin Initiative, the one-way U.S. preferential tradearrangement providing duty-free importation for many goods from the region. In the late 1980s,Honduras benefitted from production-sharing arrangements with U.S. apparel companies forduty-free entry into the United States of certain apparel products assembled in Honduras. As a resultof these production sharing arrangements, maquiladoras or export-assembly companies flourished,with some 36 industrial parks now operating in the country, most concentrated in the north coastregion. The passage of the Caribbean Basin Trade Partnership Act ( P.L. 106-200 , Title II), whichprovides Caribbean Basin nations with NAFTA-like preferential tariff treatment, is expected tofurther boost Honduran maquiladoras, as is DR-CAFTA. The United States is by far Honduras' major trading partner, and is the destination of abouttwo-thirds of Honduran exports and the origin of about half of its imports. (156) In 2004, U.S. exportsto Honduras amounted to about $3.1 billion, with knit and woven apparel inputs accounting for asubstantial portion. U.S. imports from Honduras amounted to about $3.6 billion, with knit andwoven apparel (assembled products from the maquiladora sector) accounting for the lion's share.Other Honduran exports to the United States include bananas, seafood, electrical wiring, gold,tobacco, and coffee. (157) According to USTR, the stock of U.S. foreign investment in Honduras in 2003 amounted to$270 million, up almost 50% from 2002. (158) The two countries have a bilateral investment treaty thatentered into force in July 2001. There are more than 100 U.S. companies in Honduras, with manyconcentrated in the maquiladora or export assembly sector, including such companies as CrossCreek, Hanes, Jockey, Levi Strauss, Osh Kosh B'Gosh, and Wrangler. Other investments are in sucheconomic activities as banana and other fruit production (especially Chiquita and Standard Fruit),tourism, energy generation, shrimp farming, cigar manufacturing, insurance, brewing, foodprocessing, fuel distribution, and furniture manufacturing. In addition, a number of U.S. fast-foodrestaurants, hotels, and stores have licensing agreements to operate franchises in Honduras, includingsuch companies as Applebee, Best Western, Burger King, Church's Chicken, Domino's Pizza,Holiday Inn, McDonald's, Pizza Hut, Popeye's, Price Smart, Ruby Tuesday, Star Mart, Subway, TGIFriday, and Wendy's. (159) Over the past decade, Honduras has moved toward closer economic integration with itsCentral American neighbors and has negotiated, or is in the process of negotiating, free tradeagreements with several nations as a means of stimulating economic development. It joined withGuatemala, El Salvador, and Nicaragua to establish a free trade area in 1993; the four countriessigned an agreement with Dominican Republic and are currently negotiating one with Chile. In2000, Honduras joined with Guatemala and El Salvador in signing a free trade agreement withMexico that entered into force in 2001. Honduras views DR-CAFTA as a way to make the region more attractive for investment, asa way to protect the existing preferential trade arrangement for exports to the United States, and asa mechanism to help transform the country's agricultural sector. There have been concerns inHonduras about the adverse effects of the regional agreement in opening the Honduran market toU.S. agricultural products, especially for several sensitive products such as corn, rice, beef, poultry,and pork. As a result, in the final agreement, most tariffs for sensitive products into the Honduranmarket have longer phase-out periods, with some ranging as high as 15-20 years. For white corn, theagreement includes a tariff rate quota that would increase 2% annually into perpetuity; there wouldbe no tariff reduction for the out of duty quota. (160) Honduran officials are also concerned about the loss of jobs,which could led to social unrest if not addressed properly through long-term investment to helptransform the agricultural sector to make it more competitive. Apparel. Honduras is the third largest exporterof apparel to the United States after Mexico and China. The maquiladora or export assemblyindustry in Honduras developed in the 1980s and 1990s under special access programs for eligibleapparel products under production sharing arrangements associated with the Caribbean BasinInitiative. In 2000, the Caribbean Basin Trade Partnership Act (CBTPA) provided NAFTA-likebenefits to Caribbean Basin countries to ensure that Mexico's trade benefits under NAFTA did notresult in a substantial advantage over the trade benefits of Caribbean Basin countries. The benefitsunder CBTPA are scheduled to expire in September 2008 or upon entry into force of the Free TradeArea of the Americas, whichever comes first. Honduran officials have fears of not being able tocompete with China and other Asia apparel producers after the January 2005 phaseout of quotasunder the WTO Agreement on Textiles and Clothing. Because of its large maquiladora sector(which employed almost 124,000 people at the end of 2003 (161) ), Honduras is interestedin DR-CAFTA to ensure that its apparel trade benefits under CBTPA are continued beyondSeptember 2008. In the CAFTA negotiations, the Central Americans advocated liberalizing the rulesof origin for apparel to allow the duty-free export of apparel made with yarn from third countries aswell as special quotas for apparel assembled in the region from fabric imported from thirdcountries. (162) Liberalized rules of origin and the special quotas would be especially significant for Hondurasbecause of its large export-assembly sector. The CAFTA agreement completed in December 2003 included provisions that wouldliberalize the rules for apparel trade. (163) According to USTR, "an unprecedented provision will giveduty-free benefits to some apparel made in Central America that contains certain fabrics fromNAFTA partners Mexico and Canada." (164) Liberalized rules of origin also allow duty-free entry forcertain apparel (boxer shorts, pajamas, and nightwear) made from third-country fabric; brassiereswould also be duty-free with third country fabric if it was cut and sewn in Central America. (165) Apparel deemed toinclude certain content in short supply could also qualify for duty-free treatment. Another provisionallows limited amounts of third-country content fabric to go into CAFTA apparel. The president of the Honduran Textile and Apparel Manufacturers Association, JesusCanahuati, asserts that CAFTA would enable his country to better compete with producers such asChina, even with the elimination of global quotas on textile and apparel. Canahuati maintains thatvarious foreign companies, largely from the United States, will invest about $300 million inHonduras with approval of the agreement. (166) Environment. According to a report by the Officeof the U.S. Trade Representative, Honduras "has a more limited slate of domestic environmentallegislation" than its Central American neighbors. (167) Honduras passed a general environmental law in 1993, andthe Ministry of Natural Resources and Environment is the agency ensuring compliance withenvironmental law and coordinating environmental policies. Honduras is party to 54 bilateral,regional, and multilateral agreements, including the Convention on Biological Diversity and theKyoto Protocol. The most significant environmental challenges facing Honduras include deforestation andforest degradation and proper watershed management. The devastation caused by Hurricane Mitchin 1998 highlighted poor watershed management. With regard to deforestation, illegal logging bylumber companies has been a problem in eastern Honduras. In May 2003, death threats againstFather José Andrés Tamayo, who has been vocal in criticizing forest product companies and hascalled for a moratorium on forest exploitation, prompted President Maduro to increase security forthe forests in eastern Honduras and to initiate plans for developing a new forestry policy. (168) Father Tamayo led asecond national "March for Life" protest in June 2004 calling for an end to illegal logging in Olanchoprovince. In response, President Maduro promised to set up committees (with government andenvironmental representatives) to evaluate petitions to ban logging in some areas. (169) Several environmental groups in Central America expressed support for the environmentalprovisions in the DR-CAFTA agreement. This includes the Honduran Ecologist Network forSustainable Development (REHDES), which consists of six environmental non-governmentalorganizations. (170) In contrast, a number of other Central America environmental groups actively oppose CAFTA. (171) This includes theEnvironmental Movement of Olancho, a coalition of subsistence farmers and religious leadersopposed to uncontrolled commercial logging, which is led Father Tamayo noted above. Tamayo,who received the 2005 Goldman Environmental Prize for his work, maintains that the Hondurangovernment does not have the political will to enforce environmental protection laws. (172) On February 18, 2005, Honduras and other DR-CAFTA signatories concluded two additionalaccords at strengthening the trade agreement's environmental provisions. The first, anunderstanding, called for the establishment of a secretariat to administer a submission process inorder to allow citizens to petition whether a country is not enforcing environmental laws effectively.The second agreement, an Environmental Cooperation Agreement, would guide environmentalcooperation in the region. (173) Labor. (174) About 7.3% of theHonduran work force is unionized, according to the State Department's February 2005 human rightsreport, with public sector unions having more strength than those in the private sector. Overall, theeconomic and political influence of unions reportedly has diminished in recent years. Honduras hasthree major labor confederations: the Confederation of Honduran Workers (CTH), the GeneralWorkers' Central (CGT), and the Unitary Confederation of Honduran Workers (CUTH). The growthof "solidarity" associations in private companies, an alternative to unions that provide credit andother services to workers, has been criticized by organized labor as employer-dominated and anattempt to stop the growth of independent unions. Workers in both unionized and non-unionized companies are covered by the Labor Code,with the right to seek redress from the Ministry of Labor. The Labor Code prohibits blacklisting,but according to the Department of State's human rights report, there is credible evidence thatblacklisting has occurred in the maquiladoras because of employees' union activities. USTR reportedin 2001 that there were widespread reports of dismissal and other reprisals against workers for theirunion activities. USTR and the Ministry of Labor signed a memorandum of understanding in 1995that had recommendations to enforce the Labor Code and resolve disputes. Labor unions maintainthat the ministry has not made sufficient progress toward enforcing the Labor Code, includinginspections of the maquiladora industry. Over 350,000 children work illegally in Honduras,occurring mainly in rural areas and in small companies. The illegal employment of children in themaquiladora sector has occurred in isolated cases, according to the Department of State. TheHonduran Labor Minister maintains that some 10 years ago, the maquiladora sector had a problemwith child labor, but that now it does not exist in the sector. (175) There has been substantial criticism of labor sector conditions in Honduras by U.S.-basedlabor groups and the International Federation of Free Trade Unions (ICFTU). A report by theAFL-CIO asserts that the "Honduran government tolerates a broad and systematic pattern of workerrights violations, particularly in maquiladoras producing apparel for export to the U.S. market." (176) The ICFTU maintainsthat while Honduran law recognizes the right to form and join trade unions, there are a number ofrestrictions. It further asserts that in practice "workers are harassed and even sacked for trade unionactivities, and some unionized workers are blacklisted in the export processing zones." (177) In late October 2003, the New York-based National Labor Committee began a campaignfocusing attention on alleged worker rights violations at a Honduran maquiladora factory producingshirts for the fashion company of hip-hop performer Sean P. Diddy Combs. The owner of the factorycalled the charges a total fabrication, and the Honduran Ministry of Labor maintains that aninspection of the factory did not uncover abuses alleged by the labor activists. (178) Critics of the NationalLabor Committee argue that the group specializes in campaigns involving celebrities whether theallegations are true or not. (179) In December 2004, two labor groups -- the International Labor Rights Fund and theAssociation of Labor Promotion Services (Asociación Servicios de PromocÃon Laboral) -- submitteda petition to USTR to review Honduran labor practices regarding the country's continued eligibilityfor General System of Preferences (GSP) trade benefits. The groups alleged that Honduras has donenothing since 2000 to fully implement a 1995 memorandum of understanding with USTR regardingimprovement of Honduran labor practices. (180) The trade and labor ministers of Honduras and other DR-CAFTA countries met in July 2004under the sponsorship of the Inter-American Development Bank (IDB) to develop recommendationsfor actions needed to strengthen labor law compliance and enforcement. In April 2005, the countriesfollowed up and unveiled a so-called white book that endorsed a work plan to strengthenenforcement of labor laws in the region. The recommendations included projects to improve tradeunion rights, increase labor inspections, provide better protections for women in the workplace,increase the capacity of labor ministries and labor courts, and end the worst forms of childlabor. (181) Some Members of Congress assert that Central American labor laws fall short of ILOstandards so that better enforcement of standards will be insufficient. They maintain that Hondurashas burdensome requirements for union recognition, the right to strike, and other restrictions onunion leadership. They also note that Honduras has not provided adequate sanctions for anti-uniondiscrimination. (182) Intellectual Property Rights. In 1998, Honduras'sCaribbean Basin Initiative and Generalized System of Preferences (GSP) (183) benefits were partiallysuspended for several months because of the piracy of U.S. televison broadcasts and videos. Thebenefits were restored after Honduras took action to stop the piracy. Today, the Office of the UnitedStates Trade Representative (USTR) maintains that Honduras has largely complied with the WTOAgreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), but notes that theHonduran Congress has yet to enact reforms related to integrated circuit designs and plant varietyprotection to be in full compliance with TRIPS. In the DR-CAFTA, Honduras agreed to provideeffective patent protection for plants or to ratify or accede to the International Convention for theProtection of New Varieties of Plants. According to USTR, the piracy of books, sound and videorecordings, compact disks, and computer software is widespread in Honduras because of limitedenforcement capacity. The United States and Honduras initialed a bilateral intellectual propertyrights agreement in 1999, but both parties agreed to fold the provisions into CAFTA andDR-CAFTA. USTR maintains that the agreement would strengthen intellectual property rightsprotection to conform with or exceed WTO norms. The illegal registration of well knowntrademarks has also been a problem in Honduras, although USTR maintains that the DR-CAFTA'senforcement provisions are designed to help reduce trademark piracy. (184) Approval Status. The Honduran Congressapproved the DR-CAFTA agreement on March 3, 2005, by a final vote of 124-4, demonstratingbroad support for the agreement by both the Liberal and National parties. Only members of the smallleftist Party of Democratic Unity (PUD) voted against the agreement. (185) Active opponents ofthe agreement included some government sector employees. The Popular Block and NationalCoordinator of Popular Resistance (CNRP), consisting of workers, teachers, and peasants, and theCivic Council of Honduran Popular and Indigenous Organizations (COPINH) organized protestsagainst the agreement. As noted above, some environmental groups, such as the EnvironmentalMovement of Olancho, also opposed the agreement. Nicaragua began a transition to democracy in 1990 after a decade-long struggle between aleftist regime and U.S.- backed counter-revolutionary forces. A country plagued by generations ofdictatorial rule, civil war and poverty, Nicaragua has begun to develop democratic institutions andcreate a framework for economic development. Progress has been made in key social sectors, as thecountry's infant and child mortality rates, total fertility rates, and malnutrition levels have declined. Nicaragua recently received substantial debt relief under the International Monetary Fund's heavilyindebted poor countries (HIPC) initiative, and has signed the free trade agreement with the UnitedStates, its Central American neighbors, and the Dominican Republic. It has also been selected asone of only three Latin American countries to receive a substantial injection of foreign aid under theMillennium Challenge Account, a new program which rewards poor countries for curbing corruptionand improving governability. Nonetheless, Nicaragua remains poor and its institutions weak. Overthe last couple of years, a growing political crisis has threatened its current government, though itappears the political impasse has been overcome for now. The most recent, and consequential, international demonstration of support for the beleaguredcurrent President, Enrique Bolaños, was a visit from U.S. Deputy Secretary of State Robert ZoellickOctober 4 -5, 2005. While in Managua, Zoellick said that Nicaragua's future was "threatened by acreeping coup. It's threatened by corruption, it's threatened by a clique of caudillos," using theSpanish term for political bosses to refer to Sandinista leader Daniel Ortega and former PresidentArnoldo Aleman. Zoellick went on to say that Nicaragua faced losing millions of dollars in U.S.assistance if the opposition continued to move towards removing Bolaños from office. In thefollowing two weeks, the Nicaraguan National Assembly had agreed to postpone implementingconstitutional amendments that transferred executive powers to the legislative branch until afterBolaños completed his term in December 2006 and had ratified CAFTA and until the political pactthat had driven opposition to Bolaños had been broken. The ongoing political tensions in Nicaragua have been shaped by power struggles betweenthree prominent political figures: President Enrique Bolaños and former Presidents Daniel Ortegaand Arnoldo Aleman. President Bolaños, of the Liberal Constitutionalist Party (PLC), was electedto a five-year term in November 2001, in elections widely regarded as being free and fair. Bolaños,a businessman in the agricultural sector, defeated Daniel Ortega, a prominent figure in Nicaraguanpolitics for over 25 years. During the 1980s, Bolaños's farm service company was nationalized, andhe was jailed for his opposition to the Sandinista government. During the 2001 presidentialcampaign, Bolaños emphasized the importance of maintaining positive relations with the UnitedStates. He faces the challenges of stimulating economic growth in the hemisphere's second poorestcountry, and promoting democratic reform while pursuing prosecutions for corruption in theprevious administration. The Bush Administration has praised and supported Bolaños'santi-corruption efforts. Others have criticized Bolaños for employing a "confrontational route" offighting corruption by going after top officials, including Aleman, rather than seeking allies whowould help him make long-term reforms in the country's corrupt political system. (187) Daniel Ortega was a leader of the Sandinista National Liberation Front (FSLN) when itoverthrew the Somoza dictatorship in 1979. He served as President from 1985-1990, having wonelections which much of the international community deemed fair, but which were boycotted bymuch of the opposition and deemed unfair by the Reagan Administration. Ortega's administrationwas marked by a bloody civil war with the U.S.-backed "contras," and charges of corruption. In thecontext of the Central American Peace Plan, Ortega's Sandinista government agreed tointernationally monitored democratic elections in February 1990. Ortega ran for president, and lost,in 1990, 1996, and 2001. The Sandinistas control 38 of the 92 seats in the National Assembly. Theyappear to have capitalized on divisions between President Bolaños and the PLC, which is controlledby imprisoned former president Arnoldo Aleman, to garner important victories in the municipalelections held on November 7, 2004. The Sandinistas swept those polls, winning some 87 of 152municipal seats. In March 2005 the FSLN named Ortega its candidate for 2006 presidentialelections. In 2003, President Bolaños took the landmark step of prosecuting former President ArnoldoAleman (1997-2002) and 13 of his associates for embezzling about $100 million in public fundswhile in office. The United Nations recently named Aleman as one of the world's five most corruptliving ex-leaders. (188) The effort is particularly notable, because Bolaños and Aleman not only belong to the same politicalparty, but Bolaños also served as Aleman's Vice-President until he stepped down to run for president. Aleman was sentenced to 20 years in prison in December 2003 for fraud and money-laundering; heis currently under house arrest. His supporters are still trying to negotiate his release, however. ThePLC is promoting an amnesty bill that would revoke all convictions for misuse of public funds andelectoral crimes committed after 1990. Bolaños' moves against Aleman have left him increasinglyisolated, however. The opposition has repeatedly brought charges of electoral fraud against Bolaños, allegingthat former President Aleman laundered public funds into his party's election campaign and thatBolaños knowingly benefitted from those funds. President Bolaños denies those charges, and thelegislative committee dropped its initial investigation. In October 2004, the Comptroller General'soffice, whose panel consists of members of the Sandinista and Liberal parties in opposition toBolaños, issued a report renewing charges of fraud against the President. The opposition has usedthe report to promote impeachment efforts, despite the Supreme Electoral Council's having earliercertified that Bolaños had not committed election finance irregularities. In June 2005, the nationalassembly named a special commission to study the possibility of removing Bolaños' immunity fromprosecution so he could be tried on charges of failing to disclose sources of his campaign funds. Aleman and Ortega, once longtime political foes, negotiated a power-sharing agreementknown as "el pacto" in 1998 that had defined national politics until now. In late 2004, renegotiationof the pact included a demand for Aleman's release. In January 2005, their two parties adopted aseries of constitutional amendments that transferred presidential powers to the legislature and furtherdivided up government institutions as political patronage. The Central American Court of Justiceruled the amendments illegal. The ruling is non-binding, and the Nicaraguan Supreme Court, whichis dominated by pacto party members, ignored it. After meeting with President Bolaños, DanielOrtega announced on October 16, 2005, that he had broken the pact with the Aleman faction of theLiberal party. (189) The announcement followed the visit to Managua by Deputy Secretary Zoellick, who had met withseveral leaders who have broken with the Liberal and Sandinista parties over the pact, which theysee as corrupt, and who are gaining support for the upcoming elections. Ortega's political strengthhas relied in part on divisions within the Liberal party. The U.S. State Department said it "stands firmly with the democratically elected governmentof President Bolaños" and "deplore[s] recent politically motivated attempts, based on dubious legalprecedent, to undermine the constitutional order in Nicaragua and his presidency." (190) The OAS sent a specialmission to Nicaragua in October 2004 to encourage all parties to preserve and follow democraticorder there and since then has become more involved in the escalating crisis there. On January 12,2005, a mechanism was established for a national dialogue between Bolaños, the Sandinistas, andthe Liberals to strengthen governance. (191) Tensions continued to mount, however, with violent protestsagainst an increase in public transportation fares and calls for Bolaños' resignation by theopposition-controlled mayors' association in April. Some observers say these protests areorchestrated by the opposition and not supported by public opinion. The government negotiated anend to the fare increase protests in late April. Polls published in May (La Prensa, May 2, 2005)showed 68% of the population opposed the call for Bolaños' resignation, and the highest portion, almost 35%, believed Daniel Ortega was primarily responsible for the violent protests in the capital. International demonstrations of support for the beleagured current President Enrique Bolañosincluded a visit from the head of the U.S. Southern Command, General Bantz Craddock. The OASSecretary General visited Nicaragua in June to try to restart political dialogue, but no settlement wasagreed upon. The OAS is acting under the OAS Democratic Charter, through which a membergovernment that considers its democratic process or legitimate exercise of power to be at risk mayrequest assistance from the OAS to strengthen and preserve its democratic system, and a"Declaration of Support for Nicaragua" was adopted at the OAS General Assembly June 5-7, 2005. The most consequential visit, however, was from U.S. Deputy Secretary of State Robert ZoellickOctober 4 -5, 2005, which led to the passage of CAFTA, the agreement to let Bolaños complete histerm without implementing constitutional changes, and Ortega breaking the pact with the LiberalParty. The ongoing influence of both Aleman and Ortega in Nicaraguan politics has made governingincreasingly difficult for President Bolaños over the last two years. After the intercession of theOAS and the United States, two items on Bolaños' agenda were achieved: the passage of CAFTAand the suspension of constitutional changes that would have stripped Bolaños of many executivepowers. It remains to be seen if recent concessions by Ortega and the National Assembly willcontinue to make governance easier for the remainder of Bolaños' term. Nicaragua began free market reforms in 1991, after what the State Department has describedas "12 years of economic free-fall under the Sandinista regime." The Sandinista guerrillas led acoalition of forces that overthrew the four-decade-long Somoza family dictatorship in 1979,inheriting a stagnant economy, a $1.6 billion debt, and a country devastated by war. The FSLNshortly thereafter established a pro-Soviet government that nationalized rural properties owned bythe Somozas or their associates, as well as financial institutions, which had gone bankrupt duringthe war. Sandinista "state-led" economic policies, an eight-year civil war with U.S.-backed contras,and U.S. economic sanctions all contributed to Nicaragua's economic decline. In 1990, the first post-conflict democratic government was elected, and it pursued significantdemocratic and economic reforms. Significant progress has been made since then: thepost-Sandinista governments have privatized 351 state enterprises; reduced inflation from 13,500%prior to 1990 to 3.6% in 2002; and substantially reduced foreign debt. In late January 2004, the IMFforgave 80% of Nicaragua's foreign debt of roughly $6.5 billion under the HIPC program, and inMay 2004 Nicaragua was one of only three Latin American countries selected to receive increasedforeign aid as part of the Millennium Challenge Account program. Significant challenges remain,however. The country remains heavily dependent on foreign aid (25% of GDP in 2001), andremittances sent from Nicaraguans living abroad (15% of GDP). (192) Its economy alsoremains extremely vulnerable to external economic conditions and natural disasters. For example,economic growth faltered in 2002 when a global recession, extreme drops in export coffee prices,and a drought caused Nicaragua's economy to retract to less than 1% growth. These economic crises have also led to severe malnutrition in parts of Nicaragua. Almosthalf of Nicaragua's 5 million inhabitants live in poverty; unemployment and underemployment ratesremain as high as 40% to 50%; and income distribution is extremely unequal. Per capita GDP in2003 was only $470, making Nicaragua the second poorest country in the Western Hemisphere afterHaiti. Although the Nicaraguan government has made a concerted effort to improve basic healthindicators and school enrollment rates, significant gaps exist. While close to 90% of children ages7 to 12 now attend primary school, less than 50% of 13 to 18 year olds attend secondary school. (193) The government aimsto further social progress with a World Bank loan of $75 million for social sector projects. After the 1990 Central American Peace Plan was signed, U.S. involvement in Nicaraguashifted from providing military support to the "contras" towards pressuring the Nicaraguangovernment to enact political reforms. The United States provided extensive foreign assistance toNicaragua after Hurricane Mitch in 1998, and has repeatedly extended the Temporary ProtectedStatus (TPS) of some 6,000 Nicaraguans living within its borders. Recently the two countries havenegotiated agreements related to intellectual property, trade, and counter-narcotics efforts. Nicaraguacontributed 113 mine-clearing troops to the coalition forces in Iraq, and has passed legislation givingPresident Bolaños the power to destroy anti-aircraft missiles left over from its civil war as the U.S.has recommended. The main U.S. policy goals for Nicaragua include reducing poverty, increasingeconomic growth through free trade, strengthening democracy, and improving human capitalinvestments. Nicaragua enjoys debt relief under the HIPC initiative and was recently selected toreceive Millennium Challenge Account funding. In December 2003, the Nicaraguan governmentsigned CAFTA, and in August 2004, it signed DR-CAFTA, which it hopes will provide expandedaccess to the U.S. market. The Nicaraguan National Assembly ratified CAFTA on October 10, 2005. U.S. Foreign Aid. The United States has providedNicaragua with $1.2 billion in assistance from 1990, when Violeta Chamorro defeated theSandinistas in national elections, to 2003. Since the mid-1990s, Congress has restricted U.S.assistance to Nicaragua, pressuring the government there to make greater progress in such areas asprominent human rights cases, resolution of property claims, and military, judicial, and economicreforms. From 1999 through 2001, an additional $93 million was provided to assist in reconstructionefforts following the massive destruction caused by Hurricane Mitch. The Bush Administrationstates that strengthening democracy is its first priority in Nicaragua. The United States provided $6.2million dollars in assistance to support the 2001 election process. The Administration providedabout $37.5 million to Nicaragua in FY2003, including $16 million in food aid, and requested $39million annually for FY2004 and FY2005. The Board of the newly established MillenniumChallenge Corporation announced on June 13, 2005, that it had approved a five-year, $175 millioncompact with the government of Nicaragua. In November 2004, President Bolaños had agreed todestroy approximately 1,000 Soviet-era missiles that the Bush Administration saw as a securitythreat. After the Nicaraguan legislature stripped Bolaños of the power to deal with the stockpile, theBush Administration suspended U.S. military aid in March 2005. Those restrictions were lifted theweek of October 10, 2005. Democratic Reform. The Bolaños Administrationhas committed itself to attacking government corruption. It has already convicted the former chieftax collector, and arrested over a dozen other high level officials in the previous administration onfraud or corruption charges. This anti-corruption campaign reached a climax in December 2003 asBolaños' predecessor, former President Arnoldo Aleman, was sentenced to 20 years in prison formoney laundering and other crimes. As a former President, Aleman had received an automatic seatin the legislature, along with legislative immunity from prosecution. In 2002, the unicameralNational Assembly voted to remove Aleman as its president and took the historic step of strippingAleman of his immunity from prosecution. Bolaños's reform efforts are being thwarted, however, as the Liberal party is working againsthis government and is trying to obtain the former President's release and reduce Bolaños' powers orremove him from office. The OAS and U.S. and other foreign governments expressed concern thatcharges of electoral fraud made against Bolaños and efforts to impeach him are threats to theconstitutional order. The OAS has sent several high-level delegations to Nicaragua since October2004 and continues to remain engaged there to "help preserve the country's democratic institutions." In January 2005 the Central American Court of Justice called on the Nicaraguan legislature tosuspend proceedings for ratifying amendments to the constitution that would transfer manypresidential powers to the National Assembly, which is dominated by the Liberal Constitutionalist(PLC) and Sandinista (FSLN) parties in opposition to the government. An agreement was signedon January 12 establishing a mechanism for national dialogue to strengthen governance in Nicaragua,but the process is stalled. The OAS has named a special envoy to promote dialogue and democracyin Nicaragua. Nicaragua is engaged in a structural reform program of the judicial system, but the systemremains weak and, according to the U.S. State Department's human rights report released February28, 2005, "highly susceptible to corruption and political influence." (194) President Bolaños hasincreased his criticisms of the Sandinista-dominated judiciary in response to the recent convictionof one of his top allies on charges of corruption. The U.S. Ambassador to Nicaragua, BarbaraMoore, asserted that recent judicial decisions have been "damaging" to the country's reputation andits ability to attract foreign investment. (195) Human Rights. Under Nicaragua's authoritarianregimes, and during its civil war, human rights abuses were widespread. Since the end of the civilwar in 1990, however, respect for human rights has improved, and human rights observers no longeraccuse Nicaraguan governments of systematic human rights violations. According to the StateDepartment's 2004 report on Human Rights Practices, the Nicaraguan government "generallyrespected the human rights of its citizens; however, serious problems remained....," includingallegations of extrajudicial killings and torture by security forces The government punished somemembers of security forces who committed human rights abuses, but, according to the report, "...adegree of impunity persisted." Other human rights problems include violence against women andchildren, trafficking in women and girls for sexual exploitation; and discrimination againstindigenous people. Labor-related human rights violations include violation of worker rights in free trade zones,"widespread" sexual harassment in the workplace, and child labor. The government worked withdomestic and international organizations to get thousands of children out of the workforce and intoschool. According to the report, "the national minimum wage did not provide a decent standard ofliving for a worker and family," amounting to less than $141 a month, which is what the governmentestimates is the cost of a basic basket of goods for an urban family. The report also noted thatalthough the Labor Code seeks to bring Nicaragua into compliance with international standards forworkplace hygiene and safety, the relevant ministry "lacks adequate staff and resources to enforcethese provisions and working conditions often do not meet international standards." Resolution of Property Claims. During the 1980s,the Sandinistas appropriated nearly 30,000 properties. Resolution of property claims by U.S. citizensarising from those expropriations remains the most contentious area in U.S.-Nicaraguan relations. The Nicaraguan National Assembly passed a law in November 1997 establishing new propertytribunals with the goal of resolving longstanding property disputes. The new property tribunalsbegan accepting cases in July 2000. Procedures of the new property tribunals include mediation,binding arbitration, and expedited trials. Through technical assistance for judicial reform, U.S.assistance is helping to improve the mechanism for settling property disputes. U.S. law prohibitsaid to countries that have confiscated assets of U.S. citizens, but since 1993, U.S. administrationshave granted annual waivers to allow Nicaragua to receive U.S. aid. The National Assembly passeda new law recently creating a new land institute. Critics are concerned that this institute willconsolidate Sandinista land and property expropriations, known as the "piñata," made at the end oftheir term in power. The new institute has not been established yet, however. Narcotics and Arms Trafficking. According tothe State Department's International Narcotics Control Strategy Report for 2004, Nicaragua is atransit zone for narcotics traffic from South America to the United States and Europe. (196) The report listsNicaragua's location; deep, endemic poverty; lack of government presence throughout much of thecountry; "paucity" of government funds available for law enforcement; and the number of people stillwell-armed from the 1980s civil war as factors making Nicaragua attractive to drug traffickers. Itsvulnerable banking system makes it a potential target for money laundering as well. The StateDepartment describes Nicaragua as a strong ally in counternarcotics activities, whose cooperationwith the Drug Enforcement Administration has been "ongoing and effective" since 1997. TheNicaraguan National Police have made significant achievements in the seizure of cocaine and heroinand in operations against local drug distribution centers. Nonetheless, their effectiveness ishampered by limited resources and an ineffective and corrupt judicial system. Gunrunning to guerrillas in Colombia is also a problem in Nicaragua, as it is in many CentralAmerican countries and in Mexico. In November 2001, arms supposedly exchanged between theNicaraguan and Panamanian police forces ended up in the possession of right-wing paramilitariesin Colombia. The Organization of American States (OAS) reported in January 2003 that Nicaraguanpolice and military officers were negligent in not verifying that those conducting the transition wereindeed Panamanian police, as was presumed. After receiving the OAS report, Bolaños reportedlytold former U.S. Ambassador Morris Busby, the report's author, about steps his government wouldtake to close loopholes in Nicaraguan arms control legislation that contribute to regional armssmuggling. Also in January 2003, President Bolaños proposed a disarmament process in CentralAmerica, to reduce the number of arms in the region. The Bush Administration expressed concern last year about a stockpile of approximately1,000 Soviet-era missiles that it saw as a security threat. In November 2004, President Bolaños hadagreed to destroy them. After the Nicaraguan legislature stripped Bolaños of the power to deal withthe stockpile, the Bush Administration suspended U.S. military aid in March 2005. The BushAdministration lifted the restriction the week of October 10, 2005. U.S. Defense Secretary DonaldRumsfeld said he was convinced the Nicaraguan military had secured the missiles well enough tokeep them out of the hands of terrorists. (197) U.S. Trade and Investment. The success of theNicaraguan economy is highly dependent upon its external trade relationship with the United States. Trade and investment linkages between the two countries began developing in the early 1980s asNicaragua gained duty free access to the U.S. market for the majority of its products under theCaribbean Basin Initiative. These linkages were strengthened by the passage of the Caribbean BasinTrade Partnership Act ( P.L. 106-200 , Title II), which provides Caribbean Basin nations withNAFTA-like preferential tariff treatment. Nicaraguan exports, which consist primarily of traditional products like coffee, shrimp,seafood, beef, and gold, are primarily destined to the United States (32%) and other CentralAmerican nations (37.8%). Most of the country's imports (27.4% of the total), such as machineryand transport equipment, industrial raw materials, and consumer goods, originate in the UnitedStates. About 25 wholly or partly owned subsidiaries of U.S. companies operate in Nicaragua. In2002, U.S. exports to Nicaragua amounted to $438 million, with the largest category beingmachinery and transport equipment (23% of that total). U.S. imports totaled $679 million, withapparel accounting for 26% of all import categories. Those totals are likely to increase substantiallyif the free trade agreement is approved. (198) Major U.S. companies operating in Nicaragua include EssoStandard Oil, E.D. and F. Man (agricultural supply and financing firm), Bellsouth, TexacoCaribbean, Pepsi-Cola, Kraft Foods-Nabisco, Gulf King (shrimp boat fleet), Coca-Cola, andCinemark theaters. Although agriculture continues to be one of the most important sectors of the Nicaraguaneconomy, the country's nascent maquiladora industry, which primarily manufactures apparelproducts and whose success is extremely reliant on favorable external trade conditions, is rapidlyexpanding. Accordingly, the Nicaraguan government has become a major proponent of free trade,having signed and ratified bilateral investment agreements with the United States, Spain, Taiwan,Denmark, the United Kingdom, the Netherlands, Korea, and Ecuador. Nicaragua is among the mostopen economies in Central America. It has recently taken further steps to foster regional integrationby joining the Central American customs union, also comprised of Guatemala, El Salvador andHonduras. The Nicaraguan negotiating team for the recently signed free trade agreement with theUnited States believes that the outcome of the negotiations are highly positive for the country. (199) Evidence of this positive outcome includes the fact that Nicaragua gained duty-free accessto the U.S. market for 68% of its farm products and 100% of its industrial products, while ensuringsignificant protection for its domestic farmers against U.S. imports. DR-CAFTA would affordNicaraguan rice farmers a 28-year period of adjustment before they would be subjected to fullcompetition with U.S. producers. Nicaragua was also allowed to implement the strictest quotas onimports of U.S. corn of any of the five Central American countries. In addition, Nicaraguan textileexporters were the only such exporters in Central America to receive permission to use up to 100million square meters per year of cloth from non-U.S., non-Central American suppliers to makeapparel products that would still enjoy duty free access to the U.S. economy. Despite these positive observations, skeptics have noted that Nicaraguans had littlebargaining leverage in the CAFTA negotiations. (200) Moreover, despite some protections for Nicaraguan farmers,U.S. producers will be able to export 10 times as much yellow corn to Nicaragua than in years past. Unable to compete against competition from capital and technology-intensive U.S. farmers,unemployment in the agricultural sector in Nicaragua will increase in the short term and must bereplaced by new employment in the manufacturing sector. A number of specific sensitive issuesarose in the negotiations, which are summarized below: Environment. Nicaragua has a significant amountof environmental legislation in place, anchored by a general law on the Environment and NaturalResources passed in 1996. The Nicaragua Ministry of Environment and Natural Resources(MARENA) regulates national policy on the management and protection of the country's naturalresources. Additionally, Nicaragua is a party to 57 multilateral, regional and bilateral environmentalagreements, which include the Convention on Biological Diversity, the Convention on theInternational Trade in Endangered Species of Wild Flora and Fauna, and the Kyoto Protocol. Despite these conservation efforts, and the fact that Nicaragua's environment benefits from relativelyabundant forest reserves and a low population density, deforestation and lake contamination threatenits environment. Between 1990 and 2000, Nicaragua had the second highest rate of deforestationamong its Central American neighbors. Deforestation, resulting in soil erosion, has increased thecountry's vulnerability to natural disasters, such as Hurricane Mitch (1998), and periodicdroughts. (201) Conditions in the country's major freshwater lake, Lake Nicaragua, the world's twentieth largestaquifer, deteriorated in the nine years between 1994 and 2003 at a "rate equivalent to that normallyobserved in European lakes over a period of 150 to 200 years." (202) Critics of CAFTA havequestioned whether merely requiring countries to enforce their existing laws is enough to ensureadequate environmental protection. Labor. The Nicaraguan labor force, comprisedof roughly 2.25 million workers, is largely rural-based and unskilled. An estimated 45% of thoseworkers are employed in the agricultural sector, 42% in services, and 15% in manufacturing. Thoughit expanded by 2.3% in 2003, the Nicaraguan economy continues to be plagued by unemploymentand underemployment rates as high as 40% to 50%. Along with declining confidence in unionleaders, this has eroded the strength of the Nicaraguan labor movement. Half of the unionized laborforce belongs to militant Sandinista labor unions. Nicaragua is a party to 54 International Labor Organization conventions and agreements,including the 1998 Declaration of Principles and Fundamental Labor Rights. Although the 1996Labor Code removed many restrictions on trade union rights, the Nicaraguan Labor Ministryacknowledges that it still takes about six months for a union to go through all the proceduresnecessary to hold a legal strike. (203) As a result, there has only been one legal strike since 1996,and companies continue to exact severe reprisals against "illegal" union activities. The worst laborrights violations in Nicaragua reportedly occur in the export processing zones (EPZs) where 62 EPZcompanies, or maquilas, employ 52,000 people, only 3% of whom are unionized. (204) An estimated 9,500workers in Chinandega, Nicaragua have spent the last five years pursuing million-dollar lawsuitsagainst international banana conglomerates for health damages caused by pesticide exposure. Somecritics of the free trade agreement fear that as companies arrive in pursuit of cheap labor, "thevulnerability of the maquila and farming ... could lead the way to greater exploitation of workers,and greater exposure to unsafe working conditions." (205) Intellectual Property. Nicaragua signed a bilateralagreement on intellectual property protection with the United States in January 1998, the first of itskind in Central America and only the fourth in Latin America. Since that time, the Nicaraguanlegislature has enacted modern laws on copyrights, transmission of satellite signals, plant varietyprotection, integrated circuit systems, patents, and trademarks. The government launched two majorefforts to crack down on music recording privacy in 2001, and is now targeting software piracy inpublic offices. Despite these efforts, the Business Software Alliance estimates that Nicaragua hada 77% piracy rate in 2002, following a 78% record in 2001. Estimated losses from piracy reached$2.6 million in 2002, down from $3.3 million in 2001. (206) These losses, though significant, were not enough to putNicaragua on the U.S. Trade Representative's "Special 301" list of countries with inadequateprotection of intellectual property rights. Nicaragua took further steps to protect intellectualproperty rights in 2002 by signing the World Intellectual Property Organization's "Internet Treaties." Approval Status. The unicameral NicaraguanNational Assembly ratified CAFTA on October 10, 2005, by a vote of 49 to 37. President Bolañoshad submitted the bill for ratification on October 5, 2004. On May 4, 2005, the committee ofjurisdiction issued a report, moving the process along one step further. Since then, some membersof the Liberal and Sandinista parties had opposed CAFTA. U.S. Deputy Secretary of State Zoellickvisited Nicaragua and said that the continuation of the pact between Aleman and Ortega "will leadNicaragua to lose the Millennium Challenge Account Assistance, to lose the opportunity ofCAFTA...." Shortly afterward, Daniel Ortega, who is running for President in 2006, withdrew theSandinistas' opposition to CAFTA, allowing it enough votes to pass. (in $U.S. millions, current) Source : AID, U.S. Overseas Loans and Grants. Data for FY2003 are estimated amounts and forFY2004 are the requested amounts. | This report explains the conditions in five countries in Central America (Costa Rica, ElSalvador, Guatemala, Honduras, and Nicaragua) and one country in the Caribbean (DominicanRepublic) that will be partners with the United States in the U.S.-Dominican Republic-CentralAmerica Free Trade Agreement (DR-CAFTA) signed in August 2004. All of the signatory countriesexcept Costa Rica have approved the pact. The agreement will enter into force for the approvingcountries on an agreed date, tentatively January 1, 2006. In U.S. approval action, the House andSenate passed the required implementing legislation ( H.R. 3045 ) on July 27 and 28,2005, and the President signed it into law ( P.L. 109-53 ) on August 2, 2005. The DR-CAFTA partners are basically small countries with limited populations andeconomic resources, ranging in population from Costa Rica with a population of 4.1 million toGuatemala with a population of 12.6 million, and ranging in Gross National Income (GNI) from $4.5billion for Nicaragua to $26.9 billion for Guatemala. While El Salvador, Guatemala, and Nicaraguaexperienced extended civil conflicts in the 1970s and 1980s, all of the countries have haddemocratically elected presidents for some time, and several of the countries have experienced recentelectoral transitions. For each of the countries the United States is the dominant market as well asthe major source of investment and foreign assistance, including trade preferences under theCaribbean Basin Initiative (CBI) and assistance following devastating hurricanes. The Bush Administration and other proponents of the pact argue that the agreement willcreate new opportunities for U.S. businesses and workers by eliminating barriers to U.S. goods andservices in the region. They also argue that it will encourage economic reform and strengthendemocracy in affected countries. Many regional officials favor the pact because it provides newaccess to the U.S. market and makes permanent many of the temporary one-way duty-free tradepreferences currently in place. Critics argue that the environmental and labor provisions areinadequate, that the pact will lead to the loss of jobs for workers in the United States and forsubsistence farmers in Central America, and that provisions relating to textiles/apparel and sugar willbe harmful to U.S. producers. In the context of legislative action, the Bush Administration promisedto limit sugar imports, to make some adjustments for textile industries, and to support multi-yearassistance to strengthen regional enforcement of labor and environmental standards. Related information may be found in CRS Report RL31870 , The DominicanRepublic-Central America-United States Free Trade Agreement (DR-CAFTA), by J.F. Hornbeck; CRS Report RL32110 , Agriculture in the U.S.-Dominican Republic-Central American Free TradeAgreement , by [author name scrubbed]; CRS Report RS22164 , DR-CAFTA: Regional Issues , by ClareRibando; and CRS Report RS22159 , DR-CAFTA Labor Rights Issues , by [author name scrubbed]. |
I n the years since President Obama took office, Congress has included provisions in annual defense authorization bills addressing issues related to detainees at the U.S. Naval Station at Guantanamo Bay, Cuba, and, more broadly, the disposition of persons captured in the course of hostilities against Al Qaeda and associated forces. The National Defense Authorization Act for FY2012 (2012 NDAA; P.L. 112-81 ) arguably constituted the most significant legislation informing wartime detention policy since the 2001 Authorization for the Use of Military Force (AUMF; P.L. 107-40 ), which serves as the primary legal authority for U.S. operations against Al Qaeda and associated forces. Both the National Defense Authorization Acts for FY2013 (2013 NDAA; P.L. 112-239 ) and FY2014 (2014 NDAA; P.L. 113-66 ) contain subtitles addressing U.S. detention policy, particularly with respect to persons held at Guantanamo, though neither act addresses detention matters as comprehensively as the 2012 NDAA. The FY2015 NDAA ( P.L. 113-291 ) essentially maintained the status quo established by the 2014 NDAA, while the FY2016 NDAA ( P.L. 114-92 ) reverted to a version of the earlier policy. During congressional deliberations over the House and Senate bills competing to become the 2012 NDAA, the White House criticized each version's detainee provisions, and threatened to veto any legislation "that challenges or constrains the President's critical authorities to collect intelligence, incapacitate dangerous terrorists, and protect the Nation." In particular, the Administration expressed strong opposition to any provision mandating the military detention of certain categories of persons, limiting executive discretion as to the appropriate forum to prosecute terrorist suspects, or constraining the Executive's ability to transfer detainees from U.S. custody. The version of the 2012 NDAA passed by Congress included a few modifications intended to assuage some of the Administration's concerns. The conference report dropped a House provision that would have required military commissions for certain terrorism cases and modified the House provision prohibiting the transfer of terrorism suspects to the United States for trial so that it only applies to those held at Guantanamo and not to all suspects detained abroad. It modified the Senate provision mandating the military detention of certain categories of persons (originally subject to waiver by the Secretary of Defense) by adding a statement to that provision to confirm that it does not affect "the existing criminal enforcement and national security authorities of the Federal Bureau of Investigation or any other domestic law enforcement agency," even with respect to persons held in military custody. The conferees also transferred the waiver authority from the Secretary of Defense to the President. The conference report retained language added during Senate floor debate to clarify that the provision affirming the authority to detain persons captured in the conflict with Al Qaeda does not modify any existing authorities relating to the power to detain U.S. citizens or lawful resident aliens, or any other persons captured or arrested in the United States. The Obama Administration then lifted its veto threat, and President Obama signed the 2012 NDAA into law on December 31, 2011. Nonetheless, President Obama issued a signing statement criticizing many of the act's detainee provisions, in which he pledged to interpret certain provisions in a manner that would preserve a maximum degree of flexibility and discretion in the handling of captured terrorists. Among other things, he criticized the blanket bar on Guantanamo detainee transfers into the United States and the restrictions imposed on detainee transfers to foreign countries, arguing that some applications of these provisions might violate constitutional separation of powers principles. President Obama also announced that he would "not authorize the indefinite military detention without trial of American citizens," regardless of whether such detention might be legally permissible under the AUMF or the 2012 NDAA. He further declared that his Administration would not "adhere to a rigid across-the-board requirement for military detention," and suggested that he would exercise the statutory waiver of the mandatory military detention provision when he deemed it appropriate. On February 28, 2012, President Obama issued a directive describing circumstances in which the 2012 NDAA's mandatory military detention requirement would be waived. Both the 2013 and 2014 versions of the NDAA contain subtitles addressing U.S. detention policy, particularly with respect to persons held at Guantanamo. While the detention provisions in the 2013 NDAA largely represented a continuation of existing policies, the 2014 NDAA saw some relaxation of the long-standing restrictions imposed upon the transfer of Guantanamo detainees to foreign countries. The 2015 NDAA did not modify the requirements established by the 2014 NDAA. The Consolidated and Further Continuing Appropriations Act, 2015 (2015 Cromnibus, P.L. 113-235 ), extended through FY2015 the prohibition on the use of funds to transfer detainees abroad unless the requirements of the 2014 NDAA are satisfied. The Obama Administration subsequently stepped up transfers of cleared detainees to foreign countries. The Administration's noncompliance with a congressional notification requirement in the 2014 NDAA, in connection with the transfer of five Taliban detainees in exchange for U.S. Army Sergeant Bowe Bergdahl in 2014, appears to have swayed some in Congress toward reinstating and strengthening the previous set of requirements for transferring detainees to foreign countries. The 2016 NDAA reenacted a modified version of earlier restrictions and imposed some new ones. This report offers a brief background of the salient issues and provides a section-by-section analysis of the detainee provisions in the National Defense Authorization Act for FY2012. It also discusses executive interpretation and implementation of the act's mandatory military detention provision. Finally, it addresses detainee provisions in subsequent national authorization legislation and other developments. At the heart of the consideration of the detainee provisions in the 2012 NDAA appears to have been an effort to confirm or, as some observers view it, expand the detention authority Congress implicitly granted the President in the aftermath of the terrorist attacks of September 11, 2001. In enacting the Authorization for Use of Military Force (AUMF; P.L. 107-40 ), Congress authorized the President to use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons. Many persons captured during subsequent U.S operations in Afghanistan and elsewhere have been placed in preventive detention to stop them from participating in hostilities or terrorist activities. A few have been tried by military commission for crimes associated with those hostilities, while many others have been tried for terrorism-related crimes in civilian court. In the 2004 case of Hamdi v. Rumsfeld , a majority of the Supreme Court recognized that, as a necessary incident to the AUMF, the President may detain enemy combatants captured while fighting U.S. forces in Afghanistan (including U.S. citizens), and potentially hold such persons for the duration of hostilities. The Hamdi decision left to lower courts the task of defining the scope of detention authority conferred by the AUMF, including whether the authorization permits the detention of members or supporters of Al Qaeda, the Taliban, or other groups who are apprehended away from the Afghan zone of combat. Most subsequent judicial activity concerning U.S. detention policy has occurred in the D.C. Circuit, where courts have considered numerous habeas petitions by Guantanamo detainees challenging the legality of their detention. Rulings by the U.S. Court of Appeals for the D.C. Circuit have generally been favorable to the legal position advanced by the government regarding the scope of its detention authority under the AUMF. It remains to be seen whether any of these rulings will be reviewed by the Supreme Court and, if such review occurs, whether the Court will endorse or reject the circuit court's understanding of the AUMF and the scope of detention authority it confers. Prior to the 2012 NDAA, Congress did not pass any legislation to directly assist the courts in defining the scope of detention authority granted by the AUMF. The D.C. Circuit has, however, looked to other post-AUMF legislation concerning the jurisdiction of military commissions for guidance as to the categories of persons who may be subject to military detention. In 2010, the circuit court concluded that the government had authority under the AUMF to detain militarily persons subject to the jurisdiction of military commissions established pursuant to the Military Commissions Acts of 2006 and 2009 (MCA); namely, those who are "part of forces associated with Al Qaeda or the Taliban," along with "those who purposefully and materially support such forces in hostilities against U.S. Coalition partners." Most of the persons detained under the authority of the AUMF are combatants picked up during military operations in Afghanistan or arrested elsewhere abroad. Many of these individuals were transported to the U.S. Naval Station at Guantanamo Bay, Cuba, for detention in military custody, although a few "high value" Guantanamo detainees were initially held at other locations by the CIA for interrogation. The United States also held a larger number of detainees at a facility in Parwan, Afghanistan. The United States agreed to hand over control of the facility to the Afghan government, and transfer all Afghan detainees in its custody at Parwan to the Afghan authorities by September 2012, though implementation of this agreement was delayed due to disagreement between Afghan and U.S. authorities, with Afghan officials reportedly claiming that the United States continued to hold several dozen Afghan detainees. The remaining Afghan prisoners were turned over to Afghanistan in March 2013 after an agreement was reached whereby U.S. advisors are to remain at the facility and Afghanistan agreed not to release prisoners the United States considers particularly dangerous. Although several dozen non-Afghan detainees remained in U.S. custody for some time thereafter, in December 2014 the Department of Defense (DOD) announced that all remaining detainees in U.S. custody had been transferred to foreign custody, and that it "no longer operates detention facilities in Afghanistan.... " Neither the Guantanamo facility nor any facility in Afghanistan appears to be considered a viable option for future captures in the conflict authorized by the AUMF; the current practice in such cases seems to be ad hoc. In almost all instances, persons arrested in the United States who have been suspected of terrorist activity on behalf of Al Qaeda or affiliated groups have not been placed in military detention pursuant to the AUMF, but instead have been prosecuted in federal court for criminal activity. There were two instances in which the Bush Administration transferred persons arrested in the United States into military custody and designated them as "enemy combatants"—one a U.S. citizen initially arrested by law enforcement authorities upon his return from Afghanistan, where he had allegedly been part of Taliban forces, and the other an alien present in the United States on a student visa who had never been to the Afghanistan zone of combat, but was alleged to have been an Al Qaeda "sleeper agent" planning to engage in terrorist activities on behalf of the organization within the United States. However, in both cases, the detainees were ultimately transferred back to the custody of civil authorities and tried in federal court when it appeared that the Supreme Court would hear their habeas petitions, leaving the legal validity of their prior military detention uncertain. Over the years, there has been considerable controversy over the appropriate mechanism for dealing with suspected belligerents and terrorists who come into U.S. custody. Some have argued that all suspected terrorists (or at least those believed to be affiliated with Al Qaeda) should be held in military custody and tried for any crimes they have committed before a military commission. Others have argued that such persons should be transferred to civilian law enforcement authorities and tried for any criminal offenses before an Article III court. Still others argue that neither a military nor traditional law enforcement model should serve as the exclusive method for handling suspected terrorists and belligerents who come into U.S. custody. They urge that such decisions are best left to executive discretion for a decision based on the distinct facts of each case. Disagreement over the appropriate model to employ has become a regular occurrence in high-profile cases involving suspected terrorists. In part as a response to the Obama Administration's plans to transfer certain Guantanamo detainees, including Khalid Sheik Mohammed, into the United States to face charges in an Article III court for their alleged role in the 9/11 attacks, Congress passed funding restrictions that effectively barred the transfer of any Guantanamo detainee into the United States for the 2011 fiscal year, even for purposes of criminal prosecution. These restrictions have been extended through appropriations and defense authorization legislation enacted in subsequent years, including pursuant to the 2016 NDAA and the 2016 Omnibus. The blanket restriction on transfers into the United States effectively makes trial by military commission the only viable option for prosecuting Guantanamo detainees for the foreseeable future, as no civilian court operates at Guantanamo. Considerable attention has also been drawn to other instances when terrorist suspects have been apprehended by U.S. military or civilian law enforcement authorities. On July 5, 2011, Somali national Ahmed Abdulkadir Warsame was brought to the United States to face terrorism-related charges in a civilian court, after having reportedly been detained on a U.S. naval vessel for two months for interrogation by military and intelligence personnel. Some have argued that Warsame should have remained in military custody abroad, while others argue that he should have been transferred to civilian custody immediately. Controversy also arose regarding the arrest by U.S. civil authorities of Umar Farouk Abdulmutallab and Faisal Shahzad, who some argued should have been detained and interrogated by military authorities and tried by military commission. The Administration incurred additional criticism for bringing civilian charges against two Iraqi refugees arrested in the United States on suspicion of having participated in insurgent activities in Iraq against U.S. military forces, although the war in Iraq has generally been treated as separate from hostilities authorized by the AUMF, at least insofar as detainee operations are concerned. The decision of U.S. authorities to bring criminal charges against former Al Qaeda spokesman Sulaiman Abu Ghayth in civilian court following his arrest, rather than transferring him to military custody at Guantanamo, was criticized by some lawmakers. Most recently, the capture of alleged Benghazi ringleader Ahmed Abu Khattalah has evoked calls for holding him for interrogation at the Guantanamo Bay detention facility and for possibly prosecuting him by military commission. Potential issues may also arise with respect to the application of the detainee provisions of defense authorization legislation to U.S. operations against the Islamic State (which formerly referred to itself as the Islamic State of Iraq and the Levant, and is also commonly known as IS, ISIS, or ISIL). The Obama Administration has identified the 2001 AUMF as providing a legal basis of U.S. military action against the Islamic State, because the Administration characterizes the Islamic State as a successor to the version of Al Qaeda responsible for the terrorist attacks of September 11, 2001. The United States does not appear to have captured and detained many Islamic State members during military operations. However, if any Islamic State members are apprehended and detained by U.S. authorities without trial, policymakers (and possibly reviewing U.S. courts) would likely have to assess whether and how the AUMF, along with those detainee provisions of defense authorization legislation which reference the AUMF, apply. Current U.S. practice has been to hold persons fighting on behalf of IS in Iraq on a short-term basis before handing them over to Iraqi or Kurdish authorities, and the Obama Administration has reportedly ruled out transferring IS detainees to Guantanamo. The following sections address the current status of U.S. policies and legal authorities with respect to detainee matters that are addressed in the 2012 NDAA and subsequent defense authorization legislation. The first section addresses the scope of detention authority under the AUMF as the Administration views it and as it has developed in court cases. The following section provides an overview of current practice regarding initial status determinations and periodic reviews of detainee cases. The background ends with a discussion of recidivism concerns underlying current restrictions on transferring detainees from Guantanamo. Prior to passage of the 2012 NDAA, the AUMF constituted the primary legal basis supporting the detention of persons captured in the conflict with Al Qaeda and affiliated entities, but the scope of the detention authority it confers is not made plain by its terms, and accordingly can be subject to differing interpretations. Section 1021 of the 2012 NDAA appears intended to codify existing law, as interpreted and applied by the executive branch and the D.C. Circuit, and expressly disavows any construction that would limit or expand the President's detention authority under the AUMF. Accordingly, an understanding of the state of the law prior to passage may inform the interpretation of the NDAA provisions relating to detention authority. The Obama Administration framed its detention authority under the AUMF in a March 13, 2009, court brief as follows: The President has the authority to detain persons that the President determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, and persons who harbored those responsible for those attacks. The President also has the authority to detain persons who were part of, or substantially supported, Taliban or al-Qaida forces or associated forces that are engaged in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act, or has directly supported hostilities, in aid of such enemy armed forces. While membership in Al Qaeda or the Taliban seems to fall clearly within the parameters of the AUMF, the inclusion of "associated forces," a category of indeterminate breadth, raised questions as to whether the detention authority claimed by the Executive exceeded the AUMF's mandate. The "substantial support" prong of the Executive's description of its detention authority may raise similar questions. The Supreme Court in Hamdi interpreted the detention authority conferred by the AUMF with reference to law of war principles, and there is some dispute as to when and whether persons may be subject to indefinite detention under the law of war solely on account of providing support to a belligerent force. In its 2009 brief, the government declined to clarify these aspects of its detention authority: "It is neither possible nor advisable, however, to attempt to identify, in the abstract, the precise nature and degree of 'substantial support,' or the precise characteristics of 'associated forces,' that are or would be sufficient to bring persons and organizations within the foregoing framework." The Obama Administration's definition of its scope of detention authority is similar to the Bush Administration's definition describing who could be treated as an "enemy combatant," differing only in that it requires "substantial support," rather than "support." The controlling plurality opinion in Hamdi quoted with apparent approval a government brief in that case describing the authority to detain persons who support enemy forces, but suggested that such support would also entail engaging in hostilities. Court decisions have not shed much light on the "substantial support" prong of the test to determine detention eligibility, with all cases thus far adjudicated by the Court of Appeals of the D.C. Circuit relying on proof that a detainee was functionally part of Al Qaeda, the Taliban, or an associated force. The executive branch has included "associated forces" as part of its description of the scope of its detention authority since at least 2004, after a majority of the Supreme Court held in Hamdi that the AUMF authorized the detention of enemy combatants for the duration of hostilities. The Court left to lower courts the task of defining the full parameters of the detention authority conferred by the AUMF, and it did not mention "associated forces" in its opinion. In its 2009 brief, the government explained that [The AUMF does not] limit the "organizations" it covers to just al-Qaida or the Taliban. In Afghanistan, many different private armed groups trained and fought alongside al-Qaida and the Taliban. In order "to prevent any future acts of international terrorism against the United States," AUMF, § 2(a), the United States has authority to detain individuals who, in analogous circumstances in a traditional international armed conflict between the armed forces of opposing governments, would be detainable under principles of co-belligerency. This statement is consistent with the position earlier taken by the Bush Administration with respect to the detention of a group of Chinese Uighur dissidents who had been captured in Afghanistan and transferred to Guantanamo as members of an "associated force." In Parhat v. Gates , the D.C. Circuit rejected the government's contention that one petitioner's alleged affiliation with the East Turkistan Islamic Movement (ETIM) made him an "enemy combatant." The court accepted the government's test for membership in an "associated force" (which was not disputed by petitioner): "(1) the petitioner was part of or supporting 'forces'; (2) those forces were associated with al Qaida or the Taliban; and (3) those forces are engaged in hostilities against the United States or its coalition partners." The court did not find that the government's evidence supported the second and third prongs, so it found it unnecessary to reach the first. The government had defined "associated force" to be one that "becomes so closely associated with al Qaida or the Taliban that it is effectively 'part of the same organization,'" in which case it argued ETIM is covered by the AUMF because that force "thereby becomes the same 'organization[ ]' that perpetrated the September 11 attacks." If the definition asserted by the government in Parhat is adopted, then the term would seem to require a close operational nexus in the current armed conflict. On the other hand, as the court noted, "[t]his argument suggests that, even under the government's own definition, the evidence must establish a connection between ETIM and al Qaida or the Taliban that is considerably closer than the relationship suggested by the usual meaning of the word 'associated.'" The court did not find that the evidence adduced established that ETIM is sufficiently connected to Al Qaeda to be an "associated force," as the government had defined the concept, but the decision might have come out differently if the court had adopted a plain language interpretation of "associated force." In its 2009 brief, the government indicated that the definition of "associated forces" would require further development through its "application to concrete facts in individual cases." In habeas cases so far, the term "associated forces" appears to have been interpreted only to cover armed groups assisting the Taliban or Al Qaeda in Afghanistan. For instance, membership in "Zubayda's militia," which reportedly assisted Osama bin Laden's escape from Tora Bora, has been found to be an "associated force" within the meaning of the AUMF. In another case, the habeas court determined that Hezb–i–Islami Gulbuddin (HIG) is an "associated force" for AUMF purposes because there was sufficient evidence to show that it supported continued attacks against coalition and Afghan forces at the time petitioner was captured. The D.C. Circuit also affirmed the detention of a person engaged as a cook for the 55 th Arab Military Brigade, an armed force consisting of mostly foreign fighters that defended the Taliban from coalition efforts to oust it from power. However, the Administration has suggested that other groups outside of Afghanistan may be considered "associated forces" such that the AUMF authorizes the use of force against their members. It is possible that Congress's codification of the detention authority as to "associated forces" in the 2012 NDAA may bring courts to interpret the term more broadly than they have in the past in order to comport with the plain text meaning. An issue of continuing uncertainty regarding the scope of detention authority conferred by the AUMF concerns its application to persons captured outside of Afghanistan, and in particular those who are U.S. citizens or otherwise have significant ties to the United States. While the Supreme Court in Hamdi recognized that the AUMF permitted the detention of a U.S. citizen captured while fighting U.S. coalition forces in Afghanistan, it did not address whether (or the circumstances in which) persons captured outside of Afghanistan could be properly detained under the AUMF. The U.S. Court of Appeals for the D.C. Circuit has apparently taken the view that the AUMF authorizes the detention of any person who is functionally part of Al Qaeda, though this view has been espoused so far only in cases involving non-U.S. citizens who have been captured outside the United States. In separate rulings, the U.S. Court of Appeals for the Fourth Circuit upheld the military detention of a U.S. citizen and a lawfully admitted alien captured in the United States who were designated as enemy combatants by the executive branch. In each case, the detainee was transferred to civilian law enforcement custody for criminal prosecution before the Supreme Court could consider the merits of the case. In one of these cases, the lower court's decision upholding the detention was vacated. The other case affirming such a detention remains good law within the Fourth Circuit, but relied on conduct outside the United States as the basis for detention. Accordingly, the circumstances in which a U.S. citizen or other person captured or arrested in the United States may be detained under the authority conferred by the AUMF remains unsettled. Neither the 2012 NDAA nor subsequent defense spending enactments disturb the state of the law in this regard. In response to Supreme Court decisions in 2004 related to "enemy combatants," the Pentagon established Combatant Status Review Tribunals (CSRTs) to determine whether detainees brought to Guantanamo are subject to detention on account of enemy belligerency status. CSRTs are an administrative and non-adversarial process based on the procedures the Army uses to determine POW status during traditional wars. Guantanamo detainees who were determined not to be (or no longer to be) enemy combatants were eligible for transfer to their country of citizenship or were otherwise dealt with "consistent with domestic and international obligations and U.S. foreign policy." CSRTs confirmed the status of 539 enemy combatants between July 30, 2004, and February 10, 2009. Although the CSRT process has been largely defunct since 2007 due to the fact that so few detainees have been brought to Guantanamo since that time, presumably any new detainees who might be transported to the Guantanamo detention facility would go before a CSRT. The CSRT process has been employed only with respect to persons held at Guantanamo. Non-citizen detainees held by the United States in Afghanistan were subject to a different status review process which provides detainees with fewer procedural rights. Moreover, whereas the Supreme Court has held that the constitutional writ of habeas extends to non-citizens held at Guantanamo, enabling Guantanamo detainees to challenge the legality of their detention in federal court, existing lower court jurisprudence has not recognized that a similar privilege extended to non-citizen detainees who were held by the United States in Afghanistan. Shortly after taking office, President Obama issued a series of executive orders creating a number of task forces to study issues related to the Guantanamo detention facility and U.S. detention policy generally. While these groups prepared their studies, most proceedings related to military commission and administrative review boards at Guantanamo, including the CSRTs, were held in abeyance pending the anticipated recommendations. The Obama Administration also announced in 2009 that it was implementing a new review system to determine or review the status of detainees held at the Bagram Theater Internment Facility in Afghanistan, which also applied at the detention facility in Parwan. It is unclear what process has been used to determine the status of persons captured in connection with the hostilities who were not transported to any of those facilities. On March 7, 2011, President Obama issued Executive Order 13567, establishing a process for the periodic review of the continued detention of persons currently held at Guantanamo who have either been (1) designated for preventive detention under the laws of war or (2) referred for criminal prosecution, but have not been convicted of a crime and do not have formal charges pending against them. The executive order establishes a Periodic Review Board (PRB) to assess whether the continued detention of a covered individual is warranted in order "to protect against a significant threat to the security of the United States." In instances where a person's continued detention is not deemed warranted, the Secretaries of State and Defense are designated responsibility "for ensuring that vigorous efforts are undertaken to identify a suitable transfer location for any such detainee, outside of the United States, consistent with the national security and foreign policy interests of the United States" and relevant legal requirements. An initial review of each individual covered by the order, which involves a hearing before the PRB in which the detainee and his representative may challenge the government's basis for his continued detention and introduce evidence on his own behalf, was required to occur within a year of the order's issuance. The order requires a full review thereafter on a triennial basis and a file review every six months in intervening years, which could, if significant new information is revealed therein, result in a new full review. The order also specifies that the process it establishes is discretionary; does not create any additional basis for detention authority or modify the scope of authority granted under existing law; and is not intended to affect federal courts' jurisdiction to determine the legality of a person's continued detention. The one-year deadline established by the executive order for the initial review of covered persons' continued detention was not met. In May 2012, DOD issued a directive that establishes guidelines for the implementation of the periodic review process, but it was not until July 2013 that it was announced that the first periodic review boards would take place. An announcement of the completion of the first PRB process occurred on January 9, 2014. As of the date of this report, 31 initial PRB determinations and four full reviews have been made, along with nine file reviews. Concerns that detainees released from Guantanamo to their home country or resettled elsewhere have subsequently engaged in terrorist activity have spurred Congress to place limits on detainee transfers, generally requiring a certification that adequate measures are put in place in the destination country to prevent transferees from "returning to the battlefield." Statistics regarding the post-release activities of Guantanamo detainees have been somewhat elusive, however, with much of the information remaining classified. It does not appear to be disputed that some detainees have engaged in terrorist activities of some kind after their release from Guantanamo, but the significance of such activity has been subject to debate. The policy implications of the reported activities have also been the subject of controversy, with some arguing that virtually none of the remaining prisoners should be transferred and others arguing that long-term detention without trial of such persons, based on the conduct of others who have been released, is fundamentally unfair. In 2007, the Pentagon issued a news release estimating that 30 former detainees had since their release engaged in militant activities or "anti-U.S. propaganda" (apparently including public criticism of U.S. detention policies). This number and others released by DOD officials were challenged by researchers at Seton Hall University School of Law Center for Policy and Research who, in connection with advocacy on behalf of some Guantanamo detainees pursuing habeas cases, identified what they viewed as discrepancies in DOD data as well as a lack of identifying information that would enable independent verification of the numbers. Moreover, they took issue with the Pentagon's assertion that the former detainees' activities could be classified as "recidivism" or "reengagement," inasmuch as data released by the Pentagon from CSRT hearings did not establish in each case that the detainee had engaged in terrorist or insurgent activity in the first place, and suggested that post-release terrorist conduct could potentially be explained by radicalization during internment. The study did note that available data confirmed some cases of individuals who engaged in deadly activities such as suicide bombings after leaving Guantanamo. In 2008, the Defense Intelligence Agency (DIA) reported that 36 ex-Guantanamo detainees were confirmed or suspected of having returned to terrorism. In 2009, the Pentagon reported that 1 in 7, or 74 of the 534 prisoners transferred from Guantanamo were believed to have subsequently engaged in terrorism or militant activity. More recent estimates by the executive branch, sometimes made publicly available through legislative action, have provided different numbers. In December 2010, pursuant to a requirement contained in the Intelligence Authorization Act of FY2010 ( P.L. 111-259 ), the Director of National Intelligence (DNI) released an unclassified summary of intelligence relating to recidivism rates of current or former Guantanamo detainees, as well as an assessment of the likelihood that such detainees may engage in terrorism or communicate with terrorist organizations. The report stated that of the 598 detainees transferred out of Guantanamo, the "Intelligence Community assesses that 81 (13.5 percent) are confirmed and 69 (11.5 percent) are suspected of reengaging in terrorist or insurgent activities after transfer." Of the 150 confirmed or suspected recidivist detainees, the report stated that 13 were dead, 54 were in custody, and 83 remained at large. The summary also indicated that, of 66 detainees transferred from Guantanamo since the implementation of Executive Order 13492, 2 were confirmed and 3 were suspected of participating in terrorist or insurgent activities. The report did not include detainees solely on the basis of anti-U.S. statements or writings. In September 2011, Director of National Intelligence Lieutenant General James Clapper testified in a congressional hearing that the number of former Guantanamo detainees who were either suspected or confirmed to have engaged in terrorist or insurgent activities upon release had risen to 27%. In January 2012, the President signed into law the Intelligence Authorization Act of FY2012 ( P.L. 112-87 ), which required the DNI to release another unclassified summary of intelligence relating to recidivism rates of current or former Guantanamo detainees, and to provide periodic updates not less than every six months thereafter. The first summary was released in March 2012, and claimed that of the 599 detainees transferred out of Guantanamo by the end of 2011, 95 detainees (15.9%) were "confirmed of reengaging" in terrorist or insurgent activities, and 72 detainees (12.0%) were "suspected of reengaging" in such activities. Of the 67 detainees transferred since the implementation of Executive Order 13492, 3 were confirmed and 2 were suspected of participating in terrorist or insurgent activities. As with the earlier DNI estimate, the report does not identify detainees as "reengaging" in terrorist or insurgent activity solely on the basis of anti-U.S. statements, or on account of communications with persons or organizations that are unrelated to terrorist operations. The latest DNI recidivism summary, released in March 2016, states that out of a total of 676 detainees who have been transferred or released, 118 detainees have been confirmed of reengaging in terrorist or insurgent activity (17.5%), and 86 former detainees fall into the "suspected of reengaging" category (12.7% of former detainees). The accuracy or significance of the numbers provided by DNI and other government entities has been questioned by some observers. In response to the release of the 2010 DNI estimate, the New America Foundation analyzed publicly available Pentagon reports and other documents and estimated that the actual figure of released detainees who went on to pose a threat to the United States or its interests is closer to 6%. Some have raised similar criticisms with respect to the accuracy of more recent DNI estimates. Because the intelligence data forming the basis for the DNI's reports remain classified, it is not possible to explain the discrepancy between their estimates of detainee recidivism numbers and those estimates deriving from publicly available sources. Section 1021 affirms that the AUMF includes authority for the U.S. Armed Forces to detain "covered persons" pending disposition under the law of war. The provision generally tracks the language of Senate-passed S. 1867 , 112 th Congress. Combining the express language of the AUMF with the language the Obama Administration has employed to describe its detention authority in habeas litigation involving Guantanamo detainees, the 2012 NDAA defines "covered persons" in Section 1021(b) as including two categories of persons: (1) A person who planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored those responsible for those attacks. (2) A person who was a part of or substantially supported al-Qaeda, the Taliban, or associated forces that are engaged in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act or has directly supported such hostilities in aid of such enemy forces. Section 1021 states that dispositions under the law of war "may include" several options: detention without trial until the end of hostilities authorized by the 2001 AUMF; trial by military commission; transfer for trial by another court or tribunal with jurisdiction; or transfer to the custody or control of a foreign country or foreign entity. The provision uses the language "may include" with respect to the above options, which could be read as permission to add other options or negate any of the listed options. Section 1021 does not expressly clarify whether U.S. citizens or lawful resident aliens may be determined to be "covered persons." The potential application of an earlier version of Section 1021 found in S. 1867 (in that bill numbered Section 1031) to U.S. citizens and other persons within the United States was the subject of significant floor debate. An amendment that would have expressly barred U.S. citizens from long-term military detention on account of enemy belligerent status was considered and rejected. Ultimately, an amendment was adopted that added the following proviso: "Nothing in this section shall be construed to affect existing law or authority relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States." This language, which remains in the final version of the act, along with a separate clause which provides that nothing in Section 1021 "is intended to limit or expand the authority of the President or the scope of the Authorization for the Use of Military Force," makes clear that the provision is not intended to either expand or limit the Executive's existing authority to detain U.S. citizens and resident aliens, as well as other persons captured in the United States. Such detentions have been rare and subject to substantial controversy, without achieving definitive resolution in the courts. While the Supreme Court in Hamdi recognized that persons captured while fighting U.S. forces in Afghanistan could be militarily detained in the conflict with Al Qaeda potentially for the duration of hostilities, regardless of their citizenship, the circumstances in which persons captured in the United States may be subject to preventive military detention have not been definitively adjudicated. Section 1021 does not attempt to clarify the circumstances in which a U.S. citizen, lawful resident alien, or other person captured within the United States may be held as an enemy belligerent in the conflict with Al Qaeda. Consequently, if the executive branch decides to hold such a person under the detention authority affirmed in Section 1021, it is left to the courts to decide whether Congress meant to authorize such detention when it enacted the AUMF in 2001. In restating the definitional standard the Administration uses to characterize its detention authority, Section 1021 does not attempt to provide additional clarification for terms such as "substantial support," "associated forces," or "hostilities." For that reason, it may be subject to an evolving interpretation that effectively permits a broadening of the scope of the conflict. The provision does require the Secretary of Defense to brief Congress on how it is applied, including with respect to "organizations, entities, and individuals considered to be 'covered persons' under section 1021(b)." This language may be read to require an ongoing accounting of which entities are considered to be "associated forces" or a description of what constitutes "substantial support." Although Section 1021 provides that it does not modify any existing detention authority concerning "lawful resident aliens," neither the NDAA nor any other federal statute provides a definition of this term. It is possible that the drafters of the NDAA intended this category to refer to the classification of aliens known as legal permanent residents (LPRs). Aliens with LPR status are allowed to permanently reside in the United States, unless such status terminates as a result of a final order of removal or exclusion. On the other hand, it is possible that the drafters of the NDAA intended the term "lawful resident alien" to also include other aliens who are lawfully present in the United States on a long-term basis but who do not have LPR status (e.g., an alien lawfully present in the United States for an extended period pursuant to a student visa). When signing the 2012 NDAA into law, President Obama claimed that Section 1021 "breaks no new ground and is unnecessary," as it "solely codifies established authorities" —namely, detention authority conferred by the AUMF, as interpreted by the Supreme Court and lower court decisions. President Obama also announced that he would "not authorize the indefinite military detention without trial of American citizens," regardless of whether such detention would be permissible under the AUMF or the 2012 NDAA. The provision that appears to have evoked the most resistance on the part of the Administration, Section 1022, generally requires at least temporary military custody for certain Al Qaeda members and members of certain "associated forces" who are taken into the custody or brought under the control of the United States as of 60 days from the date of enactment. This provision does not apply to all persons who are permitted to be detained as "covered persons" under Section 1021, but only those captured during the course of hostilities who meet certain criteria. It expressly excludes U.S. citizens from its purview, although it applies to lawful resident aliens (albeit with the caveat that if detention is based on conduct taking place within the United States, such detention is mandated only "to the extent permitted by the Constitution of the United States"). Moreover, the President is authorized to waive the provision's application if he submits a certification to Congress that "such a waiver is in the national security interests of the United States" (for discussion of executive's implementation of Section 1022, including its exercise of waiver authority, see infra at " Developments Since the Enactment of the 2012 NDAA "). The mandatory detention requirement applies to covered persons captured in the course of hostilities authorized by the AUMF, defining "covered persons" for its purposes as a person subject to detention under Section 1021 who is determined (A) to be a member of, or part of, al-Qaeda or an associated force that acts in coordination with or pursuant to the direction al al-Qaeda; and (B) to have participated in the course of planning or carrying out an attack or attempted attack against the United States or its coalition partners. Persons described above are required to be detained by military authorities pending "disposition under the law of war," as defined in Section 1021, except that additional requirements must first be met before the detainee can be transferred to another country. Accordingly, such persons may be (1) held in military detention until hostilities under the AUMF are terminated; (2) tried before a military commission; (3) transferred from military custody for trial by another court having jurisdiction; or (4) transferred to the custody of a foreign government or entity, provided the transfer requirements establish ed in Section 1028 of the act, discussed infra , are satisfied. If the Administration wishes to prosecute a person covered by Section 1022 in a civilian trial, Section 1029 requires the Attorney General to first consult with the National Director of Intelligence and the Secretary of Defense to determine whether a military commission is more appropriate and whether the individual should be held in military custody pending trial. Section 1022 applies both to members of Al Qaeda and "associated forces." The provision further specifies that covered forces are ones that "act in coordination with or pursuant to the direction of al-Qaeda." The omission of any express reference to the Taliban in Section 1022 seems to indicate that it need not be treated as a force associated with Al Qaeda, at least unless its actions are sufficiently coordinated or directed by Al Qaeda. A question might arise if an associated force acts largely independently but coordinates some activity with Al Qaeda. Would all of its members be subject to mandatory detention, or only those involved in units which coordinate their activities with Al Qaeda? Perhaps this determination can be made with reference to the specific attack the individual is determined to have attempted, planned, or engaged. In any event, Section 1022 would not apply to a "lone wolf" terrorist with no ties to Al Qaeda or any associated force. What conduct constitutes an "attack ... against the United States coalition partners" is not further clarified. It could be read to cover only the kinds of attacks carried out in a military theater of operations against armed forces, where the law of war is generally understood to permit the military detention of such persons. This reading may be bolstered by the limitation of the provision to persons who are "captured during the course of hostilities." On the other hand, the term "attack" might be interpreted to apply more broadly to cover terrorist acts directed against civilian targets elsewhere, although the application of the law of war to such circumstances is much less certain. It is unclear whether an effort to bring down a civilian airliner, for example, necessarily constitutes an "attack against the United States." The reference to the possibility that lawful resident aliens may be detained based on conduct taking place in the United States supports the broader reading of "attack." Some proponents have suggested that the provision is intended to cover cases such as that of Umar Farouk Abdulmutallab, the Nigerian suspect accused of trying to destroy an airliner traveling from Amsterdam to Detroit on Christmas Day 2009, although he was arrested by domestic law enforcement authorities, which suggests that the statute is intended to consider future similar occurrences as "attacks against the United States" that involve captures during the "course of hostilities." In response to Administration objections to the mandatory detention provision originally found in S. 1253 , 112 th Congress, a new requirement was established in S. 1867 , 112 th Congress, which was ultimately included in the enacted version of the 2012 NDAA, that the President must submit to Congress, within 60 days of enactment, a report describing the procedures for implementing the mandatory detention provision. The procedural requirements were added to respond to criticism that the measure would interfere with law enforcement and interrogation efforts, among other perceived risks. The submission was required to include procedures for designating who is authorized to determine who is a covered person for the purpose of the provision and the process by which such determinations are to be made. Other procedures to be described include those for preventing the interruption of ongoing surveillance or intelligence gathering with regard to persons not already in the custody or control of the United States; precluding implementation of the determination process until after any ongoing interrogation session is completed and precluding the interruption of an interrogation session; precluding application of the provision in the case of an individual who remains in the custody of a third country, where U.S. government officials are permitted access to the individual; and providing for an exercise of waiver authority to accomplish the transfer of a covered person from a third country, if necessary. This requirement applies only to persons taken into custody on or after the 2012 NDAA's date of enactment. It is not clear how these procedures will interact with those contemplated under Section 1024 (discussed more fully infra ), which requires DOD to submit to Congress procedures for status determinations for persons detained pursuant to the AUMF for purposes of Section 1021. If the procedures required by Section 1022 are meant to determine whether a person is detainable under the AUMF (per Section 1021) as an initial matter (as opposed to determining the appropriate disposition under the law of war), then it would seem necessary for that determination to take place prior to the procedures for determining whether a person's detention is required under Section 1022. The act does not appear to preclude the implementation of more than one process for making the determination that someone qualifies as a covered person subject to mandatory military detention, perhaps depending on whether the person is initially in military custody or the custody of law enforcement officials. Nor does it seem to preclude the use of a single procedure to determine whether a person is covered by Section 1022 and the appropriate disposition under the law of war, which could obviate the necessity for transferring a person to military custody. Whatever process is adopted to make any of these determinations would likely implicate constitutional due process requirements, at least if the detainee is located within the United States or is a U.S. citizen, and would likely be subject to challenge by means of habeas corpus. Section 1022 does not prevent Article III trials of covered persons, although any time spent in military custody could complicate the prosecution of a covered defendant. The Obama Administration opposed this provision, even as the language was revised. During Senate deliberation concerning S. 1867 , 112 th Congress, the White House claimed that its mandatory military detention requirement constituted an "unnecessary, untested, and legally controversial restriction of the President's authority to defend the Nation from terrorist threats" that would "tie the hands of our intelligence and law enforcement professionals." However, a new proviso was added in conference, which, along with a shift of waiver authority from the Secretary of Defense to the President, apparently reduced Administration concerns to the extent necessary to avert a veto. Section 1022, as it emerged from conference, provides that it is not to be construed "to affect the existing criminal enforcement and national security authorities of the Federal Bureau of Investigation or any other domestic law enforcement agency with regard to a covered person, regardless whether such covered person is held in military custody." While Federal Bureau of Investigation (FBI) Director Robert Mueller expressed concern that the provision, even as revised in conference, could create confusion as to the FBI's role in responding to a terrorist attack, the White House issued a statement explaining that, as a result of changes made in conference (as well as some that had been made prior to Senate passage): "[W]e have concluded that the language does not challenge or constrain the President's ability to collect intelligence, incapacitate dangerous terrorists, and protect the American people, and the President's senior advisors will not recommend a veto." However, the statement also warned that "if in the process of implementing this law we determine that it will negatively impact our counterterrorism professionals and undercut our commitment to the rule of law, we expect that the authors of these provisions will work quickly and tirelessly to correct these problems." When signing the 2012 NDAA into law, President Obama expressed strong disapproval of Section 1022, describing it as "ill-conceived and … [doing] nothing to improve the security of the United States." Nonetheless, the President characterized the Section 1022 as providing "the minimally acceptable amount of flexibility to protect national security," and claimed that he would interpret and apply it so as to best preserve executive discretion when determining the appropriate means for dealing with a suspected terrorist in U.S. custody: Specifically, I have signed this bill on the understanding that section 1022 provides the executive branch with broad authority to determine how best to implement it, and with the full and unencumbered ability to waive any military custody requirement, including the option of waiving appropriate categories of cases when doing so is in the national security interests of the United States. As my Administration has made clear, the only responsible way to combat the threat al-Qa'ida poses is to remain relentlessly practical, guided by the factual and legal complexities of each case and the relative strengths and weaknesses of each system. Otherwise, investigations could be compromised, our authorities to hold dangerous individuals could be jeopardized, and intelligence could be lost. I will not tolerate that result, and under no circumstances will my Administration accept or adhere to a rigid across-the-board requirement for military detention. I will therefore interpret and implement section 1022 in the manner that best preserves the same flexible approach that has served us so well for the past 3 years and that protects the ability of law enforcement professionals to obtain the evidence and cooperation they need to protect the Nation. On February 28, 2012, President Obama issued a directive concerning the implementation of Section 1022, and announcing circumstances in which the mandatory detention requirements would be waived. This directive is discussed in more detail infra at " Developments Since the Enactment of the 2012 NDAA ." Section 1023 addresses Executive Order 13567, pertaining to detention reviews at Guantanamo. Unlike H.R. 1540 , as originally passed by the House of Representatives of the 112 th Congress, the corresponding Senate provision incorporated into the enacted 2012 NDAA does not seek to replace the periodic review process established by the order, as a corresponding House provision would have done, but instead seeks to clarify aspects of the process. Section 1023 requires the Secretary of Defense, within 180 days of enactment, to submit to the congressional defense and intelligence committees a report setting forth procedures to be employed by review panels established pursuant to Executive Order 13567. The provision requires that these new review procedures to clarify that the purpose of the periodic review is not to review the legality of any particular detention, but to determine whether a detainee poses a continuing threat to U.S. security; clarify that the Secretary of Defense, after considering the results and recommendations of a reviewing panel, is responsible for any final decision to release or transfer a detainee and is not bound by the recommendations; and ensure that appropriate consideration is given to a list of factors, including the likelihood the detainee will resume terrorist activity or rejoin a group engaged in hostilities against the United States; the likelihood of family, tribal, or government rehabilitation or support for the detainee; the likelihood the detainee may be subject to trial by military commission; and any law enforcement interest in the detainee. The Administration had objected to this provision because it said it would shift to the Defense Department the responsibility for what had been a collaborative, interagency review process. The provision was modified in conference to clarify that the procedures apply to "any individual who is detained as an unprivileged enemy belligerent at Guantanamo at any time on or after the date of enactment" of the act. The conference report for the 2012 NDAA explains that the conferees understood that the review process established by the Executive Order is not a legal proceeding and does not create any discovery rights in the detainee, his personal representative, or private counsel. For this reason, the conferees expect the procedures established under this section to provide that: (1) the compilation of information for the review process should be conducted in good faith, but does not create any rights on behalf of the detainee; (2) the mitigating information to be provided to the detainee is information compiled in the course of this good faith compilation effort; (3) the decision whether to permit the calling of witnesses and the presentation of statements by persons other than the detainee is discretionary, and not a matter of right; and (4) access to classified information on the part of private counsel is subject to national security constraints, clearance requirements, and the availability of resources to review and clear relevant information. In a statement issued upon signing the 2012 NDAA into law, President Obama characterized this provision as "needlessly interfere[ing] with the executive branch's processes for reviewing the status of detainees." Section 1024 of the 2012 NDAA, which tracks a provision contained in S. 1867 , 112 th Congress, requires the Secretary of Defense, within 90 days of enactment, to submit a report to congressional defense and intelligence committees explaining the procedures for determining the status of persons detained under the AUMF for purposes of Section 1021 of the Senate bill. It is not clear whether the status determination "for purposes of section 1021" means determination of whether a detained individual is a "covered person" subject to Section 1021, or whether it is meant to refer to the disposition of such a person under the law of war, or to both. In the case of any unprivileged enemy belligerent who will be held in long-term detention, clause (b) of the provision requires the procedures to provide the following elements: (1) A military judge shall preside at proceedings for the determination of status of an unprivileged enemy belligerent. (2) An unprivileged enemy belligerent may, at the election of the belligerent, be represented by military counsel at proceedings for the determination of status of the belligerent. The requirements of this provision apply without regard to the location where the detainee is held. It is not clear what effect this provision would have upon detainees currently held at Guantanamo, who were designated as "enemy combatants" subject to military detention using a status review process that did not fully comply with the requirements of Section 1024(b). The version of Section 1024 reported out of conference modified the provision to explain that the procedures applicable in the case of long-term detention need not apply to persons for whom habeas corpus review is available in federal court, which suggests it does not apply to Guantanamo detainees. According to the explanatory material in the conference report, the Secretary of Defense is authorized to determine what constitutes "long-term detention" as well as the "the extent, if any, to which such procedures will be applied to detainees for whom status determinations have already been made prior to" the date of enactment. The provision does not explain, in the case of new captures, how it is to be determined prior to the status hearing whether a detainee is one who will be held in long-term detention and whose hearing is thus subject to special requirements, but "long-term detention" could be interpreted with reference to law of war principles to refer to enemy belligerents held for the duration of hostilities to prevent their return to combat, a permissible "disposition under the law of war" under Sections 1021 and 1022 of the bill. This reading, however, suggests that the disposition determination is to be made prior to a status determination, which seems counterintuitive, or that a second status determination is required for those designated for long-term detention. Explanatory material in the conference report indicates that the long-term procedures might not be triggered by an initial review after capture, but might be triggered by subsequent reviews, at the discretion of the Secretary of Defense. This remark suggests that both the initial determination that a person may be detained as well as any subsequent process for determining the appropriate disposition of the detainee are meant to be covered, but that the requirement for additional rights for long-term detainees may apply only in limited circumstances. Captured unprivileged enemy belligerents destined for trial by military commission or Article III court, or to be transferred to a foreign country or entity, would not appear to be entitled to be represented by military counsel or to have a military judge preside at their status determination proceedings. The White House expressed disapproval of this provision. Prior to enactment, the Obama Administration claimed that the provision would establish "onerous requirements [and] conflict[] with procedures for detainee reviews in the field that have been developed based on many years of experience by military officers and the Department of Defense." When signing the 2012 NDAA into law, President Obama declared that, "consistent with congressional intent as detailed in the Conference Report," the executive branch would "interpret section 1024 as granting the Secretary of Defense broad discretion to determine what detainee status determinations in Afghanistan are subject to the requirements of this section." Section 1025 contains a modified requirement that originated as Section 1035 in the House bill, which would have required the Secretary of Defense to submit a detailed "national security protocol" pertaining to the communications of each individual detained at Guantanamo within 90 days of enactment. The conference report amended the provision to require a single protocol, to be submitted within 180 days, covering the policy and procedures applicable to all detainees at Guantanamo. The protocol is required to describe an array of limitations or privileges applicable to detainees regarding access to military or civilian legal representation, communications with counsel or any other person, receipt of information, possession of contraband and the like, as well as applicable enforcement measures. The provision specifically requires a description of monitoring procedures for legal materials or communications for the protection of national security while also preserving the detainee's privilege to protect such materials and communications in connection with a military commission trial or habeas proceeding. In President Obama's signing statement for the 2012 NDAA, he characterized this provision as needlessly interfering with executive branch processes for reviewing the status of detainees. While not directly limiting the transfer or release of detainees into the United States, Section 1026 prohibited the use of any funds made available to the Department of Defense for FY2012 to construct or modify any facility in the United States, its territories, or possessions to house an individual detained at Guantanamo for "detention or imprisonment in the custody or under the control of the Department of Defense." Substantially similar restrictions have been contained in subsequent appropriations and authorization legislation, including the 2016 NDAA and the 2016 Omnibus. Section 1027 prohibited the expenditure of DOD funds for FY2012 from being used to transfer or assist in the transfer of detainees from Guantanamo into the United States. It was derived from a much broader restriction in Section 1039 of the House bill, which would have limited the transfer or release into the United States of any non-citizen detainees held abroad in U.S. military custody. Section 1027 is a continuation of transfer restrictions from prior legislation. In response to the Obama Administration's stated plan to close the Guantanamo detention facility and transfer at least some detainees into the United States, Congress has enacted several funding measures in recent years intended to limit executive discretion to transfer or release Guantanamo detainees into the United States. Initially, these measures barred detainees from being released into the United States, but still preserved executive discretion to transfer detainees into the country for purposes of criminal prosecution. However, more recent funding limitations, including those contained in the 2012 Minibus and the 2012 CAA, prohibited the transfer of Guantanamo detainees into the United States for any purpose, including criminal prosecution. This version of the restriction was extended until the end of FY2013 by the 2013 NDAA, through the end of FY2014 by the 2014 NDAA and the 2014 Omnibus, through 2015 by the 2015 NDAA and the 2015 Cromnibus, and through the end of 2016 by the 2016 NDAA and the 2016 Omnibus. The measures appear to have been motivated in part by the Administration's plans to transfer Khalid Sheik Mohammed and several other Guantanamo detainees to the United States to stand trial in an Article III court. As no civilian court operates at Guantanamo, the legislation appears to have effectively made military commissions the only viable forum for the criminal prosecution of Guantanamo detainees, at least until the end of FY2014. During congressional deliberations over H.R. 1540 , as originally passed by the House during the 112 th Congress, the Obama Administration issued a statement expressing opposition to the provision in the bill which barred the transfer of detainees into the United States. While stating its opposition to the release of detainees into the United States, the Obama Administration claimed that the measure would unduly interfere with executive discretion to prosecute detainees in an Article III court located in the United States. According to a White House statement, the restriction on any detainee transfers into the country would be a dangerous and unprecedented challenge to critical Executive branch authority to determine when and where to prosecute detainees, based on the facts and the circumstances of each case and our national security interests. It unnecessarily constrains our Nation's counterterrorism efforts and would undermine our national security, particularly where our Federal courts are the best—or even the only—option for incapacitating dangerous terrorists. The modification in conference to encompass only Guantanamo detainees, as previous legislation had already done, rather than to all detainees in military custody abroad was apparently sufficient to overcome the veto threat. Nonetheless, President Obama stated when signing the 2012 NDAA that he remained opposed to the provision, as it intrudes upon "critical executive branch authority to determine when and where to prosecute Guantanamo detainees." He also asserted that the provision could, "under certain circumstances, violate constitutional separation of powers principles," but did not specify a situation where such a conflict may arise. He further claimed that when Section 1027 would operate in a manner violating separation of powers principle, his Administration would interpret the provision to avoid a constitutional conflict. Section 1028 limited funds made available to DOD for the 2012 fiscal year from being used to transfer or release Guantanamo detainees to foreign countries or entities, except when certain criteria were met. These limitations did not apply in cases where a Guantanamo detainee is transferred or released to effectuate a court order (i.e., when a habeas court finds that a detainee is not subject to detention under the AUMF and orders the government to effectuate his release from custody). The restrictions established by Section 1028 largely mirrored those contained in the 2012 CAA, both of which remained in effect for the duration of the 2012 fiscal year (and which were effectively extended by continuing resolution until March 27, 2013, by the 2013 CAR, and until the end of FY2013 by the 2013 NDAA and the FY2013 Consolidated and Full Year Continuing Appropriations Act ), as well as those restrictions which were contained in the Ike Skelton National Defense Authorization Act for FY2011 (2011 NDAA; P.L. 111-383 ) and the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (2011 CAA; P.L. 112-10 ), which had been set to expire at the end of FY2011. Congressional notification requirements relating to detainee transfers which were subsequently established by the Intelligence Authorization Act for FY2012 ( P.L. 112-87 ) did not modify existing legislative restrictions on transfers from Guantanamo. Restrictions on Guantanamo detainee transfers appear motivated by congressional concern over possible recidivism by persons released from U.S. custody. Supporters of these funding restrictions argue that they significantly reduce the chance that a detainee will reengage in terrorist activity if released, while critics argue that they are overly stringent and hamper the Executive's ability to transfer even low-risk detainees from U.S. custody. In any event, detainee transfers became far more infrequent after the 2011 NDAA and CAA went into effect, though the degree to which these restrictions were responsible for the lack of subsequent detainee transfers is unclear. Under the requirements of Section 1028, in order for a transfer to occur, the Secretary of Defense was required to first certify to Congress that the destination country or entity was not presently a designated state sponsor of terrorism or terrorist organization; maintained control over each detention facility where a transferred detainee may have been housed; was not presently facing a threat likely to substantially affect its ability to control a transferred detainee; agreed to take effective steps to ensure that the transferred person did not pose a future threat to the United States, its citizens, or its allies; agreed to take such steps as the Secretary deemed necessary to prevent the detainee from engaging in terrorism; and agreed to share relevant information with the United States related to the transferred detainee that may affect the security of the United States, its citizens, or its allies. These certification requirements virtually mirror those contained in the 2011 NDAA and CAA. A House provision that would have established an additional requirement that the receiving foreign entity agree to permit U.S. authorities to have access to the transferred individual was not included in the conference report. Section 1028 also generally prohibited transfers from Guantanamo to any foreign country or entity if there was a confirmed case of a detainee previously transferred to that place or entity who has subsequently engaged in any terrorist activity. The prohibition did not apply in the case of detainees who were to be transferred pursuant to either a pretrial agreement in a military commission case, if entered prior to the enactment, or a court order. The certification requirements involving actions agreed to by the receiving country to mitigate the threat and the bar related to recidivism could be waived if the Secretary of Defense determined, with the concurrence of the Secretary of State and in consultation with the Director of National Intelligence, that alternative actions would be taken to address the underlying purpose of the measures, or that, in the event that agreements or actions on the part of the receiving state or entity could not be certified as eliminating all relevant risks, alternative actions would substantially mitigate the risk. In the case of a waiver of the provision barring transfers anywhere recidivism has occurred, the Secretary was permitted to issue a waiver if alternative actions would be taken to mitigate the risk of recidivism. Any transfer pursuant to a waiver was required to first be determined to be in the national security interests of the United States. Not later than 30 days prior to the transfer, copies of the determination and the waiver were required to be submitted to the congressional defense committees, together with a statement of the basis for regarding the transfer as serving national security interests; an explanation why it was not possible to certify that all risks have been eliminated (if applicable); and a summary of the alternative actions contemplated. The transfer restrictions in Section 1028 generally applied to any "individual detained at Guantanamo," other than a U.S. citizen or servicemember; a detainee transferred pursuant to a court order; or a detainee transferred pursuant to a military commission pretrial agreement entered prior to the 2012 NDAA's enactment. This term appeared broad enough in scope to cover foreign refugees brought to the Migrant Operations Center at Guantanamo after being interdicted at sea while attempting to reach U.S. shores. Whether similarly worded provisions in successive legislation would be interpreted so broadly as to cover such persons remains to be seen. The "requirements" of the section also applied to persons subject to mandatory detention under Section 1022, but not to all "covered persons" within the meaning of Section 1021 (who are not detained at Guantanamo). During congressional deliberations over the House and Senate bills competing to become the 2012 NDAA, the White House and DOD expressed disapproval of the transfer certification requirements contained in each bill. In a statement made upon signing the 2012 NDAA into law, President Obama stated that Section 1028 modifies but fundamentally maintains unwarranted restrictions on the executive branch's authority to transfer detainees to a foreign country. This hinders the executive's ability to carry out its military, national security, and foreign relations activities and like section 1027 [concerning detainee transfers into the United States], would, under certain circumstances, violate constitutional separation of powers principles. The executive branch must have the flexibility to act swiftly in conducting negotiations with foreign countries regarding the circumstances of detainee transfers. In the event that the statutory restrictions in sections 1027 and 1028 operate in a manner that violates constitutional separation of powers principles, my Administration will interpret them to avoid the constitutional conflict. As discussed infra , the restrictions imposed on detainee transfers imposed by the 2012 NDAA (and extended by the 2013 NDAA) were somewhat relaxed by the 2014 NDAA, but reinstated in modified form by the 2016 NDAA. Section 1029, which originated as Section 1042 of the House bill and has not appeared in prior legislation, requires consultation among the Attorney General, Deputy Attorney General, or Assistant Attorney General for the Criminal Division, and the Director of National Intelligence and the Secretary of Defense prior to the initiation of any prosecution in certain cases. The original provision applied to the trial of any non-citizen for an offense for which the defendant could be tried by military commission. The version that emerged from conference applies only to persons covered by the mandatory detention requirement in Section 1022 and any other person held in military detention pursuant to authority affirmed by Section 1021. As amended in conference, the consultation requirement does not apply to persons arrested in the United States unless they are non-citizens who meet the criteria for mandatory detention. However, it does seem to apply to any case of a U.S. citizen who may be detained abroad pursuant to the AUMF authority affirmed in Section 1021. The consultation is to involve a discussion of whether the prosecution should take place in a U.S. district court or before a military commission, and whether the individual should be transferred into military custody for purposes of intelligence interviews. The White House expressed opposition to this provision in its original form, claiming that robust interagency coordination already exists between federal agencies in terrorism-related prosecutions, and asserting that the provision "would undermine, rather than enhance, this coordination by requiring institutions to assume unfamiliar roles and could cause delays in taking into custody individuals who pose imminent threats to the nation's safety." When signing the 2012 NDAA into law, President Obama claimed that Section 1029 represents an intrusion into the functions and prerogatives of the Department of Justice and offends the longstanding legal tradition that decisions regarding criminal prosecutions should be vested with the Attorney General free from outside interference. Moreover, section 1029 could impede flexibility and hinder exigent operational judgments in a manner that damages our security. My Administration will interpret and implement section 1029 in a manner that preserves the operational flexibility of our counterterrorism and law enforcement professionals, limits delays in the investigative process, ensures that critical executive branch functions are not inhibited, and preserves the integrity and independence of the Department of Justice. Section 1030 amends the Military Commissions Act of 2009 (MCA) to expressly permit guilty pleas in capital cases brought before military commissions, so long as military commission panel members vote unanimously to approve the sentence. As previously written, the MCA clearly permits the death penalty only in cases where all military commission members present vote to convict and concur in the sentence of death. This requirement had been interpreted by many as precluding the imposition of the death penalty in cases where the accused has pleaded guilty, as there would have been no vote by commission members as to the defendant's guilt. Section 1033 also amends the MCA to address pre-trial agreements, specifically permitting such agreements to allow for a reduction in the maximum sentence, but not to permit a sentence of death to be imposed by a military judge alone. Section 1034 contains several technical amendments to the MCA that were inserted into the Senate version of the FY2012 Act prior to conference. The first change amends 10 U.S.C. Section 949A(b)(2)(c) to provide that the right to representation by counsel attaches at the time at which charges are "sworn" rather than "preferred." Several changes amend the language describing the composition of the Court of Military Commission Review to clarify that the judges on the court need not remain sitting appellate judges on another military appellate court to remain qualified to serve on the Court of Military Commission Review. Another change clarifies that the review authority of the U.S. Court of Appeals for the D.C. Circuit is limited to determinations of matters of law, apparently to resolve ambiguity in 10 U.S.C. Section 950G., which designates the appellate court for the D.C. Circuit as having exclusive jurisdiction to review final military commission judgments and defines the scope and nature of such review. A final change modifies language in the same section describing the deadline for seeking review at the appellate court, apparently in order to clarify an ambiguity which suggested that only the accused (and not the government) could petition for review. The Department of Defense has published guidelines for the implementation of the periodic review process established for Guantanamo detainees via executive order, which was required by Section 1023 of the NDAA, and announced that periodic review boards would soon begin for 71 of the detainees. Those periodic review board proceedings have subsequently commenced. The Executive also submitted a report to congressional committees regarding implementation of the status determination process for wartime detainees required under Section 1024 of the act. Restrictions on Guantanamo detainee transfers contained in the 2012 NDAA and prior and subsequent legislative enactments are widely believed to have constrained executive efforts to transfer detainees to foreign custody. After Congress relaxed the transfer restriction in the 2014 NDAA, the Administration has stepped up the pace of detainee transfers, achieving the placement of a number of detainees in late 2014 to early 2015. Prior to the enactment of the 2012 NDAA, it had been exceedingly rare for U.S. authorities to transfer a suspected terrorist from civilian to military custody. Section 1022 of the act, which generally requires foreign members of Al Qaeda or associated forces to be transferred (at least temporarily) to military custody, was seen by some observers as potentially having a profound impact on existing practice. When signing the 2012 NDAA into law, President Obama expressed opposition to the provision, and stated that his Administration would interpret and implement Section 1022 in a manner "that best preserves the same flexible approach that has served us so well for the past 3 years." He further mentioned the provision's inclusion of authority for the President to waive its transfer requirements when he certified to Congress that it was in the national security interest of the United States to do so. Section 1021 of the 2012 NDAA has continued to draw criticism on the basis that it permits detention without trial of certain individuals, possibly including U.S. citizens and others in the United States. A federal judge enjoined the detention of persons on the basis of providing support to or associating with belligerent parties under one prong of the definition, but the injunction was reversed on appeal due to lack of standing. On February 28, 2012, the White House issued a presidential policy directive describing how it would implement Section 1022 and waiving the mandatory military detention requirement for several categories of persons. The directive reiterates that Section 1022 will be implemented in a manner that enables the Executive to largely preserve existing policies involving the handling of terrorist suspects, and states that the FBI will continue to have "lead responsibility for investigations of terrorist acts or terrorist threats by individuals or groups within the United States, as well as for related intelligence collection activities within the United States." The directive declares that, acting pursuant to the statutory waiver authority provided under Section 1022, the President has waived application of the provision's military transfer requirements when a person in U.S. custody is a lawful permanent resident alien (i.e., green-card holder) who is arrested in the United States on the basis of conduct occurring inside the country; a person has been arrested by a federal agency in the United States on charges other than terrorism, unless he is subsequently charged with a terrorism offense and held in federal custody on such charges; a person is arrested by state or local law enforcement, pursuant to state or local authority, and is thereafter transferred to federal custody; placing a foreign country's nationals or residents in U.S. military detention would impede counterterrorism cooperation, including on matters related to intelligence-sharing or assistance in the investigation or prosecution of suspected terrorists; a foreign government indicates that it will not extradite or otherwise transfer a person to the United States if he would be placed in military custody; transferring a person to military custody could interfere with efforts to secure the person's cooperation or confession; or transferring a person to military custody could interfere with efforts to jointly prosecute the individual with others who are either not subject to military custody or whose prosecution in a federal or state court had already been determined to proceed. Some of these waivers apply to relatively definitive categories of individuals, such as the waiver covering legal permanent residents who have been arrested for domestic activities and the waiver applying to persons originally in state or local custody. The applicability of other waivers may depend upon more individualized determinations, including the impact that a person's military transfer would have upon ongoing law enforcement activities or foreign relations. The directive then establishes procedures for determining whether a person coming into U.S. custody must be transferred to military detention as a "covered person" under Section 1022, which requires at least temporary detention of any non-citizen whose detention is authorized by the AUMF who is determined to be part of Al Qaeda or an associated force and to have participated in the planning or carrying out of an actual or attempted attack against the United States or its coalition partners. The procedures established by the directive do not apply when a suspect is initially taken into custody by DOD; in such circumstances, the relevant requirements of Section 1022 are interpreted as having "been satisfied … regardless of the authorities under which the individual is captured, detained, or otherwise taken into custody." The directive also interprets Section 1022 as being inapplicable to individuals while they are in the custody of state or local authorities or a foreign government. If a waiver applies, there is no need to make a final determination as to whether an individual is a "covered person" under Section 1022. Before an individual may be transferred from a federal agency to military custody, the directive mandates that a multi-level review process must first occur. When a person is initially taken into federal law enforcement custody, and there is probable cause to believe the individual is a "covered person" under Section 1022, the arresting agency is required to notify the Attorney General. The Attorney General then makes a separate determination as to whether there is sufficient information to conclude that probable cause exists to believe that Section 1022 applies to the arrestee and that he is not exempted from the provision's application by waiver. If probable cause is found to be absent or an existing national security waiver is deemed applicable, no further action is necessary. Otherwise, the Attorney General, in coordination with senior national security officials, undertakes a closer review to determine whether Section 1022 applies to the arrestee. If the Attorney General finds that there is clear and convincing evidence that the individual falls under the auspices of Section 1022 (a higher evidentiary standard than employed by the government when assessing whether someone may be detained as an enemy belligerent under the AUMF ) and no waiver applies, a final determination may then be made that the person is a "covered individual" with the concurrence of the Secretary of State, Secretary of Defense, Secretary of Homeland Security, and Director of National Intelligence. The directive also delegates authority to the Attorney General to waive Section 1022 "on an individual, case-by-case basis" in the event that none of the blanket waivers applies. Such a waiver must be consistent with the statutory requirement that it be in the national security interest of the United States. A waiver can be issued without a final determination that an individual is a "covered person" under Section 1022. The directive lists several factors that the Attorney General is to take into account when determining whether such a waiver is warranted, including, inter alia , the legal and evidentiary strength of any criminal charges that may be brought against the person; the impact on intelligence collection which results from maintaining the person in law enforcement custody; "the risk associated with litigation concerning the legal authority to detain the individual pursuant to the 2001 AUMF"; and whether the prosecution of the individual in federal, state, or foreign court will otherwise best protect U.S. national security interests. Even assuming that a person is determined to be covered by Section 1022 and that no waiver will issue, his transfer to military custody may not be immediate. The directive specifies that, in the event that a person is determined to be covered by Section 1022, the federal law enforcement agency that took the arrestee into custody shall, in consultation with the Attorney General and Secretary of Defense, take steps to ensure that the transfer does not result in the interruption of an interrogation or compromise a national security investigation. The directive also provides that In no event may a Covered Person arrested in the United States or taken into custody … [by a federal law enforcement agency] be transferred to military custody unless and until the Director of the FBI or his designee has determined such a transfer will not interrupt any ongoing interrogation, compromise any national security investigation, or interrupt any ongoing surveillance or intelligence gathering with regard to persons not already in the custody or control of the United States…. For these purposes, and to ensure that vital intelligence is not lost, an "interrogation" is not limited to a single interview session and extends until the interrogating agency or agencies determine that all necessary intelligence gathering efforts have been exhausted. The 2012 NDAA permits the President to waive Section 1022's military transfer requirements only when "such a waiver is in the national security interests of the United States." Some observers have questioned whether all of the waivers issued or authorized under the directive are consistent with this statutory requirement. In any event, significant procedural barriers—including standing and political question concerns—may impede a legal suit challenging the propriety of a waiver, making judicial settlement of the matter appear unlikely. If Members of Congress disagree with the President's implementation of Section 1022, further legislative action may be considered. The directive also provides that it is not intended to create any right or benefit enforceable by any party against the United States. The directive also asserts that a determination that clear and convincing evidence is lacking to subject a person to mandatory military detention is "without prejudice to the question of whether the individual may be subject to detention under the 2001 AUMF, as informed by the laws of war, and affirmed by Section 1021 of the NDAA." Presumably, this is in part because the evidentiary standard employed by the Executive for assessing whether a person is subject to mandatory military detention under Section 1022 is heavier than the standard used by the Executive when determining whether someone may be held as an enemy belligerent under the AUMF. The House version of the 2013 NDAA, H.R. 4310 , was passed in May 2012. The Senate passed its version, S. 3254 , as a substitute for the House bill on December 4, 2012. The House bill contained a number of restrictions on detainee transfers and requirements to submit detailed reports on such matters. The Senate bill contained extensions of certain restrictions from the 2012 NDAA. The bills addressed the issue of detention of U.S. persons inside the United States in different ways. The Obama Administration had threatened to veto both bills due to the restrictions on detainee transfers from Guantanamo, among other provisions. The House and Senate met in conference to resolve differences between the competing bills, with the result that the detainee measures from the House version were largely adopted. The version of the 2013 NDAA that was reported from conference was subsequently approved by the House and Senate, and was presented to the President on December 30, 2012. The 2013 NDAA became law on January 2, 2013 ( P.L. 112-239 ). The following paragraphs describe the act's provisions concerning wartime detention. Military trials for foreign terrorist suspects. The conference committee eliminated a provision adopted during House consideration of H.R. 4310 that would have required that a foreign national who "engages or has engaged in conduct constituting an offense relating to a terrorist attack" on a U.S. target, and who is subject to trial for the offense before a military commission, must be charged before a military commission rather than in federal court. An identical provision was found in the version of the 2012 NDAA originally passed by the House, but it was excised from the enacted version. Detainee transfers from Guantanamo. Many provisions in the 2012 NDAA affecting detainees at Guantanamo were scheduled to expire at the end of the fiscal year (though similar restrictions concerning the transfer of Guantanamo detainees are found in appropriations enactments in effect beyond that date). The 2013 NDAA effectively extends several of these provisions in the 2012 NDAA through FY2013, including the blanket funding bar on the transfer of Guantanamo detainees into the country (§1027); the prohibition on using funds to construct or modify facilities to house these detainees in the United States (§1026); and certification requirements and restrictions on the transfer of Guantanamo detainees to foreign countries (§1028). These three provisions were found in the versions of the bill passed by both the House and Senate. A provision from the House bill that was not retained in the enacted version of the 2013 NDAA would have barred any Guantanamo detainee who is "repatriated" to the former U.S. territories of Palau, Micronesia, or the Marshall Islands from traveling to the United States. Detainees held elsewhere abroad. The 2013 NDAA establishes new certification and congressional notification requirements relating to the transfer or release of non-U.S. or non-Afghan nationals held at the detention facility in Parwan, Afghanistan. The 2013 NDAA also establishes reporting requirements relating to recidivism by former detainees in Afghanistan. Specifically, it requires a report to be filed within 120 days describing the "estimated recidivism rates and the factors that appear to contribute to the recidivism of individuals formerly detained at the Detention Facility at Parwan, Afghanistan, who were transferred or released, including the estimated total number of individuals who have been recaptured on one or more occasion." This is similar to Section 1042 of the House-passed bill, which had no analogous provision in the Senate version. The enacted version of the 2013 NDAA also retained a provision to require the Secretary of Defense to submit a report regarding the use of naval vessels to detain persons pursuant to the AUMF, and require congressional notification whenever such detention occurs. This provision is presumably a response to the situation in 2011 when a Somali national was reportedly detained on a U.S. vessel for two months and interrogated by military and intelligence personnel before being brought into the United States to face criminal trial. Detention of persons in the United States. Despite the President's assurances that the Administration would not indefinitely detain Americans in the United States pursuant to the detention authorization in the 2012 NDAA, that provision has continued to draw criticism from some. The Senate adopted a measure that would have clarified that authorizations to use force are not to be construed to permit detention of U.S. citizens or lawful permanent residents in the United States unless Congress passes a law expressly authorizing such detention. This measure was eliminated from the bill reported out of conference. An amendment to remove military detention as an optional "disposition under the law of war" for persons in the United States was proposed during floor debates in the House, but failed to garner sufficient votes for adoption. Instead, Section 1029 of the enacted version of the 2013 NDAA adopts a modified version of the House provision on habeas corpus rights. It provides that nothing in the AUMF or 2012 NDAA is to be construed as denying "the availability of the writ of habeas corpus" or denying "any Constitutional rights in a court ordained or established by or under Article III of the Constitution" with respect to persons who are inside the United States who would be "entitled to the availability of such writ or to such rights in the absence of such laws." The original provision from the House-passed bill, as amended on the floor, would have covered only persons who are lawfully present in the United States when detained pursuant to the AUMF. Under the floor amendment, the provision would also have required the President to notify Congress within 48 hours of the detention of such a person, and established a requirement that such persons be permitted to file for habeas corpus "not later than 30 days after the person is placed in military custody." The 2013 NDAA does not contain substantive clarification of which U.S. persons are lawfully subject to detention under the AUMF. Sections from the House bill setting forth congressional findings with respect to detention authority under the AUMF and 2012 NDAA and with respect to habeas corpus were omitted from the final version. Consequently, ambiguity with respect to who can be lawfully detained in the United States appears to have been preserved, but the enacted version of the 2013 NDAA provides reassurance that access to a court to petition for habeas corpus will remain available to those who are detained in the United States pursuant to the AUMF. The House of Representatives passed a version of the National Defense Authorization Act for FY2014, H.R. 1960 , 113 th Congress, on June 14, 2013. The Senate Armed Services Committee ordered its version of the 2014 NDAA, S. 1197 , 113 th Congress, to be favorably reported out of committee on June 20, 2013. On December 9, 2013, leaders on the House and Senate Armed Services Committees announced an agreement on a new defense authorization bill for FY2014, H.R. 3304 , which was intended to resolve some of the key differences between the earlier House and Senate proposals. One of those differences had been the bills' approaches to enemy belligerents housed at Guantanamo. House-passed H.R. 1960 would have preserved (and in some ways strengthened) the existing limitations on the transfer of Guantanamo detainees to the United States or to the custody of foreign governments. In contrast, S. 1197 would have relaxed restrictions on transfers to foreign countries, and would have permitted detainees to be brought to the United States for continued detention and possible trial. H.R. 3304 represented a compromise between these approaches—extending the existing blanket prohibition on transferring Guantanamo detainees to the United States through the end of 2014, but allowing the Executive greater flexibility in determining whether to transfer detainees to foreign custody. H.R. 3304 was thereafter passed by Congress and presented to the President, and the bill became law on December 26, 2013, P.L. 113-66 . The enacted version of the 2014 NDAA contains provisions addressing the following detention matters: Transfer of Guantanamo detainees to the United States. Like the version of the 2014 NDAA initially passed by the House, the enacted version of the 2014 NDAA contained an absolute bar on the transfer of Guantanamo detainees into the United States for any purpose, and also prohibited the building or modifying of facilities in the United States to house such detainees. Both prohibitions expired at the end of 2014. Similar to House-passed H.R. 1960 , the enacted version of the 2014 NDAA required a report to be submitted to Congress concerning the legal rights that might attach to detainees if they are transferred to the United States. Transfer of Guantanamo detainees to foreign countries. In previous years, appropriations and defense authorization enactments permitted Guantanamo detainees to be transferred to foreign countries only when the Executive certified to Congress that stringent criteria have been satisfied. The 2014 NDAA relaxed these restrictions in a manner closely resembling that found in S. 1197 . Section 1035 of the 2014 NDAA established permanent restrictions on detainee transfers. It permitted detainee transfers under two specified circumstances: (1) when a detainee has been ordered released by a competent U.S. court or the detainee has been assessed by a Periodic Review Board as no longer posing a threat to the United States; or (2) the Secretary of Defense determines that the transfer is in the U.S. national security interest and that actions have been or will be taken to substantially mitigate the risk of recidivism. The provision required the Secretary to consider several factors in making such determinations, but did not require written certification to Congress that identified goals had been achieved as a prerequisite to executing a transfer. The Secretary was required, however, to provide the relevant congressional committee with notice at least 30 days in advance before transferring a Guantanamo detainee to a foreign country. The executive branch's non-compliance with this notification requirement when effectuating the transfer of five Taliban members from Guantanamo in exchange for the release of U.S. Sergeant Bowe Bergdahl likely had some repercussions in later congressional deliberations upon the nature of statutory restrictions on detainee transfers. Like House-passed H.R. 1960 , the final version of the 2014 NDAA required the Executive to report to Congress regarding the capability of Yemen to detain, rehabilitate, or prosecute detainees who might be transferred there. Unlike the earlier House bill, however, the enacted legislation did not statutorily bar the transfer of any detainee to Yemen through 2014. Parwan detainees. Like the original House version, the enacted 2014 NDAA required that the Executive provide information regarding persons held by U.S. forces at the detention facility in Parwan, Afghanistan, who had been deemed to constitute an enduring threat to the United States. But whereas the original House proposal would have required an unclassified summary to be made publicly available, the enacted version instead required DOD to submit a classified report to the Armed Forces Committees and for it to assess whether any information contained in the report may be made public. Military commissions. Like the initial House and Senate proposals, the enacted version of the 2014 NDAA clarifies procedures for the use of alternate members on military commissions employed to try some detainees for war crimes. The 2014 NDAA also includes a provision similar to one found in House-passed H.R. 1960 requiring that the chief defense counsel in military commissions have the same rank as the chief prosecutor. However, the enacted version allows this requirement to be waived in some circumstances (and followed by a report to Congress), and additionally instructs DOD to issue guidance for the equitable allocation of resources and support to the prosecution and defense in military commission proceedings. Detention of persons in the United States. As result of a floor amendment, the initial House-passed bill contained a provision similar to that in the 2013 NDAA which stated that those apprehended pursuant to the AUMF in the United States were not barred from seeking habeas relief, except that this provision would have applied only to U.S. citizens (§1040B(a)). The section further provided that in cases where U.S. citizens apprehended within the United States petition for habeas corpus, the "government shall have the burden of proving by clear and convincing evidence that such citizen is an unprivileged enemy belligerent and there shall be no presumption that any evidence presented by the government as justification for the apprehension and subsequent detention is accurate and authentic" (§1040B(b)). This evidentiary standard appears to be higher than that which the courts of the D.C. Circuit have applied to cases involving Guantanamo detainees. In those cases, the government need only prove detention is lawful by a preponderance of the evidence, and there is a presumption that official government records submitted as evidence are authentic. The provision was not included in the final enactment, which does not expressly address the detention of persons in the United States. As part of its consideration of defense authorization bills for the 2015 fiscal year, Congress once again considered U.S. wartime detention policy in the conflict with Al Qaeda, particularly as it relates to the detention of suspected enemy belligerents at the Guantanamo detention facility. The House passed its version of the 2015 National Defense Authorization Act (2015 NDAA), H.R. 4435 , 113 th Congress, on May 22, 2014. It provided for the extension of existing limitations on the transfer of Guantanamo detainees to the United States through 2015, and did not alter those permanent laws governing the transfer of detainees to the custody of foreign governments. In contrast, the version of the 2015 NDAA reported out of the Senate Armed Services Committee, S. 2410 , 113 th Congress, would have significantly altered existing restrictions on the transfer of Guantanamo detainees into the United States, and would have potentially enabled the Executive to transfer most of the current detainee population into the country for continued detention or trial. S. 2410 , as reported, would also have modified current law by barring the transfer of detainees to Yemen for the duration of 2015. The Senate did not take up S. 2410 . Instead, House and Senate negotiators drafted a compromise version of the 2015 NDAA, H.R. 3979 , which was enacted into law on December 19, 2014. As enacted, the 2015 NDAA extended the prohibitions on the use of funds to transfer detainees to the United States or to construct or modify facilities to house detainees in the United States until December 31, 2015. It also continued the restrictions on transferring detainees to other countries enacted as part of the 2014 NDAA. Shortly after H.R. 4435 was passed by the House and S. 2410 was ordered reported by the Senate Armed Services Committee, the United States transferred five Taliban detainees from Guantanamo to Qatar as part of an exchange to effectuate the release of U.S. Army Sergeant Bowe Bergdahl, who had been held captive by Taliban-affiliated forces for several years. In completing this prisoner exchange, the Executive did not comply with notification requirements contained in Section 1035 of the 2014 NDAA, which required it to notify Congress at least 30 days before a detainee transfer occurs. The Executive asserted that Section 1035 should not be interpreted to apply to the exchange, as it would have interfered with the President's attempt to rescue a U.S. soldier and potentially raise constitutional concerns. In enacting the 2015 NDAA, Congress did not modify the transfer or congressional notification requirements contained in Section 1035 of the 2014 NDAA. Accordingly, it seems possible that the Executive may continue to maintain that current law does not require prior congressional notification before a Guantanamo detainee is transferred in all circumstances. The House passed its version of the 2016 National Defense Authorization Act (2016 NDAA), H.R. 1735 , on May 15, 2015. After rejecting a floor amendment that would have eased transfer restrictions after the Administration's submission of a detailed plan to close the Guantanamo detention facility, the House voted to clamp down on detainee transfers, prohibiting them altogether in certain circumstances. The bill added new elements to reports on detainee recidivism, and contained new requirements for the receipt of a set of unredacted correspondence and documents related to the Bergdahl-Taliban Five swap, limiting expenditures by the Office of the Secretary of Defense until their submission was accomplished. The bill also added some new restrictions, altogether prohibiting detainee transfers to Yemen for two years, as well as the transfer or release of detainees to areas designated as combat zones for servicemember tax exemption purposes. The Administration objected to the Guantanamo provisions and threatened to recommend a presidential veto if Congress were to approve them. The Senate Armed Services Committee reported favorably on its version of the 2016 NDAA, S. 1376 , on May 19, 2015 ( S.Rept. 114-49 ). Like H.R. 1735 , it would have continued the ban on transferring detainees into the United States (but with an exception for emergency medical treatment) or building or modifying facilities within the United States to incarcerate them. It would have reinstated the transfer restrictions and certification requirements that applied prior to the 2014 NDAA for transferring detainees to foreign countries or entities, including countries that have experienced confirmed cases of former detainees engaging in terrorist activities, subject to national security waiver. However, these transfer restrictions would relax somewhat upon congressional approval, by means of a privileged joint resolution, of a detailed DOD plan to close the Guantanamo detention facility. The Senate passed its version of the 2016 NDAA June 18, 2015, keeping detainee provisions intact except for the addition of a provision "reaffirm[ing] the prohibition on torture." The bill that emerged from conference largely adopted the House approach to regulating the transfer of detainees from Guantanamo to destinations abroad and prohibiting their transfer to the United States. The Senate requirement for a comprehensive plan for the disposition of Guantanamo detainees remained in the final bill, expanded to include future law of war detainees wherever detained, but the provision for a privileged joint resolution that would result in a relaxation of transfer restrictions was omitted. The House demand for documents related to the Bergdahl-Taliban Five swap was eliminated after a deal with the DOD was reached to resolve the issue. The anti-torture amendment was retained, albeit recaptioned as a "limitation on interrogation techniques." President Obama vetoed H.R. 1735 based on the use of Overseas Contingency Operations funding to bypass sequestration requirements, but the President's veto message also objected to the Guantanamo detainee provisions. The President reiterated his view that the closure of the detention facility is imperative for national security reasons and declared that the executive branch requires flexibility in determining the disposition of detainees, but did not assert that the transfer restrictions amounted to an unconstitutional intrusion into Article II authority. Congress passed a new 2016 NDAA ( S. 1356 ) containing identical detainee provisions, which became law November 25, 2015 ( P.L. 114-92 ). The 2016 NDAA addresses the following matters involving Guantanamo detainees: Transfer p rohibitions . As enacted, the 2016 NDAA prohibits the use of DOD funds to transfer detainees from Guantanamo Bay to the United States or its territories until December 31, 2016 (§1031); continues the prohibition on using DOD funds to modify or construct facilities in the United States to house detainees (§1032); and imposes a complete ban through December 31, 2016 on transferring detainees to Yemen, Syria, Somalia, and Libya (§1033). Transfer of Guantanamo detainees to foreign countries. The 2016 NDAA repeals Section 1035 of the 2014 NDAA and reverts to the previous set of restrictions on detainee transfers to foreign countries (§1034), including the 30-day congressional notification requirement, but with some modifications to the requisite certification that applies to detainees who have not been ordered released by a court. The certification requirement is no longer subject to a national security waiver, and requires the Secretary to certify that (1) the transfer concerned is in the national security interests of the United States; (2) the government of the foreign country or the recognized leadership of the foreign entity to which the individual detained at Guantanamo concerned is to be transferred— (A) is not a designated state sponsor of terrorism or a designated foreign terrorist organization; (B) maintains control over each detention facility in which the individual is to be detained if the individual is to be housed in a detention facility; (C) has taken or agreed to take appropriate steps to substantially mitigate any risk the individual could attempt to reengage in terrorist activity or otherwise threaten the United States or its allies or interests; and (D) has agreed to share with the United States any information that is related to the individual. The transfer to a country that has experienced a case of detainee recidivism is subject to further certification that (1) the Secretary has taken this factor into consideration; and (2) planned actions will substantially mitigate the risks. The certification must include an intelligence assessment "of the capacity, willingness, and past practices (if applicable) of the foreign country or foreign entity concerned in relation to the certification of the Secretary under this subsection," which may be classified. A detailed report must also be submitted explaining why the transfer is in the interest of the United States; a description of mitigating actions to be taken and an assessment of the host country's capacity to comply with any agreements; and findings of the Guantanamo Task Force or Periodic Review Board with respect to the detainee, among other things. Comprehensive detention strategy . Section 1035 requires the Secretary of Defense to submit a comprehensive plan for the detention of current and future individuals captured and held under AUMF authority pending the end of hostilities, including the following: the specific facility or facilities to be used to hold individuals for the purpose of trial and incarceration after conviction or law of war detention and interrogation; estimated costs associated with Guantanamo detainees' detention inside the United States; a plan for the disposition of transferred detainees if the law of war authority for detention were to expire and an assessment of precautions that might mitigate implications to the national security interests of the United States; a plan for the disposition of individuals held under AUMF authority at Guantanamo; a plan for the disposition of future detainees held under AUMF authority; and an explanation of any additional authorities that may be necessary to hold a detainee as an unprivileged enemy belligerent pursuant to the AUMF pending the end of hostilities or a future determination that the individual no longer requires detention. Reporting requirements. The 2016 NDAA includes a series of new reporting requirements. The Secretary of Defense is required to submit, within 60 days after enactment, a report identifying and assessing Guantanamo detainees who have ever been determined to be a high-risk or medium-risk threat to the United States, its interests, or its allies (§1037). Another report, due within 180 days of enactment, is required to set forth the terms of any agreement signed with receiving countries concerning detainees, or a statement that there is no such written agreement with an explanation of applicable assurances and arrangements (§1040). The report required by Section 319(c) of the Supplemental Appropriations Act, 2009 ( P.L. 111-32 ) now includes (1) a summary of all known contact between former detainees and any others known or suspected of having associations with terrorist groups that either involves the planning for or conduct of hostilities against the United States or its allies, or contains information about the organizational, logistical, or resource needs of any terrorist group or activity (§1038); and (2) information about the date a case of recidivism is confirmed and a computation of the average time between release date and the date it is confirmed that the individual has reengaged or is suspected of reengaging in terrorism (§1039). Finally, six months after enactment, the Secretary of Defense, in consultation with the DNI, is required to report on the use of the Guantanamo detention facility and any other prison or detention center as a propaganda or recruitment tool by terrorist organizations (§1041). Limitation on interrogation techniques . Section 1045 requires that any interrogation carried out on an individual in U.S. custody in a U.S. government facility, in any armed conflict, must be carried out in accordance with Army Field Manual 2-22.3 Human Intelligence Collector Operations or any successor field manual. The approved techniques, approaches, and treatments in Army Field Manual 2-22.3 are to be implemented "strictly in accord with the principles, processes, conditions, and limitations" prescribed therein. Agencies other than DOD are to adopt substantially equivalent procedures where the field manual requirements are inapposite to that agency. However, the limitations do not apply to the FBI, the Department of Homeland Security, or other federal law enforcement entities. The Secretary of Defense is required, in consultation with the Attorney General, the Director of the FBI, and the DNI, to conduct a review and update of the Army Field Manual to ensure it complies with the legal obligations of the United States and does not involve the use or threat of force. The filed manual is to remain available to the public. The High Value Detainee Interrogation Group is required to submit, within 120 days after enactment, a report on best practices for interrogation that do not involve the use of force. The report is to be submitted to the Secretary of Defense, the DNI, the Attorney General, and other appropriate officials, and is to be made available to the public. Finally, Section 1045(b) addresses the responsibility to notify the International Committee of the Red Cross (ICRC) about individuals detained in any armed conflict and to provide prompt access to such detainees. The requirement applies to heads of all departments and agencies of the U.S. government with respect to persons detained in any armed conflict in the custody or under the effective control of any officer, employee, contractor, subcontractor, or other agent in any facility owned, operated, or effectively controlled by any U.S. government department, agency, contractor, or subcontractor. On February 23, President Obama announced the release of the Department of Defense (DOD) plan to close the Guantanamo Bay prison facility. The document reiterates current procedures for transferring detainees to their home countries or other countries abroad, but also promises to "work with Congress to relocate [certain detainees] from the Guantanamo Bay detention facility to a secure detention facility in the United States, while continuing to identify other non-U.S. dispositions." The plan does not specify a particular location within the United States where detainees would be housed (although it states 13 possible sites have been identified), but emphasizes the Attorney General's 2014 conclusion that relocation to the United States would not risk ascribing to transferees additional rights under the U.S. Constitution or immigration laws. (This analysis, required by Section 1039 of the National Defense Authorization Act for FY2014, is attached as an appendix to the plan). Predicting that the closure of the detention facility will save between $140 million and $180 million over FY2015 operating costs, the plan lays out how the Administration hopes to resolve the disposition of the 91 detainees remaining at Guantanamo Bay. The U.S. government, it says, is pursuing three lines of effort: identifying transfer opportunities for detainees designated for transfer; continuing to review the threat posed by those detainees who are not currently eligible for transfer and who are not currently facing military commission charges; and continuing with ongoing military commissions prosecutions and, for those detainees who remain designated for continued law of war detention, identifying individualized dispositions where available, including military commission prosecution, transfer to third countries, foreign prosecutions or, should Congress lift the ban on transfers to the United States, transfer to the United States for prosecution in Article III courts and to serve sentences. The Administration predicts that a "limited number" of detainees will not be suitable candidates for transfer or prosecution, and hopes to persuade Congress to permit their continued detention somewhere within the continental United States. Of the 91 detainees remaining at the Guantanamo detention facility, 35 have been determined to be eligible for transfer; 29 of these are Yemeni nationals; 7 non-eligible detainees are in the pretrial phase of military commissions proceedings; 2 have pleaded guilty and are awaiting sentencing; and 22 other non-eligible detainees were initially referred by the Guantanamo Review Task Force for prosecution and might yet be prosecuted either by military commission or, in the event transfer prohibitions are lifted, in an Article III court. The report suggests that 30-60 detainees will fall into the category requiring continued detention pursuant to the AUMF. The plan has come under criticism from some Members, primarily because it failed to identify a specific location in the United States considered most suitable for securing detainees transferred to the United States. The executive branch reportedly avoided such an assessment out of concern that it would violate statutory provisions prohibiting the modification or construction of facilities within the United States for that purpose. The Administration has stated that it recognizes that the plan calls for further action by Congress, and has not claimed that the President has independent authority under the Constitution to carry it out unilaterally, but some are calling for the executive branch to disavow explicitly any intent to close Guantanamo in violation of statutory prohibitions. The Senate Armed Services Committee will likely hold hearings to review the plan. | In recent years, Congress has included provisions in annual defense authorization bills addressing issues related to detainees at the U.S. Naval Station at Guantanamo Bay, Cuba, and, more broadly, the disposition of persons captured in the course of hostilities against Al Qaeda and associated forces. The National Defense Authorization Act for FY2012 (2012 NDAA; P.L. 112-81) arguably constituted the most significant legislation informing wartime detention policy since the 2001 Authorization for the Use of Military Force (AUMF; P.L. 107-40), which serves as the primary legal authority for U.S. operations against Al Qaeda and associated forces. Much of the debate surrounding passage of the 2012 NDAA centered on what appeared to be an effort to confirm or, as some observers view it, expand the detention authority that Congress implicitly granted the President via the AUMF in the aftermath of the terrorist attacks of September 11, 2001. But the 2012 NDAA addressed other issues as well, including the continued detention of persons at Guantanamo. Both the 2013 NDAA (P.L. 112-239) and the 2014 NDAA (P.L. 113-66) also contain subtitles addressing U.S. detention policy, though neither act addresses detention matters as comprehensively as did the 2012 NDAA. The 2015 NDAA (P.L. 113-291) and the Consolidated and Further Continuing Appropriations Act, 2015 (2015 Cromnibus; P.L. 113-235), essentially maintain the status quo. The 2016 NDAA (P.L. 114-92) likewise addressed detention. The 2012 NDAA authorizes the detention of certain categories of persons and requires the military detention of a subset of them (subject to waiver); regulates status determinations for persons held pursuant to the AUMF; regulates periodic review proceedings concerning Guantanamo detainees; and continued funding restrictions on Guantanamo detainee transfers. During floor debate, significant attention centered on the extent to which the bill and existing law permit the military detention of U.S. citizens believed to be enemy belligerents, especially if arrested within the United States. The act clarified that its affirmation of detention authority under the AUMF is not intended to affect existing authorities relating to the detention of U.S. citizens or lawful resident aliens, or any other persons arrested in the United States. When signing the 2012 NDAA into law, President Obama stated that he would "not authorize the indefinite military detention without trial of American citizens." The 2012 NDAA and subsequent defense authorization enactments also included provisions concerning the transfer or release of detainees currently held at Guantanamo. Subsequent NDAAs have extended the prohibition on the release of detainees into the United States for any purpose, as well as restrictions upon the transfer of such Guantanamo detainees to foreign countries. The 2014 NDAA extended the blanket prohibition on transferring Guantanamo detainees to the United States, but allowed the Executive greater flexibility in determining whether to transfer detainees to foreign custody. Both policies continued in the 2015 NDAA and the 2015 Cromnibus, and the Obama Administration stepped up the transfer of detainees to foreign countries. The 2016 NDAA, however, reenacted and modified earlier restrictions and imposed some new transfer restrictions. This report offers a brief background of the salient issues raised by the detainee provisions of the FY2012 NDAA, provides a section-by-section analysis, and discusses executive interpretation and implementation of the act's mandatory military detention provision. It also addresses detainee provisions in subsequent defense authorization legislation. An earlier version of this report was entitled The National Defense Authorization Act for FY2012 and Beyond: Detainee Matters. |
Conflict of interest regulations and restrictions on certain private employment opportunities for a federal officer or employee do not necessarily end with the termination of the officer's or employee's federal service. This report is intended to provide a brief history and description of the provisions of federal law restricting employment opportunities and activities of federal employees after they leave the service of the executive or legislative branches of the federal government. The conflict of interest provisions applicable after one leaves government service to enter private employment are often referred to as "revolving door" laws. Post-employment, "revolving door" statutes restricting certain subsequent private employment activities of former federal officers and employees were enacted as early as 1872, and again in 1944. A portion of the current statutory provision, at 18 U.S.C. Section 207, was enacted in 1962 as part of a major revision and recodification of the federal bribery and conflict of interest laws. That post-employment conflict of interest law was then amended and broadened by the Ethics in Government Act of 1978, which added certain one-year "cooling-off" periods for high-level executive branch personnel, limiting their post-employment advocacy activities before the federal government for one year after leaving office. After President Reagan vetoed a major congressional revision of the post-employment law which had been passed by Congress in 1988, Congress adopted as part of the Ethics Reform Act of 1989 most of the changes in the vetoed legislation. The statute has been amended several times since 1989, including extensive technical amendments in 1990. In 2007, as part of legislation dealing with lobbying laws and internal congressional rules on gifts, changes were made to the revolving door statute increasing the one-year "cooling off" period for "very senior" executive officials and for U.S. Senators to two years, and broadening the one-year "cooling off" restrictions for covered senior Senate staff. One of the initial and earliest purposes of enacting the "revolving door" laws was to protect the government against the use of proprietary information by former employees who might use that information on behalf of a private party in an adversarial type of proceeding or matter against the government, to the potential detriment of the public interest. As noted by the United States Court of Appeals in upholding the constitutionality of the "switching sides" prohibition of 18 U.S.C. Section 207(a), "the purpose of protecting the government, which can act only through agents, from the use against it by former agents of information gained in the course of their agency, is clearly a proper one." Another interest of the government in revolving door restrictions was to limit the potential influence and allure that a lucrative private arrangement, or the prospect of such an arrangement, may have on a current federal official when dealing with prospective private clients or future employers while still with the government, that is, "that the government employee not be influenced in the performance of public duties by the thought of later reaping a benefit from a private individual." In a case dealing with another federal statute which relates in part to potential future private employment of a current federal official, the court noted that the statutory scheme was intended to deal with the "nagging and persistent conflicting interests of the government official who has his eye cocked toward subsequent private employment." Additional interests asserted in the proposed amendments to 18 U.S.C. Section 207 in the 99 th and 100 th Congresses were to prevent the corrupting influence on the governmental processes of both legislating and administering the law that may occur, and the appearances of such influences, when a federal official leaves his government post to "cash in" on his "inside" knowledge and personal influence with those persons remaining in the government. As noted in the post-employment regulations promulgated under the statute by the Office of Government Ethics, the provisions of the law and regulation are directed at prohibiting "certain acts by former Government employees which may reasonably give the appearance of making unfair use of prior Government employment and affiliations" These purposes in adopting limitations on former employees' private employment opportunities must, however, also be balanced against the deterrent effect that overly restrictive provisions on career movement and advancement will have upon recruiting qualified and competent persons to government service. Furthermore, unduly restrictive provisions on the "revolving door" (that is, movement of government personnel into the private sector, and private sector employees into the government) may tend to isolate, or at least insulate government employees from private sector concerns, considerations, and experiences of the general public to a degree not desirable for public policy reasons. A criminal statute, codified at 18 U.S.C. Section 207, applies in some respects to all employees in the executive branch after they leave government service. It restricts or regulates private "representational," lobbying, and other advocacy type activities. Some parts of the statute also apply to legislative branch officials, and those are discussed in more detail later in this report in the part dealing with legislative branch restrictions. Section 207 of title 18 provides a series of post-employment restrictions on "representational" activities for executive branch personnel when they leave government service, including (1) a lifetime ban on "switching sides" on a matter involving specific parties on which any executive branch employee had worked personally and substantially while with the government; (2) a two-year ban on "switching sides" on a somewhat broader range of matters which were under the employee's official responsibility; (3) a one-year restriction on assisting others on certain trade or treaty negotiations; (4) a one-year "cooling off" period for certain "senior" officials barring representational communications before their former departments or agencies; (5) a two-year "cooling" period for "very senior" officials barring representational communications to and attempts to influence certain other high ranking officials in the entire executive branch of government; and (6) a one-year ban on certain officials in performing some representational or advisory activities for foreign governments or foreign political parties. Additionally, certain presidential and vice-presidential appointees in the Obama Administration are required to sign an ethics agreement which will further limit their post-government-employment lobbying and advocacy activities during the entire tenure of the Obama Administration and, for certain "senior" appointees, for one more year after leaving government service. Section 207(a)(1) of title 18 of the United States Code provides a lifetime ban on every employee of the executive branch of the federal government "switching sides," that is, representing a private party before or against the United States government in relation to a "particular matter" involving "specific parties," when that employee had worked on that same matter involving those parties "personally and substantially" for the government while in its employ. This lifetime ban is a fairly narrow and case-specific restriction which in practice would apply to one who, after working substantially on a particular governmental matter such as a specific contract, a particular investigation, or a certain legal action involving specifically identified private parties, then leaves the government and attempts to represent those private parties before the government on that same, specific matter. The "switching sides" prohibition does not generally apply to broad policy making matters, including rulemaking of an agency, but rather, as noted by the Office of Government Ethics, "typically involves a specific proceeding affecting the legal rights of the parties or an isolatable transaction or related set of transactions between identifiable parties." This provision does not prohibit a former government official from doing all work for a private company or firm merely because the firm had done business with or had been regulated by the official's agency, or even had been directly affected by the former official's duties or responsibilities on a particular matter such as a contract. Rather, this particular prohibition is upon subsequent representational or professional advocacy types of activities, that is, where the former official makes "any communication or ... appearance" to or before the government "with the intent to influence" the government on the same matter on which the former official had personally and substantially worked while with the government. Section 207(a)(2) provides a two-year ban on all federal employees in the executive branch on the same types of representational, post-employment conduct involved in the lifetime ban, except that it extends to matters which were merely under the "official responsibility" of the federal official while he or she was with the government. This two-year restriction, while more limited in time than the previous ban discussed, is potentially broader in matters covered, as it does not require that the former government employee had personal and substantial involvement in the matter when that individual worked for the government, but rather merely that it was under his or her official responsibility. Section 207(b)(1) of title 18 applies to all officers and employees of the executive branch (as well as Members of Congress and employees in the legislative branch) who had personally and substantially participated in ongoing trade or treaty negotiations on behalf of the United States within the last year of their employment and had access to certain non-public information. The law prohibits such former federal officers or employees, for one year after leaving the government, from representing, aiding, or advising anyone, on the basis of such information, concerning United States trade or treaty negotiations. Section 207(c)(1) provides a one-year "no contact" or "cooling off" period for "senior" level employees in the executive branch, whereby such former employees may not make advocacy contacts or representations to (that is, communications with "intent to influence"), or any appearance before officers or employees of their former departments or agencies, for one year after such senior level employees leave those departments or agencies. "Senior" level officers or employees of the executive branch include persons paid on the Executive Schedule, and those who are paid at a rate under other authority which is equal to or greater than 86.5% of the basic rate of pay for level II of the Executive Schedule; military officers in a pay grade of 0-7 or above; and certain staff of the President and Vice President. This one-year ban applies to any matter on which one seeks official action by the employee's former department or agency, regardless of whether or not the former official had worked on the matter while with the government. As discussed in more detail below, "senior" executive officials who are also covered full-time presidential or vice-presidential "appointees" in the Obama Administration will be covered by this restriction, under required ethics agreements, for an additional one year. Since this "cooling off" ban applies to communications to one's former agency or department in the executive branch, it does not restrict former executive branch officials from leaving the government and then immediately "lobbying" the United States Congress, its Members, or its employees. The restrictions of 18 U.S.C. Section 207(d) apply to "very senior" officials of the executive branch, including the Vice President, officials compensated at level I of the Executive Schedule (Cabinet officers and certain other high-ranking officials), and employees of the Executive Office of the President and certain White House employees compensated at level II of the Executive Schedule. These officials, under amendments made to the law in 2007, may not for two years after leaving the government make representations or advocacy contacts on any matter before their former agencies, or to any person in an executive level position I through V in any department or agency of the entire executive branch of the federal government. Similar to the cooling off period for "senior" level employees, these restrictions on "very senior" officials do not prohibit any former executive branch official from leaving the federal government and immediately lobbying Congress. 18 U.S.C. Section 207(f) bars, for one year after leaving the government, all "senior" or "very senior" employees of the executive branch (as well as Members of Congress and senior legislative staff) from performing certain duties in the area of representational or advocacy activities for or on behalf of a foreign government or a foreign political party, before any agency, department, or official in the entire U.S. government. This provision prohibits, for one year after leaving the government, those covered former officials from representing an official foreign entity "before any officer or employee of any department or agency of the United States" with intent to influence such United States official in his or her official duties, and prohibits for one year, as well, a former senior or very senior official (including Members of Congress and senior legislative staff) from even aiding or advising a foreign entity "with the intent to influence a decision of any officer or employee of any department or agency of the United States." The definitions within this law expressly indicate that those officers and employees to whom such communications on behalf of foreign governments may not be made during this one-year period include Members of Congress. This one-year ban on representing or aiding or assisting in representations of foreign governments becomes a lifetime ban in the case of the United States Trade Representative or the Deputy United States Trade Representative. The Office of Government Ethics has explained that the prohibition involves employment activities with a foreign government that bear upon attempts to influence an official of the U.S. government. Employment generally with a foreign government is not prohibited by this law, and general public relations or commercial activities for or on behalf of a foreign government might not involve the types of conduct prohibited unless they also involved attempts to influence United States government officials: A former senior or very senior employee "represents" a foreign entity when he acts as an agent or attorney for or otherwise communicates or makes an appearance on behalf of that entity to or before any employee of a department or agency. He "aids or advises" a foreign entity when he assists the entity other than by making such a communication or appearance. Such "behind the scenes" assistance to a foreign entity could, for example, include drafting a proposed communication to an agency, advising on an appearance before a department, or consulting on other strategies designed to persuade departmental or agency decisionmakers to take certain action. A former senior or very senior employee's representation, aid, or advice is only prohibited if made or rendered with the intent to influence an official discretionary decision of a current departmental or agency employee. President Obama issued an executive order on January 21, 2009, which places two additional post-employment, "revolving door" restrictions on all full-time, non-career presidential or vice presidential appointees in the executive branch, including non-career SES appointees and appointees to positions in the excepted service which are of a confidential and policy-making nature (such as Schedule C appointees). These "appointees" must agree to a binding "ethics pledge" which will prohibit them, after leaving government service, from lobbying (that is, acting as a registered lobbyist under the Lobbying Disclosure Act of 1995, as amended [hereinafter LDA]) any executive branch official "covered" under the LDA (2 U.S.C. §1602(3)), or any non-career SES appointee, for the remainder of the entire Obama Administration. Additionally, all such "appointees" who are also "senior" executive branch officials covered by the one-year "cooling off" period of 18 U.S.C. Section 207(c)(1), whereby such former officials may not lobby or make advocacy communications to certain officials in their former agencies and departments, must now abide by such "cooling off" period for two years. Under amendments to the Federal Deposit Insurance Act, certain officers and employees of a "Federal banking agency or a Federal reserve bank," who are involved in bank examinations or inspections, are restricted from any compensated employment with those private depository institutions for a period of one year after leaving federal service. This restriction applies to employees who served for at least two months during their last year of federal service as "the senior examiner (or a functionally equivalent position)," and who exercised "continuing, broad responsibility for the examination (or inspection)" of a depository institution or depository institution holding company. These former employees are barred for one year from receiving any compensation as an "employee, officer, director, or consultant" from the depository institution, the depository institution holding company that controls such depository institution, or any other company that controls the depository institution, or from the depository institution holding company or any depository institution that is controlled by that the depository institution holding company. Further limitations upon the post-government employment activities of certain officials exist under so-called "procurement integrity" provisions of federal law for those former federal officials who had acted as contracting officers or who had other specified contracting or procurement functions for an agency. These additional restrictions go beyond the prohibitions on merely "representational," lobbying, or advocacy activities on behalf of private entities before the government, and extend also to any compensated activity for or on behalf of certain private contractors for a period of time after a former procurement official had worked on certain contracts for the government. The current post-employment restrictions within the procurement integrity provisions of federal law are codified at 41 U.S.C. Sections 2103 and 2104. Under such provisions, former federal officials who were involved in certain contracting and procurement duties for the government concerning contracts in excess of $10 million may generally not receive any compensation from the private contractor involved, as an employee, officer, consultant, or director of that contractor, for one year after performing those procurement duties for the government. The types of contracting duties and decisions for the government which would trigger coverage under these provisions include acting as the "procuring contracting officer, the source selection authority, a member of the source selection evaluation board, or the chief of a financial or technical evaluation team in a procurement" in excess of $10 million; serving as the program manager, deputy program manager, or administrative contracting officer for covered contracts; or being an officer who personally made decisions awarding a contract, subcontract, modification of a contract, or task order or delivery order in excess of $10 million, establishing overhead or other rates valued in excess of $10 million, or approving payments or settlement of claims for a contract in excess of the covered amount. Officials of the Department of Defense who are involved personally and substantially in procurements of over $10 million, are leaving the department, and know that they will be receiving compensation from a defense contractor within the next two years must request, within 30 days before their departure, an ethics opinion about what they can and cannot do for the defense contractor under current ethics laws and rules. Under legislation adopted in 2012, all "senior" officers and employees in the federal government will now have to report to their ethics offices negotiations that they are having for subsequent private employment. The "STOCK Act," enacted in April of 2012, requires all of those federal officials who are required to file public financial disclosure reports (that is, generally, those earning a rate of salary equal to or more than 120% of the base salary for a GS-15) to notify their ethics office in writing within three business days of the commencement of such "negotiations," and then to recuse themselves from any governmental matter for which such negotiations may create a conflict of interest. In addition to the general reporting of negotiations under the STOCK Act by certain high-level officials, all federal employees in the executive branch who are seeking private employment may also incur restrictions on the performance of their current duties for the government under other provisions of federal law. The principal federal conflict of interest law, which is a criminal provision at 18 U.S.C. Section 208, states, among other restrictions, that once any federal employee or officer in the executive branch begins "negotiating" subsequent employment with a private employer, that employee must disqualify (recuse) himself or herself from any official governmental duties, such as recommendations, advice, or decision making, on any particular matter which has a direct and predictable effect on the financial interests of that potential private employer. The Office of Government Ethics has issued regulations concerning this potential conflict of interest, and has expanded by regulation certain disqualification requirements beyond bilateral "negotiations," applying such requirements where the employee has even merely "begun seeking employment." The regulations note that a federal employee has "begun seeking employment" not only if the employee is involved in a "discussion or communication" that is "mutually conducted" (even if the specifics of a job or employment are not discussed), but also if the employee has made an unsolicited communication regarding employment (other than merely asking for an application or sending a resume to someone who is affected by the employee's duties "only as part of an industry or other discrete class"), or if the employee has made a response other than a rejection to an unsolicited communication from a private source concerning employment. This status of "seeking employment" will continue until all possibilities of employment are rejected, and discussion ended, or two months have passed after an unsolicited communication had been made by the employee and no indication or interest or postponement of consideration was indicated. During the time one is within this status of "seeking employment," the employee "should notify the person responsible for his assignment," or if the individual is responsible for his or her own assignments, then the employee must take "whatever steps are necessary" to ensure compliance. Appropriate oral or written communication to one's coworkers and supervisors concerning a required disqualification is suggested in the regulations, although written documentation of a recusal is not required in the regulations except to conform to a previous ethics agreement with the Office of Government Ethics. Waivers from the disqualification requirements may be obtained in writing from the official responsible for the employee's appointment. In the area of procurement, even if no actual negotiations with a potential private employer are involved or have begun, certain "contacts" about prospective private employment between certain private contractors and federal procurement personnel may trigger reporting and recusal requirements. Agency officials who are "participating personally and substantially" in a federal procurement for a contract in excess of $100,000 must report all contacts from or to a bidder or offeror on that contract, when those contacts are about the possibility for non-federal employment for that official. This includes even "unsolicited communications from offerors regarding possible employment.... " In addition to reporting the contacts made or received, the official must then either reject the possibility of future employment, or must disqualify himself or herself from further participation in the procurement until all discussions have ended without an employment agreement, or until the business is no longer a bidder or offeror in that procurement. Reports from procurement personnel on contacts and recusals are retained by the agency for two years, and "shall be made available to the public upon request." As noted in the previous section, procurement officials in the Department of Defense who are involved personally and substantially in procurements of over $10 million, are leaving the department, and know that they will be receiving compensation from a defense contractor within the next two years must request, within 30 days before their departure, an ethics opinion about what they can and can not do for the defense contractor under current ethics laws and rules. Changes in the rules of the House and Senate were adopted in 2007 regarding negotiations for future private employment by Members and certain staff. In the Senate, the general rule is that Senators may not begin private employment negotiations, or have arrangements for subsequent private employment, until their successors have been elected. In the House, the general rule is that Members may not begin private employment negotiations, or have arrangements for subsequent private employment, while still serving in the House. The exception to both the House and Senate rules allows for such negotiations to begin earlier, before a successor is elected in the Senate or one's term is over in the House, if the Senator or Representative makes a disclosure statement within three business days concerning the commencement of such negotiations or agreements. However, in the Senate, this exception will not apply to, and thus will not allow, such negotiations or arrangements for future private employment which involves "lobbying activities" until the Senator's successor has been elected. The congressional rules further provide that a Member of the House of Representative who is negotiating or has an arrangement for future employment prior to the expiration of his or her term of office must "recuse" or disqualify himself or herself from participating in any matter that may raise a conflict of interest, or the appearance of a conflict of interest, because of such negotiations or employment arrangements, and must notify the House Committee on Standards of Official Conduct of such recusal. In the Senate, the original disclosure statement of negotiations or arrangements is to be made public at the time it is made to the Secretary of the Senate; while in the House, the original notification of private employment negotiations or arrangements is not made public until and unless the Member must recuse himself or herself for conflict of interest purposes, and then the recusal notification as well as the original disclosure statement are made public. "Senior" staff in both the House and Senate (i.e., those employees who are compensated in excess of 75% of a Member's salary) must notify the appropriate ethics committee within three business days that the staffer is negotiating or has any agreement concerning future private employment. Covered Senate and House employees must then recuse themselves from official legislative matters that raise conflicts of interest because of their prospective private employment interests, and notify the appropriate ethics committees of such recusal. Covered Senate staffers must specifically recuse themselves from making any contact or communications with the prospective employer on issues of legislative interest to that employer. The new provisions enacted under the STOCK Act in April of 2012 may affect staff who are not necessarily covered by the House or Senate Rule provisions, since the salary threshold is lower under the statutory provisions. As noted above, any staff person who is required to file public financial disclosure reports is required to notify his or her ethics office in writing within three business days of the commencement of any private employment "negotiations," and then to recuse himself or herself from any governmental matter for which such negotiations may create a conflict of interest. The Ethics Reform Act of 1989 added post-employment restrictions for Members and certain senior congressional staffers, effective January 1, 1991, and these were amended by the lobbying and ethics reform legislation, titled the "Honest Leadership and Open Government Act of 2007." Under the criminal provisions of this statute, individuals who were Members of the House are prohibited from "lobbying" or making advocacy communications on behalf of any other person to current Members of either house of Congress, or to any legislative branch employee, for one year after the individual leaves Congress. For a period of two years after leaving the Senate, Senators are prohibited from similar post-employment advocacy. Additionally, senior staff employees are subject to certain one-year "cooling off" periods regarding their advocacy contacts with their former offices; and both former Members and former senior staff are limited in representing official foreign interests before the U.S. government, and in taking part in certain trade and treaty negotiations, for one year after leaving congressional service. There are now so-called "cooling off" periods of two different durations applicable in the legislative branch that restrict post-employment "lobbying" and advocacy activities. United States Senators are subject to a two-year post-employment advocacy ban, which restricts their lobbying anyone in Congress, or any employee of a legislative office, for two years after leaving the Senate. Members of the House of Representatives, as well as "senior" legislative branch employees, are now subject to a one-year "cooling off" or "no contact" period after they leave congressional office or employment. Members of the House of Representatives are prohibited for one year after leaving office from lobbying or making other advocacy contacts with any Member, officer, or employee of either house of Congress, or to any employee of a legislative office. "Senior" legislative branch employees are subject to the post-employment restrictions if they are compensated at a rate equal to or above 75% of the rate of pay of a Member of the House or Senate, and are employed for more than 60 days. "Senior" Senate staff covered by these statutory provisions are prohibited for one year after leaving Senate employment from making advocacy communications to any officer, employee, or Member of the entire Senate. "Senior" House staff are barred for one year after leaving House employment from making advocacy communications only to their former employing office; that is, former "senior" employees of a Member of the House may not, for one year after they leave congressional employment, make advocacy or representational contacts to that Member or any of the Member's employees. House committee staffers covered by these provisions are barred for one year after leaving office from making such advocacy contacts and representations to any Member or employee of their former committees, or to any Member who was on the committee during the last year of the staffer's employment; and "senior" employees in House leadership offices are prohibited for one year after leaving employment from making advocacy communications to anyone in that leadership office. Not all contacts or communications by former Members or employees with current Members or employees within the one-year period are barred, however. The prohibition goes only to advocacy-type communications, that is, communications "with the intent to influence" a Member or officer or employee of the legislative branch concerning "any matter on which such person seeks official action" by that Member, officer, or employee, or by either house of Congress. There are also several specific exceptions to the general prohibition, including, for example, exceptions for lobbying and advocacy work for state or local governments, testifying on matters under oath, and generally for representations or communications on behalf of political candidates, parties, and political organizations. All officers and employees of the government, including Members of Congress and congressional staff, who worked personally and substantially on a treaty or trade negotiation and who had access to information not subject to disclosure under the Freedom of Information Act, may not use such information for one year after leaving the government for the purpose of aiding, assisting, advising, or representing anyone other than the United States regarding such treaty or trade negotiation. Members of Congress, and those "senior" legislative branch employees who are covered by the one-year "cooling off" periods, are also prohibited for a year after leaving office or employment from representing an official foreign entity before the United States, or aiding or advising such entity with intent to influence any decision of an agency or employee of any agency or department of the U.S. government. All employees of the Senate remain subject to the Senate Rule governing lobbying after they leave Senate employment. Senate Rule XXXVII, clause 9, applies to all former staffers who have become registered lobbyists, or are employed by a registered lobbyist or by an entity that retains lobbyists if the former staffer is to influence legislation. Such former staffers are prohibited for one year after leaving the Senate from lobbying the Senator for whom they used to work or the Senator's staff. Former committee staff are prohibited from lobbying the Members or the staff of that committee for one year. If the staffer is a "senior" employee, then the former staffer, in accordance with the statutory restriction, will be barred from lobbying any Member, officer, or employee of the entire Senate for one year. Under congressional rules and practice, former Members are generally granted the privilege of admission to the floor of the Senate or House, respectively. However, under the Rules of the House of Representatives, former Members of the House are not to be entitled to floor privileges if they have any "direct or pecuniary interest in any legislative measure pending before the House or reported by any committee," and are not entitled to admission if they are registered lobbyists or agents of a foreign principal, or employed by or otherwise represent "any party or organization for the purpose of influencing, directly or indirectly, the passage, defeat or amendment of any legislative measure pending before the House, reported by any committee" or under consideration of a committee. The Senate rules have also been changed to withdraw floor privileges from a former Member or officer who is a registered lobbyist or agent of a foreign principal, or is in the employ of an organization for the purpose of influencing, directly or indirectly, the passage or defeat of legislation or any legislative proposal. The House and Senate have both limited the access of such former Members, if those former Members are registered lobbyists or foreign agents, to the athletic and exercise facilities in the House and Senate. A Member of Congress may not, before the expiration of his or her term, accept a civil office in the U.S. government if that office was created, or the salary for the office had been increased during the Member's current term. This constitutional provision would by its terms prevent a Member of Congress from retiring from Congress before his or her current term has expired, and accepting such a civil position with the federal government. It may be noted that the disqualification has on many occasions been avoided in regard to an office for which the salary was increased during the Member's term, by enacting legislation lowering the salary of that particular office back to its previous level. | Federal personnel may be subject to certain conflict of interest restrictions on private employment activities even after they leave service for the United States government. These restrictions—applicable when one enters private employment after having left federal government service—are often referred to as "revolving door" laws. For the most part, other than the narrow restrictions specific to procurement officials or bank examiners, these laws restrict only certain representational types of activities for private employers, such as lobbying or advocacy directed to, and which attempt to influence, current federal officials. Under federal conflict of interest law, at 18 U.S.C. Section 207, federal employees in the executive branch of government are restricted in performing certain post-employment "representational" activities for private parties, including (1) a lifetime ban on "switching sides," that is, representing a private party on the same "particular matter" involving identified parties on which the former executive branch employee had worked personally and substantially for the government; (2) a two-year ban on "switching sides" on a somewhat broader range of matters which were under the employee's official responsibility; (3) a one-year restriction on assisting others on certain trade or treaty negotiations; (4) a one-year "cooling off" period for certain "senior" officials barring representational communications to and attempts to influence persons in their former departments or agencies; (5) a new two-year "cooling off" period for "very senior" officials barring representational communications to and attempts to influence certain other high-ranking officials in the entire executive branch of government; and (6) a one-year ban on certain former high-level officials performing certain representational or advisory activities for foreign governments or foreign political parties. In the legislative branch, this law applies the one-year "cooling off" period, as well as the restrictions on representations on behalf of official foreign entities and assistance in trade negotiations, to Members of the House and to senior legislative staff. United States Senators are subject to a two-year "cooling off" period in which they may not lobby Congress after leaving the Senate. "Procurement personnel" in federal agencies are not only limited in their post-employment representational, lobbying, or advocacy activities on behalf of private entities after leaving government service, but they are also prohibited from receiving compensation from certain private contractors for a period of time after being responsible for procurement action on certain large contracts as government officials. Procurement personnel also have additional rules on reporting "contacts" from prospective employers who are government contractors. The provisions of an executive order issued by President Obama on January 21, 2009, impose stricter limits on certain executive branch personnel. Full time, non-career presidential and vice-presidential appointees, including non-career appointees in the Senior Executive Service, and excepted service confidential, policy-making appointees, are barred after leaving the Administration from "lobbying" any executive branch official "covered" by the Lobbying Disclosure Act (2 U.S.C. §1602(3)), or any non-career SES appointee, for the remainder of the Administration. Additionally, all appointees who are "senior" officials subject to the statutory one-year "cooling off" period on lobbying and advocacy communications to their former agencies must now abide by such "cooling off" period for two years. |
The Inspector General Act, as amended, will reach its 30 th anniversary in 2008, and today there are more than 60 offices of inspectors general (OIGs). This longevity and growth built on the efforts of the Committee on Oversight and Government Reform (then the Committee on Government Operations) in spearheading their origination, beginning in 1976. Substantial bipartisan and bicameral support was necessary at their creation, given the across-the-board opposition by executive agencies early on, and for their continued development. There are two types of Inspectors General (IGs): (1) federal establishment IGs are appointed by the President with Senate confirmation, and may be removed only by the President except in the case of impeachment; and (2) designated federal entity (DFE) IGs are appointed and removed by the agency head in usually smaller agencies. The establishing mandates and statutory supports for the IGs provide a useful vantage point to view the current proposals to modify the IGs, their statutory powers and political power. In combating waste, fraud, and abuse, IGs have been granted a substantial amount of independence, authority, and resources. In combination, these assets are probably greater than those held by any similar internal auditing-investigating office at any level of government, here or abroad, now or in the past. Some of these purposes and powers of the IGs include their charges to conduct and supervise audits and investigations within an agency; provide leadership and coordination for recommending policies and activities to promote the economy, efficiency, and effectiveness of programs and operations; have access to agency information and files and subpoena power for records and documents; receive complaints from agency employees whose identities are to remain confidential (with certain stated exceptions); implement the cash incentive award program for employee disclosures of waste, fraud, and abuse; hold independent law enforcement authority in offices in establishments; receive a separate appropriations account for offices in establishments; be appointed without regard to political affiliation and solely on the basis of integrity and demonstrated ability in relevant professions (for establishment IGs and the IG for the U.S. Postal Service); remain in office without term or tenure limits; report suspected violations of federal criminal law immediately and directly to the Attorney General; and operate under only the "general supervision" of the agency head, who is prohibited (with only a few express exceptions ) from preventing or prohibiting an IG from initiating or carrying out an audit or investigation. Along with these, IGs have critical reporting requirements to keep the agency head and Congress "fully and currently informed" through specified reports and otherwise (which includes testifying at hearings and meeting with Members and staff). The reports include semi-annual reports as well as immediate reports regarding "particularly serious or flagrant problems." For both types, the IG reports are submitted to the agency head who transmits them unaltered, but with comments deemed necessary, to Congress within a designated period of time. The resulting connections between the IGs and Congress not only enhance legislative oversight capabilities, but also provide an avenue for potential support for IG findings, conclusions, and recommendations for corrective action. H.R. 928 and S. 1723 attempt to address recent, and in some cases, longstanding, congressional concerns regarding OIGs. Despite their institutional arrangements and authorities, modifications to the IG Act have been seen as useful to enhance the IG's independence and power. Along these lines is the wide range of proposed changes in these two bills. Their overarching theme is to strengthen and clarify the authority, tenure, resources, oversight, and independence of the inspectors general. The bills' specific proposals and considerations set up additional protections for IGs, including "for cause" removal and terms of office; consolidation and codification of two existing councils established by executive order into a single Council of the Inspectors General on Integrity and Efficiency; the reporting of the IG's initial budget and appropriations estimates to the Office of Management and Budget, the agency head, and congressional committees; program evaluation in IG semi-annual reports; and the grant of law enforcement authority to IGs in designated federal entities. Additionally, H.R. 928 , as passed by the House, and S. 1723 would require that DFE IGs, like their establishment IG counterparts, be appointed "without regard to political affiliation and solely on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations." The Bush Administration has taken exception to several provisions in H.R. 928 âremoval for cause, transmittal of budget requests to Congress, and an independent IG Councilâand, on October 1, 2007, threatened a veto of the legislation. In the face of this threat, the House passed H.R. 928 by a veto-proof margin on October 3, 2007. Under current law, IGs have limited protection with respect to removal from office. Presidentially appointed IGs may be removed from office for any reason by the President. The President is required to communicate the reasons for such removal to Congress; however, the reasons need not be given in writing and no time limit is set. There is no requirement that Congress be given advance notice of an IG's removal. IGs who are appointed by an agency head may be removed or transferred for any reason by the agency head, and the only limitation on such removal is that the agency head must promptly communicate to both Houses of Congress, in writing, the reasons for the IG's removal or transfer. H.R. 928 and S. 1723 propose a change in the removal provision for establishment IGs by requiring that removal by the President must be for cause on specified grounds. H.R. 928 and S. 1723 provide that an establishment Inspector General may be removed from office prior to the expiration of his or her term only on any of the following grounds: (1) Permanent incapacity. (2) Inefficiency. (3) Neglect of duty. (4) Malfeasance. (5) Conviction of a felony or conduct involving moral turpitude. (6) Knowing violation of a law, rule, or regulation. (7) Gross mismanagement. (8) Gross waste of funds. (9) Abuse of authority. Congress has provided these specific grounds for other officials, and an appendix to this report lists other examples of statutory terms used to limit the President's authority to remove officials appointed with the advice and consent of the Senate. S. 1723 would also change the removal provision for DFE IGs by requiring that removal of a DFE IG by the agency head be for cause on any of the first five grounds listed above. S. 1723 would require the agency head of a DFE to notify Congress, in writing, of the reasons for the DFE IG's removal or transfer by that agency head "not later than 15 days before" the agency head takes such action. An amendment to H.R. 928 , while not containing a for cause removal requirement for DFE IGs, would require DFE agency heads to give both Houses of Congress and the DFE IG written notice of "the reasons for any such removal or transfer . . . at least 30 days before such removal or transfer." The President has threatened to veto H.R. 928 , in part, because of the for cause removal provision. The Bush Administration argues that limiting the President's removal authority "does not enhance the function of IGs and raises grave constitutional concerns." However, as explained below, this argument is without merit. The Supreme Court has held as constitutional congressional conditions limiting the President's ability to remove appointed officers. In Humphrey ' s Executor v. United States , the Court determined that appointed officers, other than officers performing "purely executive" functions, could not be removed during their terms of office "except for one or more of the causes named in the applicable statute," such as "inefficiency, neglect of duty, or malfeasance in office." The Court reasoned that "the fixing of a definite term [of office] subject to removal for cause ... is enough to establish legislative intent that the term not be curtailed in the absence of such cause." Congressional restraints on the President's power of removal fall within the principle of separation of powers, according to the Court, which recognized the "fundamental necessity of maintaining each of the three general departments of government entirely free from the control or coercive influence, direct or indirect, of either of the others." Subsequently, in Morrison v. Olson , the Supreme Court expanded the congressional authority established in Humphrey ' s Executor . The Court removed the limitations with respect to inapplicability to officers performing "purely executive" functions, holding that now Congress has the authority to provide "for cause" removal protection to any advice and consent officer. The Court established a two-step balancing test for such separation of powers situations. First, the President must establish that the congressional action interferes with a core power. If so, Congress must show a necessity for its action to overcome the interference. In Morrison , the Supreme Court held that congressional restrictions on the Attorney General's ability to remove an executive officer did not violate the constitutional principle of separation of powers. In analyzing the issue, the Court reasoned that the "good cause" standard for removal did not impermissibly interfere with the functions of the executive branch because Congress had not tried "to gain a role in the removal of executive officials" beyond its current powers. Additionally, even with its limitations, removal power remained within the executive branch, thus enabling the executive branch to perform its constitutional duty to "take care that the laws be faithfully executed." In the IG context, the executive branch would "retain[] ample authority to assure that the [IG] is competently performing his or her statutory responsibilities" according to the IG Act. The Court also noted that Congress's limitation on the executive's removal power "was essential, in the view of Congress, to establish the necessary independence of the office." In sum, Congress has the authority to limit removal of individuals by the President or an agency head, and can determine for which reasons that individuals should be removed. Under this authority, Congress has granted "for cause" removal protection to officers at all levels of departments and agencies for reasons varying from general "cause" to discrete, limited reasons such as inefficiency, neglect of duty, and malfeasance in office. For example, the Commissioner of Social Security "may be removed from office only pursuant to a finding by the President of neglect of duty or malfeasance in office." Yet the Chief Actuary of the same agency and the Chief Actuary of the Centers for Medicare and Medicaid Services "may be removed only for cause." During the Clinton Administration, Congress provided temporary protection from the President's authority to remove appointed officials for the Under Secretary for Nuclear Security of the Department of Energy. Precedents also exist for limiting the removal of an individual with an analogous position to an IG to "for cause" reasons. The Special Counsel, who heads an independent agency dedicated to protecting federal employees and applicants from prohibited personnel practices, may be removed for cause, which the relevant statute defines as "inefficiency, neglect of duty, or malfeasance in office." In the cases of the Comptroller General, who heads the Government Accountability Office, and Deputy Comptroller General, the grounds for removal for cause extend to permanent disability, inefficiency, neglect of duty, malfeasance, or a felony or conduct involving moral turpitude. H.R. 928 , as passed by the House, outlines the same and additional removal provisions for establishment IGs. S. 1723 outlines the same removal provisions for both establishment and DFE IGs as the for cause requirements for the Comptroller General and Deputy Comptroller General, except that it, like H.R. 928 , would clarify that a conviction of a felony or conduct involving moral turpitude is necessary for removal. In the IG context, one IG has "for cause" removal protection. The IG for the United States Postal Service (USPS) may be removed "upon the written concurrence of at least 7 [of 9] Governors [of the USPS Board of Governors], but only for cause." What constitutes cause for removal is not defined in the USPS IG statute. Unlike the USPS IG provision, H.R. 928 and S. 1723 specify particular grounds for removal of, respectively, an establishment IG and both an establishment IG and a DFE IG, and thus make clear that those reasons are the only reasons the President or an agency head can remove an IG. The addition of the restriction of removal only for cause, with or without delineating the causes for which individuals could be removed, would protect IGs from being removed by the President or an agency head based on policy reasons or because of a disagreement with an IG's determination. Furthermore, different written formulations of the removal for cause provisionâfor example, "neglect of duty or malfeasance" as opposed to "inefficiency, neglect of duty, or malfeasance"âdo not diminish the purpose of giving IGs a degree of independence if Congress deems it proper. "For cause" removal, however, does recognize that some minimal due process procedures are required. This was implicit in Humphrey ' s Executor . President Franklin D. Roosevelt removed Federal Trade Commissioner William E. Humphrey, noting "I do not feel that your mind and my mind go along together on either the policies or the administering of the Federal Trade Commission." Humphrey, and later his estate, contested his removal in court and succeeded. It does not appear that any "for cause" removal officer has been fired by the President since Humphrey, and therefore there has been no establishment of a mechanism to determine the appropriateness of presidential removal. However, there is one recorded instance of an advice and consent officer who demanded and was offered a minimal hearing. The removal for cause requirement is viewed by its proponents as a way to strengthen and preserve the independence of the IGs, whose ability to investigate allegations of waste, fraud, and abuse within their respective agencies would be enhanced by prohibiting their firing without cause. Requiring "for cause" removal could potentially prevent the removal of an IG whose investigations were proving embarrassing to the agency. However, requiring removal only for cause would meaningfully restrict the President's and agency heads' discretion, and may make it difficult to remove a poor-performing IG. An alternative approach, seen in the amended version of H.R. 928 reported out of committee and passed by the House, is the requirement that the DFE agency head notify the IG and Congress 30 days in advance about the prospect of a dismissal or transfer and the reasons for it. This would allow an opportunity before the removal occurs for the IG to challenge the specific concerns or allegations, for Congress to inquire into them, and, possibly, for a resolution of the dispute. This notification requirement is also present in S. 1723 , which provides "for cause" removal for DFE IGs, although with a shorter time frame of 15 days. The Council of the IGs on Integrity and Efficiency proposed by H.R. 928 and S. 1723 , discussed in greater detail below, would not have enforcement authority to remove an IG after investigating and reporting on allegations. The current presidentially established IG councilsâthe President's Council on Integrity and Efficiency (PCIE), which consists of the presidentially appointed IGs, and the Executive Council on Integrity and Efficiency (ECIE), which consists of agency head appointed IGsâalso lack such authority. Presidents and agency heads may be reluctant to adopt recommendations for disciplinary action from such oversight councils, and statutory "for cause" removal may not increase the likelihood of action on such recommendations. Some questions may be raised as to whether the current system of independence, which falls short of protection and tenure, has provided an overall satisfactory result. Apparent failures may be attributable to the effectiveness of current oversight mechanisms to monitor the appropriateness of IG activities. H.R. 928 and S. 1723 would institute fixed terms of office for all establishment and designated federal entity IGs. The new provision is designed to encourage IGs to remain in office for at least seven years, as it appears that many leave before then. The grant of a fixed term of office does not run contrary to precedent and has been viewed as providing the incumbent with the chance to gain expertise, as well as independence. However, only one IG, the USPS IG, has a fixed term of office; it is a seven-year term and is renewable. All other IGs have no fixed terms. Several other executive branch positions also have fixed terms of office, such as the Director of the Office of Personnel Management (four years), the Director of the Office of Government Ethics (five years), and the Special Counsel (five years). The Director of the Office of Government Ethics and the Special Counsel are similar to IGs in that they perform investigative functions. The Comptroller General of the Government Accountability Office, a legislative branch position, serves for fifteen years, and like IGs, conducts audits and investigations. Similar to the provisions regarding the USPS IG, H.R. 928 and S. 1723 would establish the seven-year, renewable fixed term of office for all other IGs. Questions might arise over whether seven years is sufficient, since it does not extend across a two-term presidency. On the other hand, such a term would likely extend the IG's tenure beyond that of most agency heads, arguably providing greater continuity, stability, and independence for IGs and their offices. At a day-long session on IG independence which took its guidance, in part, from Representative Cooper's bill in the 109 th Congress, H.R. 2489 , panelists including "current and past administration officials, current PCIE and ECIE leadership, former IGs, participants from research organizations and academia, and congressional staff" discussed this issue. It appears that a majority of panelists participating did not favor statutory IG terms of office, but it is not clear why they opposed the issue. Allowing for reappointment, which would extend the incumbent's tenure, might impinge on the IG's independence; he or she would be reappointed by an official who (or whose political allies) might be subject to an IG audit or investigation at the time. Term limits, even if renewable, would also allow for a lame-duck IG, if it becomes evident that he or she will not be reappointed. And such limits would still permit a vacancy awaiting a full-fledged inspector general until a replacement arrives (with the position being filled by an acting IG). These characteristics both affect the stability of the office and continuity of its operations, projects, orientation, and priorities. Some may suggest a single but longer term (10 or 15 years without the possibility of reappointment), as currently applied to the Comptroller General. The term of office section of H.R. 928 and S. 1723 may necessitate additional clarification. Though the bills specify that an establishment (presidentially appointed) IG could serve more than one term of office, the bills also state that such an IG may only "holdover" for no more than an additional year after the expiration of his or her seven-year term: An individual may continue to serve as Inspector General beyond the expiration of the term for which the individual is appointed until a successor is appointed and confirmed, except that such individual may not continue to serve for more than 1 year after the date on which the term would otherwise expire. Since H.R. 928 and S. 1723 state that IGs may serve for more than one term, reappointment and confirmation would be required before the IG could serve another full seven-year term due to the holdover language for establishment IGs in § 2(b) of the bills. This would also be true for designated federal entity IGs (appointed by agency heads), for whom there is no holdover provision. Finally, the seven-year term limit in H.R. 928 , as passed by the House, would apply "to any Inspector General appointed on or after the date of the enactment of this Act" (emphasis added). The House Committee on Oversight and Government Reform's amendment eliminating the bill's application to IGs appointed before the date of enactment appears to address a technical issueâthat remains in S. 1723 âwith the term of office for the Peace Corps IG. The Peace Corps IG's tenure limit ranges from five to eight and a half years, due to employment time-limits for all Peace Corps personnel. The Peace Corps IG currently has a five-year term of office that is indirectly fixed by 22 U.S.C. § 2506, which states that the Director of the Peace Corps may grant a one-year extension to an individual employee, plus a two-and-a-half year addition with the agency. This additional two-and-a-half year extension would only appear to be granted to an IG in the case the IG's extension would "promote the continuity of functions in administering the Peace Corps." However, it appears that no Peace Corps IG has served more than five years since the creation of the IG position. H.R. 928 and S. 1723 would statutorily establish a Council of IGs on Integrity and Efficiency (CIGIE) in which all of the federal government IGs who are currently part of PCIE and ECIE would participate. The PCIE and ECIE were established by executive order in 1992. The merger of the two councils would combine their forces and arguably reduce overlap and duplication. One concern, however, might be the size of the new collective and whether it would prove unwieldy. It appears that the proposed CIGIE would be an interagency council of the kind widely seen throughout the federal government. The CIGIE would include other relevant executive agencies and officials, as the PCIE and ECIE do now. The new council's membership would also extend to two other IGs not included in the existing councils; these offices (i.e., at the Central Intelligence Agency and at the Government Printing Office, a legislative branch agency) do not operate directly under the IG Act but instead under their own separate statutory authority. A question might arise as to whether it would be appropriate for a legislative branch IG to be a member of an interagency council which is chaired by an executive official (now, and as proposed, the Office of Management and Budget's Deputy Director for Management). However, the CIGIE would have a secondary chairperson who would serve a two-year termâan IG selected from the council's membership. A similar problem arises under S. 1723 , which, unlike H.R. 928 , would require the CIGIE to "submit recommendations of 3 individuals to the appropriate appointing authority for any appointment" to an office of an establishment IG, a designated federal entity IG, the Central Intelligence Agency IG, and the Government Printing Office IG. Such a provision would allow mostly executive branch officials to submit recommendations for positions in a legislative branch IG officeâthat of the Government Printing Office IG. Additionally, the phrase "appropriate appointing authority" implies that IGs and executive branch officials on the CIGIE would be able to submit their three recommendations to the President, agency head, or IG for "any appointment," including that of the IG or any member of the IG's staff. Once again, executive branch officials could potentially influence the internal composition of the IG office of a legislative branch agency. The bills' proposals would modify the existing arrangements, which have grown under executive orders issued by Presidents Ronald W. Reagan, George H. W. Bush, and William J. Clinton. The statutory structure, although incorporating some notable changes, would more strongly institutionalize the current structure, endorsed by successive Presidents, giving it greater stability as well as legislative approval. This change could also add opportunities for congressional oversight of the inspectors general as well as of the coordinative arrangements among themselves and between the IGs and other relevant executive entities. Additionally, the legislation would provide "a separate appropriation account" for CIGIE appropriations. The CIGIE would also provide for an Integrity Committee (which already exists under executive order) to handle allegations of wrongdoing by IGs and top officials in their offices. The Bush Administration has objected to the codification of the two existing councils, PCIE and ECIE, as the CIGIE, alleging that codification "would impede the President's ability to react swiftly and effectively to problems with IGs or with the Council itself." The Administration also alleges that "the council provisions in H.R. 928 raise constitutional questions because they restrict the President's authority to nominate individuals to serve on the Council and contain ambiguous definitions of offices and their respective roles and responsibilities." In the past, Congress has established similar commission structures and imposed additional germane duties on executive officers, which have been upheld by the Supreme Court. As mentioned above, H.R. 928 and S. 1723 propose adding § 11(d) to the IG Act, which would establish the Integrity Committee of the CIGIE. This statutory construct would codify, with certain changes, the Integrity Committee, which now operates under E.O. 12993, issued by President Clinton in 1996. Such committee "shall receive, review, and refer for investigation allegations of wrongdoing that are made against Inspectors General and certain staff members of the various Offices of Inspector General." This section does not appear to specify how allegations of wrongdoing that are made against an IG would be referred to the Integrity Committee. This may raise also the question of who could refer an allegation of an IG's wrongdoing to the committee: For example, would another IG be able to allege wrongdoing by an IG? However, § 11(d)(5)(A) states that the Integrity Committee shall "review all allegations of wrongdoing it receives against an Inspector General" (emphasis added), so clarification as to who may make such allegations may not be necessary. The use of the term "all" in § 11(d)(5)(A) seems to indicate that the Integrity Committee would be required to review every allegation of wrongdoing, including allegations by Members of Congress or by the general public. After the proposed Integrity Committee reviews allegations of wrongdoing, it must refer to the Chairperson of the Integrity Committee any allegation of wrongdoing that the Integrity Committee determined is "meritorious that cannot be referred to an agency of the executive branch with appropriate jurisdiction over the matter." Next, the Chairperson of the Integrity Committee must thoroughly and timely investigate such allegations according to investigative standards issued by the CIGIE or the PCIE and ECIE. In the version of H.R. 928 passed by the House, the Chairperson must report the results of the investigation to the Integrity Committee, which then evaluates the report, adds its recommendations, and forwards the report to the Executive Chairperson and the President or DFE agency head within 180 days after the investigation is completed. Reports of investigations by the Integrity Committee would also be required to be submitted to Congress within 30 days of their submission to the Executive Chairperson of the CIGIE. The relevant section of S. 1723 does not similarly guarantee that the President, agency head, or Congress would receive access to the Integrity Committee's findings and conclusions. In H.R. 928 , the Chairperson must then report to the Integrity Committee any action taken by the President or agency head. A finding by the Integrity Committee, after a complete investigation that substantiates any allegation, could be presumptively deemed a finding of cause under the statute that the President or agency head could use in deciding whether to remove an IG. Such a finding would not be binding on the President or the agency head, but could serve as a prima facie basis for removal if the President or agency head agreed with the finding. The IG legislation, H.R. 928 , as passed by the House, and S. 1723 would require reporting establishment IGs' initial budget estimates directly to the Office of Management and Budget (OMB), the agency head, and appropriate congressional committees. This would ensure that all three units were aware of the initial estimate and, thus, enable each to calculate any decreases or adjustments made afterwards by agency officials or OMB. In addition to finding any such alterations, the change in budget reporting could also contribute to congressional oversight of the establishment IG offices and their projected spending as well as OMB and agency leadership. The President has objected to H.R. 928 's budgetary provisions, claiming that they "would authorize IGs to circumvent the President's longstanding, and constitutionally based, control over executive branch budget requests by allowing IGs to submit their budget requests directly to Congress." Historically, "for a significant period in our early history, the President did not see departmental budget estimates before the Treasury Department transmitted them to Congress." Prior to the Budget and Accounting Act of 1921, agencies negotiated "their annual appropriations directly with Congress." Moreover, Congress previously required the Interstate Commerce Commission to "submit copies of budget estimates, requests, and information (including personnel needs)" to Congress "at the same time they are sent to the President or the Office of Management and Budget." Additionally, the statute detailing the preparation and submission of appropriations requests to the President specifies that "an officer or employee of an agency . . . may submit to Congress or a committee of Congress an appropriations estimate or request . . . only when requested by either House of Congress." The Bush Administration also objects to "requiring the President to include each IG's request as a separate line item in the President's annual budget request." The U.S. Code currently contains several examples of similar line item requests, such as separate statements of the amount of appropriations requested for (1) "the Office of National Drug Control Policy and each program of the National Drug Control Program," (2) the Office of Federal Financial Management, and (3) the Chief Financial Officer in the Executive Office of the President. The House-passed version of H.R. 928 and the Senate version would prohibit cash bonuses and awards for both establishment and DFE IGs, such as incentive awards for superior accomplishments or cost savings disclosures. Establishment IGs would receive a basic pay rate set at three percent higher than level III of the Executive Schedule. DFE IGs would be paid at a rate of three percent above "the annual rate of basic pay for senior staff members classified at a comparable grade, level, or rank designation." S. 1723 would move mostly establishment IGs, but also some DFE IGs, from a Level IV to a Level III position on the Executive Schedule, which amounts to a pay raise. Inspectors general now issue semi-annual reports on their activities and operations, with specific information and data about their investigations and audits. H.R. 928 and S. 1723 would add information about their program evaluations and inspections, which, in the IG community, refer to short-term evaluations of specific, narrow projects, whose findings and conclusions might be used to promote better management practices, among other things. Such inspections apparently reflect a growing field of endeavor for the IGs; periodically updated information about these arguably would benefit the users of the semi-annual reports in Congress, other executive agencies, and the public. Qualified law enforcement authority (e.g., to carry firearms and execute warrants) has been granted to IGs in federal establishments, that is, the cabinet departments and larger federal agencies. H.R. 928 and S. 1723 would extend this coverage, under the same controls, to IGs in designated federal entities, the usually smaller boards, commissions, foundations, and government corporations. A rationale for expanding the scope of this authority to the OIGs of the designated federal entities is that this would increase the capabilities of their criminal investigators, who currently may need to rely on piecemeal statutory authorizations or on special deputation by the U.S. Marshals Service, which is limited in time and location. The additional authority, however, would mean that IGs would need to be vigilant in approving and monitoring the conduct of OIG staff in this regard, ensuring that they receive necessary training, meet relevant qualifications, and use the powers appropriately. H.R. 928 and S. 1723 would increase the visibility of IG webpages on agency websites, as well as require IG offices to post reports and audits online and create a place for individuals to report fraud, waste, and abuse. While the version of H.R. 928 passed by the House and S. 1723 are identical in most respects, other than those provisions discussed above, S. 1723 adds several provisions. First, S. 1723 would require both establishment and designated federal entity IGs "to appoint a Counsel to the Inspector General who shall report to the Inspector General." Second, S. 1723 states the mission of the CIGIE differently from the one stated in H.R. 928 . Previously, both bills called on the CIGIE to "increase the professionalism and effectiveness of personnel by developing policies, standards, and approaches to aid in the establishment of a well-trained and highly skilled workforce in the offices of the Inspectors General." However, the version of H.R. 928 passed by the House eliminated this language. S. 1723 includes the above language and would expand the Council's mission to "address integrity, economy, and effectiveness issues that transcend individual Government agencies." Currently, the mission of the CIGIE as expressed in the version of H.R. 928 passed by the House is "to coordinate and enhance governmental efforts to promote integrity and efficiency and to detect and prevent fraud, waste, and abuse in Federal programs." Finally, the House-passed H.R. 928 addresses a concern raised in the Bush Administration's veto threat: "that disclosure protections regarding the Witness Security Program apply to the Department of Justice's Inspector General's internal investigative procedures and release of information." The Administration argued that the release of specific program information could put the safety of witnesses at risk, in addition to endangering program personnel and the program itself. The House-passed bill would eliminate a referral of "allegations of misconduct involving Department attorneys, investigators, or law enforcement personnel, where the allegations relate to the exercise of the authority of an attorney to investigate, litigate, or provide legal advice" by the DOJ IG to the Counsel, Office of Professional Responsibility of DOJ. S. 1723 does not include this provision. These two billsâ H.R. 928 and S. 1723 âare designed to provide broad-based, across-the-board initiatives to enhance the independence and accountability of the inspectors general operating under the Inspector General Act of 1978, as amended. This would occur through changes in the removal of IGs, notification of the OIG budget requests to Congress, fixing a term of office for the IGs, and establishing a Council on Integrity and Efficiency as well as an Integrity Committee, replacing counterparts created by executive order. In the 110 th Congress, the House has passed H.R. 928 , while the Senate Committee on Homeland Security and Governmental Affairs has held hearings on proposals along these same lines. A. Positions Where Statutes Stipulate that the President May Remove an Official Only for the Cause or Causes Cited Only for inefficiency, neglect of duty, or malfeasance in office: Federal Energy Regulatory Commission, Commissioners, 42 U.S.C. § 7171(b) Federal Labor Relations Authority, Members, 5 U.S.C. § 7104(b) Merit Systems Protection Board, Members, 5 U.S.C. § 1202(d) Merit Systems Protection Board, Chairman of Special Panel, 5 U.S.C. § 7702(d)(6)(A) Office of Special Counsel, Special Counsel, 5 U.S.C. § 1211(b) Only for inefficiency, neglect of duty, malfeasance in office, or ineligibility: National Mediation Board, Members, 45 U.S.C. § 154, First Only for neglect of duty or malfeasance in office: Consumer Product Safety Commission, Commissioners, 15 U.S.C. § 2053(a) National Labor Relations Board, Members, 29 U.S.C. § 153(a) Social Security Administration, Commissioner, 42 U.S.C. § 902(a)(3) Only for general cause: Postal Rate Commission, Commissioners, 39 U.S.C. § 3601(a) B. Positions Where Statutes Omit the Term "Only" Before the Cause or Causes Cited for Removal Inefficiency, neglect of duty, or malfeasance in office: Federal Mine Safety and Health Review Commission, Commissioners, 30 U.S.C. § 823(b)(1) Federal Trade Commission, Commissioners, 15 U.S.C. § 41 National Transportation Safety Board, Members, 49 U.S.C. § 1111(c) Nuclear Regulatory Commission, Commissioners, 42 U.S.C. § 5841(e) Occupational Safety and Health Review Commission, Commissioners, 29 U.S.C. § 661(b) Surface Transportation Board, Members, 49 U.S.C. § 701(b)(3) For cause: Federal Reserve System, Board of Governors, 12 U.S.C. § 242 C. Positions Where President Need Only Communicate Reasons for Removal to the Senate or to Both Houses of Congress Archivist of the United States, 44 U.S.C. § 2103 Chief Benefits Officer, Department of Veterans Affairs, 38 U.S.C. § 306(c) Chief Medical Officer, Department of Veterans Affairs, 38 U.S.C. § 305(c) Comptroller of the Currency, 12 U.S.C. § 2 Director of the Mint, 31 U.S.C. § 304(b)(1) | Congress has long taken a leadership role in establishing and sustaining offices of inspector general (OIGs), which now exist in more than 60 federal departments and agencies. This effort began with Congress's initiation of the first contemporary statutory inspectors general (IGs) in 1976; it has continued with passage of the broadly encompassing 1978 Inspector General (IG) Act and 1988 Amendments as well as with additions and modifications in the meantime. In the 110 th Congress, two bills designed to increase the IGs' independence and accountability or otherwise modify specific provisions have been introducedâ H.R. 928 and S. 1723 . These bills are similar, and their major provisions include a fixed term of office for IGs; removal for cause only; apprisal of the intention to remove or transfer an IG given to Congress 15 or 30 days in advance; notification of the annual IG budget request to Congress and the Office of Management and Budget (OMB) when the IG submits it to agency administration; establishment of a Council of Inspectors General on Integrity and Efficiency, replacing the two current councils operating under executive order; and creation of an Integrity Committee composed of Council members to investigate allegations of wrongdoing by an inspector general or officials in the office. The House Oversight and Government Reform Committee reported H.R. 928 with some changes on September 27, 2007. The Bush Administration has taken exception to several provisions in H.R. 928 âremoval for cause, transmittal of budget requests to Congress, and an independent IG Councilâand, on October 1, 2007, threatened a veto of the legislation. The House passed H.R. 928 , with amendments, by a vote of 404-11 on October 3, 2007. This report, which will be updated as developments dictate, covers the main provisions of the proposals. |
The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) provides funding for various education programs. Among these programs, ARRA includes the State Fiscal Stabilization Fund, which provides federal funding to states to support elementary, secondary, and postsecondary education. Funds for modernization are available to public and private institutions of higher education in ARRA and the use of these funds is limited in order to comport with the requirements of the Establishment Clause of the First Amendment. Because the Establishment Clause prohibits the government from providing direct aid to religious activities, these institutions are prohibited from using funds received to modernize facilities that have religious uses or purposes. This report will provide a brief overview of ARRA's limitations on funding to religious schools, including proposals in the House and Senate versions of the bill. It will also analyze the constitutionality of the distribution of federal money to religious schools in the context of common questions raised by these provisions. ARRA provided that school modernization was an allowable use of funds under the SFSF, indicating a compromise resulting from the different versions of the bill passed by the House and Senate. Prior to enactment, the House passed its version of H.R. 1 (the House bill) and the Senate passed S.Amdt. 570 , an amendment in the nature of a substitute to H.R. 1 (the Senate bill). The House bill, but not the Senate bill, would have specifically created new programs to support school modernization, renovation, and repair at the elementary, secondary, and postsecondary education levels. Both the House bill and the Senate bill would have provided general funds for education to support state fiscal stabilization. This section will provide an overview of the relevant programs and corresponding prohibitions on the use of funds. Because questions have been raised regarding the previous versions and actions taken by the House and Senate, the proposed provisions of the House and Senate bills follow the enacted provisions in ARRA. As passed by the House and Senate, ARRA includes a prohibition on the use of funds provided under Title XIV, the State Fiscal Stabilization Fund (SFSF). The SFSF allocates federal funds to states to support elementary, secondary, and postsecondary education. The SFSF authorizes state governors to use a portion of the state's allocation "for modernization, renovation, or repair of public school facilities and institutions of higher education facilities." This authorization is available to only public elementary and secondary schools, but is available to both public and private (including private religious) institutions of higher education. ARRA limits the use of money received under the SFSF to comport with the Establishment Clause of the First Amendment. In addition to making the funds available only to public elementary and secondary schools, the SFSF provides that money provided by the Fund to institutions of higher education may not be used for: modernization, renovation, or repair of facilities – (A) used for sectarian instruction or religious worship; or (B) in which a substantial portion of the functions of the facilities are subsumed in a religious mission. The House bill proposed a new program to support school modernization, renovation, and repair of facilities at institutions of higher education. The funds provided under this program would have been available to public and private (including private religious) institutions of higher education, but the use of the funds would have been restricted. Specifically, the House bill would have prohibited money provided under the modernization program from being used for: modernization, renovation, or repair of facilities – (i) used for sectarian instruction, religious worship, or a school or department of divinity; or (ii) in which a substantial portion of the functions of the facilities are subsumed in a religious mission. The Senate bill did not include the specific modernization program proposed by the House bill, nor did it include modernization funding under the state fiscal stabilization fund. Before the Senate passed S.Amdt. 570 , the Senate debated S.Amdt. 98 , an amendment in the nature of a substitute for H.R. 1 . S.Amdt. 98 would have created a modernization program for institutions of higher education and included the same prohibition on the use of funds as was provided in the House bill. During debate of S.Amdt. 98 , the so-called DeMint amendment was proposed and later failed. The DeMint amendment would have invalidated the prohibition on the use of funds included in S.Amdt. 98 . The Establishment Clause of the First Amendment provides that "Congress shall make no law respecting an establishment of religion.... " The U.S. Supreme Court has construed the Establishment Clause, in general, to mean that government is prohibited from sponsoring or financing religious instruction or indoctrination. The Court has interpreted the Establishment Clause in numerous lines of decisions (e.g., government aid to religious organizations, access to public facilities for religious purposes, etc.). The Court has drawn a constitutional distinction between aid that flows directly to sectarian schools and aid that benefits such schools indirectly as a result of a voucher or tax benefit program. Generally, restrictions on direct aid are greater than restrictions on indirect aid. In direct aid programs, such as the funding provided for modernization in ARRA, a government program provides aid directly to a religious organization or program. The Court requires that direct aid serve a secular purpose and not lead to excessive entanglement with religion. It also requires that the aid be secular in nature, that its distribution be based on religiously neutral criteria, and that it not be used for religious indoctrination. In a series of cases in the 1970s, the Court limited the use of public funds for the construction and maintenance of religious schools under the Establishment Clause. In 1971, the Court upheld as constitutional a federal program that provided grants to colleges, including religiously affiliated colleges, for the construction of needed facilities, so long as the facilities were not used for religious worship or sectarian instruction. In 1973, the Court upheld a program in which a state issued revenue bonds to finance the construction of facilities at institutions of higher education, including those with a religious affiliation. The program met constitutional requirements because it barred the use of the funds for any facility used for sectarian instruction or religious worship. Also in 1973, although the Court had just upheld aid for construction and repairs to religious institutions of higher education, the Court held that public funds could not subsidize maintenance and repair of sectarian elementary and secondary school facilities, including costs for heating, lighting, renovation, and cleaning. Because Establishment Clause restrictions are heightened in elementary and secondary school settings due to the impressionable nature of those students, the Court imposes greater restrictions on aid provided to elementary and secondary schools. Previous legislation has included provisions that are similar to the prohibition on the use of funds included in the SFSF. The following examples of legislation impose limitations on the use of funds for sectarian instruction or religious worship. No Child Left Behind Act of 2002, P.L. 107-110 Workforce Investment Act of 1998, P.L. 105-220 Higher Education Amendments of 1992, P.L. 102-325 National and Community Service Act of 1990, P.L. 101-610 Higher Education Amendments of 1986, P.L. 99-498 Nurse Education Amendments of 1985, P.L. 99-92 Job Training Partnership Act of 1982, P.L. 97-300 Omnibus Budget Reconciliation Act of 1981, P.L. 97-35 Education Amendments of 1980, P.L. 96-374 Comprehensive Older Americans Act Amendments of 1978, P.L. 95-478 Comprehensive Employment and Training Act of 1973, P.L. 93-203 These examples are not an exhaustive list, but rather, represent a sample of legislation that has restricted the use of funds based on religion. Other legislation has also included slightly different restrictions on the use of funds based on religion. For example, the Higher Education Amendments of 1998 also included a prohibition on the use of funds for religion. The provision stated that no project using public funds "shall ever be used for religious worship or a sectarian activity or for a school or department of divinity." In comparison, the Higher Education Amendments of 1986 stated that "no grant may be made under this Act for any educational program, activity, or service related to sectarian instruction or religious worship, or provided by a school or department of divinity." Although the language in these two provisions appears similar, there is a difference in the limitations imposed on sectarian activity versus sectarian instruction. Instruction may be seen as a specific type of activity. Thus, the provision from the 1998 amendments may be read more broadly than the provision included in the 1986 amendments. A prohibition on the use of funds for projects that involve "sectarian activity," like the 1998 amendments, may be interpreted to include any religious activity, whether that activity be an individual private activity such as prayer, an official group activity such as a faith-sharing group meeting, or religious instruction. A prohibition like in the 1986 amendments that relates only to programs, activities, or services involving religious instruction or worship would provide a more specific restriction on the types of activities included under the provision and appears to eliminate an interpretation that would limit individuals' independent religious activities. Religious institutions of higher education are eligible to receive funds provided under the SFSF. ARRA specifically provides that the receipt of public funds authorized as part of SFSF is not dependent on "the type or mission of [the] institution of higher education." No institution of higher education, regardless of religious affiliation, may use the funds for facilities that either: (a) are used for sectarian instruction or religious worship, or (b) are substantially subsumed in a religious mission. A school is not prohibited from receiving funds if it holds religious ceremonies on campus or if other buildings are used for religious purposes. Rather, the school is prohibited from using funds it receives for the particular facilities in which these activities occur. For example, this prohibition would forbid a college from using funds received from the SFSF to repair a chapel or synagogue. The prohibition would also forbid a university from using funds to modernize a faith-based student center (e.g., the Baptist Student Center or the Muslim Student Association House), because even if such a facility may not be used for instruction or worship, a substantial portion of activities of such a facility would likely be considered to have a religious mission. On the other hand, a general student center, not dedicated to the use of a particular group, but generally available to many activities and groups, would not fit within this prohibition, even if it was occasionally used by religious groups for religious purposes. Some have argued that the first element of the prohibition on the use of funds under the SFSF broadens the general prohibition traditionally used to limit public funding to religious organizations. According to this argument, the prohibition of the use of funds for facilities " used for sectarian instruction or religious worship" (emphasis added) might be construed to prohibit colleges and universities from using SFSF money for student dormitories because some students may use their dorm rooms for religious prayer or small faith group sessions which may include instruction or worship. This argument suggests that the standard by which funds will be limited is unclear under the statutory language. ARRA imposes no specific standard regarding the degree to which a facility must be used for religious purposes. Rather, it provides a broad prohibition that appears to restrict the provision of funds if the facility that would benefit from the funds is ever used for religious purpose. Therefore, a literal reading of the provision may prohibit the use of funds under the SFSF from being used for a building in which a religious student group convenes for private worship or a dormitory in which students exercise religious prayer. However, Supreme Court decisions and the typical administration of such a program through the agency regulation process would indicate such a broad reading is inappropriate and unlikely to be applied by courts. Current Supreme Court precedent prohibits the government from directly funding religious activities, which may include religious instruction or worship, but under a line of decisions separate from the direct funding cases, the Supreme Court has held that the Establishment Clause does not forbid religious groups from using or having access to public facilities. The Court has held that it is unconstitutional to deny religious groups access to public facilities, including public schools, if the same facilities are made available to nonreligious groups. Restrictions that forbid religious groups from using public facilities while allowing nonreligious groups to have access treat religious groups differently in a manner that suggests disapproval of religion, in violation of the Establishment Clause. The Court interpreted the First Amendment's requirement of equal access to include access to benefits offered by public institutions when it required a public university to provide student activity funds to student groups regardless of the religious content of the group's activities. These decisions indicate a requirement of neutrality in the treatment of religious groups and activities and nonreligious groups and activities when dealing with public resources. If an institution of higher education applies the prohibition on the use of funds literally (i.e., prohibiting student religious groups from meeting in any facility modernized, renovated, or repaired by SFSF funds), that institution's action likely would be considered a violation of the First Amendment only if it allows nonreligious groups to meet in the same facility. The Court's rulings indicate that facilities funded by public money are required to comply with restrictions imposed on public buildings. These restrictions prohibit discrimination against groups allowed access or use of the facility based on the group's religious affiliation if the facility is used by others for similar, but nonreligious, purposes. For instance, if an institution of higher education uses public funds under the SFSF to renovate a student center and makes it available to student groups for meetings, the First Amendment mandates that religious student groups also be allowed to hold meetings in the facility, despite public funds being used in its renovation. On the other hand, if a university uses the SFSF funds for an academic building that it allows to be used only for classroom instruction and does not allow any group meetings, it may also prohibit religious groups from meeting in the facility. Furthermore, because the government is not responsible for private individual choices to exercise religion in public facilities, the prohibition on the use of funds for facilities used for religious activity could not be read to prohibit individual religious exercise in a dormitory, as such actions are also protected by the Free Exercise Clause of the First Amendment. It is significant to note that programs that distribute public funds are typically administered by government agencies. These agencies, having specialized knowledge and experience in the program's field, often address the limitations of the funding more specifically through program regulations. Therefore, although the proposed statutory language may be written broadly, Supreme Court precedent and agency regulations implementing similar provisions indicate that the program likely would not be administered under such a broad interpretation. In each of the Court's previous construction and repair cases, the Court refused to allow public aid for religious schools if that aid would be used for facilities used for sectarian instruction or religious worship. Although the Court's interpretation of the Establishment Clause's requirements for direct funding cases has evolved since the 1970s cases in which the Court addressed this issue specifically, the later decisions that revisited the requirements of direct aid programs likely would not alter the outcome of the school construction and maintenance cases that might arise under this legislation. The use of SFSF funds for educational facilities' modernization and repair serves a secular purpose of supporting education and public safety. Because ARRA requires funds to be used for certain purposes, which generally address building safety and efficiency issues, courts are unlikely to conclude there is excessive entanglement with religion as a result of government-funded repairs on facilities. Furthermore, the aid provided would be secular in nature and would be distributed on a religiously neutral basis. That is, colleges would be eligible to receive the aid, regardless of their public status or religious affiliation. Finally, the prohibition on the use of funds for certain religiously related purposes limits the aid from being used for religious purposes. The prohibition, therefore, is likely constitutionally required under current Supreme Court precedent. If the prohibition had not been included explicitly in the statutory language, the restrictions would still apply as a matter of constitutional law. Including the provision in the law would explicitly clarify that the restrictions required by the First Amendment apply to this aid program. | The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) provides funding for various educational programs, including a State Fiscal Stabilization Fund. The State Fiscal Stabilization Fund (SFSF) provides federal funding to states to support elementary, secondary, and postsecondary education. Although federal money provided by the SFSF is available only to public elementary and secondary schools, public and private institutions of higher education are eligible to receive federal money from the SFSF. Because the Establishment Clause of the First Amendment limits the extent to which the government may provide funds to religious organizations, the SFSF also includes a provision that prohibits funds from being used for facilities with religious uses or purposes. This report will provide a brief overview of the prohibition on the use of funds by institutions of higher education, including proposals considered by the House and Senate before ARRA was enacted. It will also analyze the constitutionality of the distribution of federal money to religious schools in the context of common questions raised by these provisions. |
The General Services Administration (GSA) manages the federal government's charge card program, known as SmartPay. Through SmartPay, agencies are able to select charge card products and services from contracts that GSA has negotiated with major banks. The contracts allow agencies to select different types of charge cards, depending on their needs. SmartPay charge card options include purchase cards (for supplies and services), travel cards (for airline, hotel, and related expenses), and fleet cards (for fuel and supplies of government vehicles.) This report focuses on purchase cards. The use of purchase cards has expanded at a rapid rate since the mid-1990s. Spurred by legislative and regulatory reforms designed to increase purchase card use for small acquisitions, the dollar volume of federal government purchase card transactions grew from $527 million in FY1993, to $19.3 billion in FY2009. While the use of purchase cards has been credited with reducing administrative costs, audits of agency purchase card programs have found varying degrees of waste, fraud, and abuse. One of the most common risk factors cited by auditors is a weak internal control environment: many agencies have failed to implement adequate safeguards against card misuse, even as their purchase card programs grew. In response to these findings, Congress has held hearings and introduced legislation that would enhance the management and oversight of agency purchase card programs. In addition, the Office of Management and Budget (OMB) has issued guidance that requires agencies to implement internal controls that are designed to minimize the risk of purchase card abuse. This report begins by providing background on agency purchase card programs. It then discusses identified weaknesses in agency purchase card controls that have contributed to card misuse, and examines legislation introduced in the 111 th Congress that would address these weaknesses. The government's purchase card program has its origins in Executive Order 12352, issued by President Reagan in 1982. E.O. 12352 directed agencies to develop programs that simplified procedures and reduced the administrative costs of procurement, particularly with regard to "small" purchases ($25,000 or less). Several agencies subsequently participated in a pilot program that evaluated the use of a commercial credit card, called a purchase card, as an acquisition tool. At the time, even a routine order for widely available items, such as office supplies, typically required agency program staff to submit a written procurement request to a contracting officer, who reviewed it, obtained the necessary authorizing signatures, made the actual purchase, and processed the associated paperwork. To critics, this process was inefficient, especially for small purchases. Not only was it time-consuming for both program and procurement personnel, but it also prevented program offices from quickly filling immediate needs. Under the pilot program, non-procurement staff used purchase cards to conduct small-dollar transactions directly with local suppliers, thus bypassing procurement officers entirely. A report on the pilot program concluded that purchase cards could reduce administrative costs and improve delivery time, and in 1989 the Office of Management and Budget (OMB) tasked GSA with making purchase cards available government-wide. Participation in GSA's purchase card program was not mandatory, and card use did not initially grow as rapidly as some had expected. In 1993, however, a report issued by the National Performance Review (NPR) sparked a number of legislative and regulatory reforms intended to increase purchase card use. The NPR was a Clinton Administration initiative, headed by Vice President Al Gore, that sought to "reinvent" the federal government by making government operations both less expensive and more effective. One of the NPR's objectives was to identify opportunities to streamline a number of government-wide processes, including procurement. Drawing on input from experts in the public and private sectors, the initial report of the NPR recommended expanding the use of purchase cards across the government, a step it said would "lower costs and reduce bureaucracy in small purchases." In a separate report that focused solely on procurement, the NPR estimated that if half of all small acquisitions were made using purchase cards, the government would realize $180 million in savings annually. The report further recommended amending the Federal Acquisition Regulation (FAR)—the government's primary source of procurement guidance—to promote the use of purchase cards for small purchases. Building on the NPR's recommendations, Congress passed the Federal Acquisition Streamlining Act (FASA; P.L. 103-355 ) in 1994. FASA introduced several reforms that increased the use of purchase cards. Among these, Title IV of FASA established a simplified acquisition threshold of $100,000. Purchases at or below the threshold were exempted from the provisions of a number of procurement laws. This reform significantly reduced the administrative burden and procurement expertise needed to make small purchases. To further streamline procedures for the smallest acquisitions, Title IV also established a "micro-purchase" threshold of $2,500 (which was increased to $3,000 in 2006). FASA further exempted micro-purchases from sections of the Buy American Act and the Small Business Act, and they could be made without obtaining a competitive bid, if the cost was deemed reasonable by the cardholder. At the same time, the Clinton Administration took steps to increase the use of purchase cards. Citing the need to make agency procurement procedures "more consistent with recommendations of the National Performance Review," President Clinton issued Executive Order 12931 on October 13, 1994. E.O. 12931 directed agency heads to (1) expand purchase card use; and (2) delegate the micro-purchasing authority provided in FASA to program offices, which would enable them to make such purchases directly. E.O. 12931 also directed agency heads to streamline procurement policies and practices that were not mandated by statute, and to ensure that their agencies were maximizing their use of the new simplified acquisition procedures. In addition, the FAR was amended in 1994 to designate the purchase card as the "preferred method" for making micro-purchases, and to encourage agencies to use the card for purchases of greater dollar amounts. Card use increased sharply as agencies implemented these reforms. The dollar value of goods and services acquired with purchase cards increased from $527 million in FY1993 to $19.3 billion in FY2009. During that same time span, the number of cardholders nearly tripled to 270,000, and the number of purchase card transactions increased from 1.5 million to just under 21.8 million in FY2009. The flexibility of the purchase card may have contributed to its growth: it could be used for in-store purchases, which allowed the cardholder to take immediate possession of needed goods, or it could be used to place orders by phone or over the internet and have goods delivered. According to GSA, the use of purchase cards now saves the government $1.7 billion a year in administrative costs. The federal purchase card program is implemented by individual agencies, with the involvement of GSA and OMB. In broad terms, agencies establish and maintain their own programs, but they select purchase card services from contracts that GSA negotiates with selected banks, and their programs must conform to the government-wide guidance issued by OMB. Each agency is responsible for establishing its own purchase card program. The agency, within the framework of OMB guidance, establishes internal rules and regulations for purchase card use and management, decides which of its employees are to receive purchase cards, and handles billing and payment issues for agency purchase card accounts. Two levels of supervision generally exist within an agency's purchase card program. Individual cardholders are assigned to an Approving Official (AO). The AO is considered the "first line of defense" against card misuse, and agency policies often require the AO to ensure that all purchases comply with statutes, regulations, and agency policies. To that end, the AO may be responsible for authorizing cardholder purchases, either by approving purchases before they are made or by verifying their legitimacy through reviews of cardholder statements and supporting documentation, such as receipts. The AO may also be required to ensure that statements are reconciled and submitted to the billing office in a timely manner. Each agency also appoints an Agency Program Coordinator (APC) to serve as the agency's liaison to the bank and to GSA. At some agencies, each major component has an APC, one of whom is chosen to serve as the agency's liaison. The APCs are also usually responsible for agency-wide activities, such as developing internal program guidelines and procedures, sampling cardholder transactions to identify fraudulent or abusive purchases, setting up and deactivating accounts, and ensuring that officials and cardholders receive proper training. GSA's primary responsibility is to negotiate and administer contracts with card vendors on behalf of the government. In June 1998, agency purchase card programs began operating under GSA's SmartPay initiative. SmartPay permitted agencies to select a range of credit card products from five banks with which GSA had negotiated contracts. The SmartPay contracts established prices, terms, and conditions for credit card products and services from five banks. Purchase cards were established as centrally billed accounts under the contracts, which meant that agencies, and not individual cardholders, were billed for purchases. The contracts required agencies to make payment in full at the end of each billing cycle. New purchase card contracts—known collectively as SmartPay2—were negotiated between GSA and four banks in June 2007. Most agencies completed the transition to the new contracts by November 2008. SmartPay2 operates in largely the same manner as SmartPay, although some new products and services are available under the SmartPay2 contracts. OMB issues charge card management guidance that all agencies must follow. This guidance, located in Appendix B of OMB Circular A-123, establishes agencies' responsibilities for implementing their purchase, travel, and fleet card programs. Chapter 4 of Appendix B identifies the responsibilities of charge card managers in developing and implementing risk management controls, policies, and practices (often referred to collectively as "internal controls") that mitigate the potential for charge card misuse. Agency charge card managers must ensure that cardholder statements, supporting documentation, and other data are reviewed to monitor delinquency and misuse; key duties are separated, such as making purchases, authorizing purchases, and reviewing and auditing purchase documentation; records are maintained for training, appointment of cardholders and authorizing officials, cardholder purchase limits, and related information; disciplinary actions are initiated when cardholders or other program participants misuse their cards; appropriate training is provided for cardholders, approving officials, and other relevant staff; employees are asked about questionable or suspicious transactions; and charge card statement reconciliation occurs in a timely manner. Chapter 4 also identifies administrative and disciplinary actions that may be imposed for charge card misuse, such as deactivation of employee accounts, and it requires managers to refer suspected cases of fraud to the agency's Office of Inspector General or the Department of Justice. Circular A-123 provides OMB with oversight tools by requiring agencies to submit each year a charge card management plan that details their efforts to implement and maintain effective internal controls and minimize the risk of card misuse and payment delinquency. It also requires agencies to report the number of AOs it has appointed, the average number of monthly purchase card transactions each AO reviews, the number of reported cases of misuse, and the number of disciplinary actions taken in response to misuse. Audits of agency purchase card programs conducted by the Government Accountability Office (GAO) and agency inspectors general (IGs) have attracted congressional attention with their revelations of abusive purchases made by government employees. Among the many cases of abuse cited by auditors are a Department of Agriculture employee who, over a period of six years, used her purchase card to funnel $642,000 to her boyfriend; a Forest Service employee who charged $31,342 to his purchase card for personal items, including Sony Playstations, cameras, and jewelry; and a Coast Guard cardholder who used his purchase card to buy a beer brewing kit—and then brewed alcohol while on duty. Congress has held several hearings to address purchase card misuse and the underlying internal control weaknesses that auditors say allowed it to occur. The following paragraphs discuss these weaknesses identified in audit reports published between 2002 and 2008. One of the primary safeguards against improper use of government purchase cards is the review and approval of cardholder transactions by someone other than the cardholder. As noted, purchase card AOs are usually responsible for reviewing the cardholder's monthly statement. Given that the AO is often the only person other than the cardholder to assess the validity of a purchase before payment is made to the purchase card vendor, the review and approval process is considered one of the most critical components of an agency's purchase card control environment. Steven Kutz, GAO's Managing Director of Forensic Audits and Special Investigations, stated in testimony before the Senate, Basic fraud prevention concepts and our previous audits of purchase card programs have shown that opportunities for fraud and abuse arise if cardholders know that their purchases are not being properly reviewed. Despite the importance of the AO's role in preventing and detecting improper purchases, some agencies have failed to ensure that cardholder statements were carefully reviewed prior to their approval. At the Department of Education, auditors estimated that 37% of monthly cardholder statements they reviewed had not been approved by the AO. Most recently, GAO reported that nearly one of every six purchase card transactions government-wide had not been properly authorized. Even when AOs did conduct reviews, they often failed to meet government standards. Agencies are required by OMB to ensure that cardholder statements are compared with supporting documentation, such as invoices and receipts, as part of the review process. This is necessary because purchase card statements are rarely itemized; they usually provide only the store or contractor name and the amount charged. For AOs, receipts and invoices are the principal means of verifying what items were purchased and determining whether those items were for legitimate program purposes. Many agencies have not ensured that supporting documentation is available and examined as part of the review and approval process, according to GAO. An audit of HUD's purchase card program found that the agency did not have adequate documentation for 47% of transactions auditors deemed questionable—purchases from merchants that are not normally expected to do business with HUD—which meant auditors "were unable to determine what was purchased, for whom, and why." Similarly, a 2004 audit of the Veterans Health Administration's (VHA's) purchase card program estimated that $313 million of its transactions lacked key supporting documentation. One consequence of these weaknesses is that fraudulent and abusive transactions may slip through the review process unnoticed. For instance, GAO found that AOs at agencies across the government have approved cardholder statements that included transactions that should have been questioned, such as purchases of jewelry, home furnishings, cruise tickets, electronics, and other consumer goods. At the Forest Service, one employee used her purchase card over a period of years to accumulate more than $31,000 in jewelry and electronics. Similarly, HUD cardholders spent $27,000 at department stores like Macy's and JCPenney in a single year. In one egregious case, an FAA employee had his statement approved even though it showed he violated agency policy by charging cash advances to his purchase card—while at a casino. The want of adequate oversight is also evident where AOs have approved duplicate transactions—vendors charging the government twice for the same goods or services—and purchases made by someone other than the cardholder. One audit identified an estimated $177,187 in duplicate charges at one agency. An audit at the Federal Aviation Administration (FAA) discovered that a cardholder had allowed unauthorized individuals to charge over $160,000 to her purchase card account. When unauthorized and duplicate transactions are identified by the AO, they should be disputed under the process described in the SmartPay master contract. When AOs fail to identify and dispute fraudulent charges, the government often pays them in full or fails to obtain a refund from the purchase card vendor. GAO further found that many agencies fail to monitor and evaluate the effectiveness of their purchase card controls, a responsibility that is often assigned to the APC. Monitoring and evaluation may include sampling purchase card transactions for potentially improper purchases, ensuring purchase card policies are being properly implemented across the agency or component, and assessing program results. These duties are often unfulfilled. At FAA, for example, an audit found that APCs "generally were not" utilizing available reports to detect misuse and fraud, nor was the headquarters APC taking steps to assess the overall program. Similarly, an audit of the Forest Service purchase card program found that the agency's APCs failed to review sampled transactions for erroneous or abusive purchases, as required by U.S. Department of Agriculture regulations. Agencies are required to ensure that key procurement functions are handled by different individuals. When having goods shipped, for example, the same person should not both approve and place the order, or both place the order and receive the goods. At many agencies, however, the cardholder may perform two functions that should be separated, which increases the possibility that items may be purchased for personal use, lost, or stolen. In March 2008, GAO estimated that agencies were unable to document separation of duties for one of every three purchase card transactions. Three Navy cardholders ordered and received $500,000 of goods for themselves with their purchase cards before getting caught. In this way, inadequate separation of duties may contribute to millions of dollars of items that agencies have purchased which cannot be located. Items that are easily converted to personal use—commonly referred to as "pilferable property"—are particularly vulnerable to loss and theft. The Department of Education, for example, could not account for 241 personal computers bought with purchase cards at a cost of $261,500. An audit of FEMA's spending on items related to hurricane recovery found that $170,000 worth of electronics equipment acquired with purchase cards had not been recorded in FEMA's property records and could not be found. Given the complexities of federal procurement policies and procedures, training on the proper use and management of purchase cards is considered an important component of an agency's internal control environment. It is through this training that cardholders, approving officials, and program managers learn their roles in ensuring compliance with applicable regulations and statutes, and in reducing the risk of improper card use. To that end, OMB requires all agencies to train everyone who participates in a purchase card program. Cardholders are to be trained on federal procurement laws and regulations, agency policies, and proper card use. Approving officials are required to receive the same training as cardholders, in addition to training in their duties as AOs. Program managers are required to be trained in cardholder and AO responsibilities, as well as management, control, and oversight tools and techniques. In addition, all purchase card program participants are supposed to take their initial training prior to appointment (e.g., becoming a cardholder, or being designated as an AO or program manager) and receive refresher training at least every three years. A number of agencies have not fully implemented OMB's training requirements. A report by the inspector general at the Department of the Interior, for example, noted that the Department of the Interior had not provided any training to its AOs, and concluded that many of those officials were not performing adequate reviews. The AOs themselves reportedly said that they did not know how to conduct a proper review of purchase card transactions, or how and why to review supporting documentation—both subjects that are normally included in AO training. Similarly, an audit at FAA concluded that the agency's failure to provide refresher training for cardholders and AOs may have contributed to violations of statutory sourcing requirements. The failure to comply with sourcing statutes, which require agencies to purchase certain goods and services from specified vendor categories, may undermine congressional procurement objectives. The Javits-Wagner-O'Day Act (JWOD), for example, requires the government to buy office supplies and services from non-profits that employ blind and disabled Americans. Cardholder failure to comply with the provisions of JWOD and other sourcing statutes is widespread enough that GAO has estimated that tens of millions of dollars of purchase card transactions may have been conducted with vendors other than the ones Congress intended. The number of cardholders grew from under 100,000 in FY1993 to 680,000 in FY2000. After auditors expressed concerns that the government had issued too many credit cards and provided excessive credit limits—factors that raised the risk of card misuse—OMB issued a memorandum in April 2002, that required agencies to examine the number of purchase cards they issued and to consider deactivating all cards that were not a "demonstrated necessity." That same year, provisions in the Bob Stump National Defense Authorization Act for FY2003 ( P.L. 107-314 ) required the Department of Defense (DOD) to establish policies limiting both the number of purchase cards it issued and the credit available to cardholders. These reforms contributed to a net decrease of 410,000 government purchase cards between FY2000 and FY2009. Despite this decrease in the total number of purchase card users, audits indicate that a number of agencies, including some with relatively large purchase card programs, have yet to establish appropriate controls over card issuance and credit limits. A 2006 GAO report on purchase cards at the Department of Homeland Security (DHS), for example, identified 2,468 cardholders—about 20% of all DHS cardholders—who had not made any purchases in over a year. Similarly, a congressionally directed audit of the Veterans Health Administration's (VHA's) $1.4 billion purchase card program found that VHA had issued cards with credit limits up to 11 times greater than the cardholders' historical spending levels, thereby exposing its program to unnecessary risk. It is not known how many other agencies have not developed and implemented appropriate internal controls over card issuance and credit limits, so the extent of the government's financial exposure is also unknown. Former OMB Director Jim Nussle, in response to a March 2008 audit report that detailed incidences of purchase card abuse at several agencies, issued a memorandum on April 15, 2008, that outlined steps agencies must take to strengthen their internal controls. The requirements included developing more specific guidelines for (1) documenting independent receipt of items obtained with purchase cards, (2) inventorying items bought with purchase cards that are easily stolen, and (3) imposing disciplinary actions for purchase card misuse. Agencies also had to develop policies that require cardholders to obtain approval or subsequent review of purchase card activity below the micro-purchase threshold. On January 15, 2009, OMB issued revisions to its charge card guidance, which is contained in Appendix B of Circular A-123. The updated guidance included a requirement for cardholders, approving officials, or both to reimburse the government for unauthorized transactions or erroneous transactions that were not disputed. The updated guidance also required agencies to issue policies and procedures that would reduce the likelihood of loss or theft of property acquired with a purchase card. The Government Credit Card Abuse Prevention Act was introduced in both the Senate ( S. 942 ) and the House ( H.R. 2189 ) on April 30, 2009. The bill was based largely on GAO's recommendations for strengthening agency internal controls over purchase and travel card programs. The bill would require all federal agencies, except the Department of Defense, to implement more than a dozen internal controls over their purchase card programs. Specifically, the bill would require agencies to ensure that cardholder statements and supporting documentation are regularly reviewed and reconciled; cardholders and officials are provided with proper training; each cardholder is assigned an approving official other than the cardholder; agencies use available technology to monitor activity and identify fraud; the number of cards issued and their credit limits are appropriate; and payment, dispute, and cost recovery procedures are effective. The bill would also mandate that non-DOD agencies develop penalties for card misuse and report on agency employees that violate purchase card policies, and require agency IGs to conduct periodic risk assessments and audits of agency purchase card programs to identify waste, fraud, and abuse. Provisions specific to DOD would require increased use of technology to prevent and identify fraudulent purchases, expanded risk assessment and audit practices, and development of more specific rules regarding card deactivation of former DOD employees. Few agencies are able to dedicate employees to work full-time as AOs; rather, AO duties, which include time-intensive activities such as reviewing cardholder statements, often fall to staff who already have full workloads. Not surprisingly, some AOs have said it is difficult to find the time to carefully review purchase card statements because of the demands of their other responsibilities. This problem may be compounded if the number of cardholders assigned to an AO—referred to as the span of control—increases. There is no government-wide span of control policy, but GAO has recommended that agencies assign no more than seven cardholders to each AO; beyond that 7:1 ratio, the ability of the AO to conduct effective oversight may be diminished, particularly when the AO has other, significant duties. Although data are limited, audits have found that, at some agencies, the span of control exceeds GAO's recommendation. In 2006, according to GAO, 2,150 purchase card holders at the Department of Homeland Security—nearly 20% of DHS's total number of cardholders—were managed by AOs with a span of control in excess of 7:1. Additional research might be useful for determining whether AOs are hindered in their ability to provide effective oversight due to either the number of accounts they are expected to monitor, or to the demands of their other duties, or both. | Since the mid-1990s, the use of government purchase cards has expanded at a rapid rate. Spurred by legislative and regulatory reforms designed to increase the use of purchase cards for small acquisitions, the dollar volume of government purchase card transactions grew from $527 million in FY1993, to $19.3 billion in FY2009. While the use of purchase cards has been credited with reducing administrative costs, audits of agency purchase card programs have found varying degrees of waste, fraud, and abuse. One of the most common risk factors cited by auditors is a weak internal control environment: many agencies have failed to implement adequate safeguards against card misuse, even as their purchase card programs grew. In response to these findings, Congress has held hearings and introduced legislation that would enhance the management and oversight of agency purchase card programs. One of the most comprehensive proposals in recent years is the Government Credit Card Abuse Prevention Act of 2009. Drawing on GAO recommendations, the bill would require agencies, other than the Department of Defense (DOD), to implement a specific set of internal controls, establish penalties for employees who misuse agency purchase cards, and conduct periodic risk assessments and audits of agency purchase card programs. DOD would be required to expand its use of technology to prevent and identify fraudulent purchases, conduct periodic risk assessments and audits, and develop more specific rules regarding card deactivation of former DOD employees. This report begins by providing background on agency purchase card programs. It then discusses identified weaknesses in agency purchase card controls that have contributed to card misuse, and examines legislation introduced in the 111th Congress that would address these weaknesses. The report will be updated as events warrant. |
This report answers several common questions regarding the London Interbank Offer Rate (LIBOR), an index representing prevailing interest rates in London money markets. Recently, the Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DOJ) reached settlements with Barclays, in which the British bank admitted submitting false responses to the survey used to calculate LIBOR and the Euro Interbank Offer Rate (EURIBOR) to manipulate the indexes. American policymakers have a number of concerns, including the possibility that American banks that participate in the LIBOR survey may also have attempted to manipulate the index, the effect that changes in LIBOR can have on borrowers and lenders whose contracts reference LIBOR to determine the interest rate of a loan, and the reliance of policymakers on LIBOR as one of the indicators of the stability of the financial system. For brevity and ease of exposition, this report focuses on LIBOR, although the manipulation and policy issues regarding EURIBOR are similar. LIBOR is an index that measures the cost of funds to large global banks operating in London financial markets or with London-based counterparties. The British Bankers' Association (BBA), a private trade association, constructs LIBOR, and Thomson Reuters publishes it worldwide. Each day, the BBA surveys a panel of banks, asking the question, "At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?" The BBA throws out the highest and lowest portion of the responses, and averages the remaining middle. The average is reported at 11:30 a.m. LIBOR is actually a set of indexes. There are separate LIBOR rates reported for 15 different maturities (length of time to repay a debt) for each of 10 currencies. The shortest maturity is overnight, the longest is one year. In the United States, many private contracts reference the three-month dollar LIBOR, which is the index resulting from asking the panel what rate they would pay to borrow dollars for three months. The panel surveyed to construct the dollar LIBOR is made up of the 18 banks listed in Table 1 . The U.S. banks on the dollar panel include Bank of America, Citibank, and JPMorgan Chase, although all of the listed banks have significant U.S. activities. For the dollar LIBOR, the highest 4 and lowest 4 responses of the 18 banks on the panel are thrown out, and the middle 10 are averaged. The panel of banks for the LIBOR for each currency is chosen according to a published set of criteria. Market share in London and in transactions of various maturities for the currency are important factors. The committee also considers a firm's reputation and expertise in transactions in a currency. Banks can apply to be participants in the LIBOR survey, and the number of reporting banks has changed occasionally. Similar indexes are reported for other locations by other banking associations. For example, there is a EURIBOR for Europe, and a TIBOR for Tokyo. A primary difference between these other indexes and LIBOR is that they measure the cost of borrowing funds in these other locations, for various maturities, in various currencies. The sponsoring organizations and the methodologies may vary slightly from place to place, but the public reporting and the ability of third parties to reference the indexes are similar. The LIBOR index is used in many ways. Many private loan contracts use LIBOR as a benchmark; for example, the interest rate on a mortgage, student loan, or car loan may be set to LIBOR plus a few percentage points. Many financial derivatives, such as an interest rate swap, compare a fixed interest rate to LIBOR (because LIBOR is capable of varying from day to day). Futures exchanges use LIBOR for contracts traded in the market. Policymakers use LIBOR as one element in even more complex indexes, such as the TED spread (Treasury-Eurodollar), used to assess the level of stress in financial markets. Private parties are not legally required to use LIBOR (or any other index) as a benchmark; instead, they choose to do so voluntarily. Conceptually, a lender setting the interest rate for a future loan might try to take into account what its cost of funds will be when the loan actually has to be issued. A lender knows that permanent surveys like LIBOR will be published on the future date on which a loan is to be offered. The contract could specify that on the future date, the borrower will be given the loan with an interest rate based on the index value of LIBOR reported on that day. Because LIBOR is meant to represent the cost of borrowing dollars by the largest banks in global financial markets, other lenders may choose LIBOR if they believe that their own cost of funds is likely to follow a similar pattern over time. Alternatives to LIBOR for private contracts exist, but may have shortcomings. Differences in the type of borrower or the maturity of the loan may make other benchmarks less suitable for some purposes. For example, lenders could choose to use the yield on U.S. Treasury securities as a benchmark. However, the recent financial crisis served as a reminder that the borrowing costs of banks do not always trend in the same direction as the borrowing costs of the U.S. government. Or, banks could use the Federal Funds Rate as a benchmark, but that rate is subject to changes for policy reasons, not just market conditions. The rate charged on interbank repurchase agreements in New York money markets could be an alternative, although repurchase agreements may be more analogous to collateralized debt under some circumstances. The appropriate alternative is likely to vary with the types of loans or the types of financial derivatives being benchmarked. The value of loans, derivatives, and other financial instruments that reference LIBOR is very large. One estimate by staff of the Federal Reserve Bank of Cleveland found that 45% of prime adjustable rate mortgages (ARMs) and 80% of subprime ARMs used LIBOR as the benchmark. A financial adviser to municipalities stated that about 75% of municipalities have some contracts tied to the index. Because the BBA throws out the highest and lowest survey responses, some people may think that a single bank on a LIBOR reporting panel cannot affect the final index. A single bank can affect the index, but will not always be able to move the index in the direction it wants, or may not be able to move the index at all, under some circumstances. It is possible for a single bank on the panel to affect the dollar LIBOR if the bank's response would have been within the middle of the responses, or if it can change which responses are the middle responses. An illustrative example follows. Recall that the dollar LIBOR panel is made up of 18 banks, with only the responses of the middle 10 being averaged. Suppose that 4 banks report an interest rate of 3%, the next 10 banks report an interest rate of 8%, and 4 banks report an interest rate of 10%. The dollar LIBOR would be calculated by throwing out all of the 3% and 10% responses because the calculation throws out the highest and lowest 4 responses. In this example, the remaining 10 responses are all 8%, so the average would be 80/10 = 8%. LIBOR would be reported at 8%. However, if a bank that would have reported 10% wants to lower the LIBOR, and the bank lowers its bid from 10% to below 8% (for the sake of this example, assume the response is changed to 2%), the average will change, even though the bank's response is still thrown out. Why? Because one of the 8% responses is now among the highest 4 responses, and one of the 3% responses is in the middle 10. The average is now 75/10=7.5%. In this example, a single bank could move the index from 8% to 7.5%. If the bank exaggerates its lie, perhaps by reporting 1% instead of 2%, the LIBOR remains 7.5% in this example. Thus, it is possible for a single bank to affect LIBOR under some circumstances, but there is a limit on the magnitude of the effect. In some cases, the actions of a single bank will not move the index. In the above example, if the bank that would honestly report a 10% response wanted to increase the LIBOR index instead of lowering it, a change in the bank's own response would not achieve the desired manipulation because it would not change the value of any of the middle responses, nor would it change the responses comprising the middle. Why? Because reporting 12% instead of 10% still leaves the same 10 responses in the middle to be averaged. In this example, LIBOR remains 8%. Barclays has admitted submitting false survey responses to manipulate LIBOR. Because LIBOR is used in U.S. derivatives markets participated in by Barclays, an attempt to manipulate LIBOR is an attempt to manipulate U.S. derivatives markets, and thus a violation of U.S. law. Barclays has settled separately with United Kingdom officials for violating UK law. Focusing on U.S. issues, the following describes Barclays' admissions with the CFTC and DOJ. The material in this section is drawn from the Statement of Facts in Appendix A of the settlement documents. The settlement documents signed by Barclays with the CFTC and DOJ include employee emails that can be divided into three categories documenting manipulation: (1) changing the survey response for the benefit of Barclays' derivatives trade positions, (2) changing the survey response to protect Barclays' reputation, and (3) attempting to induce other banks to change their survey responses. The first two categories, Barclays acting alone, can affect LIBOR under some circumstances, but the methodology of LIBOR's calculation limits the magnitude of any impact of a single bank submitting a false bid. The third category, collusion, can have an impact of greater magnitude, but the settlement documents report only Barclays' attempts to reach out to other panel responders. Like any large and complex global bank, derivatives trades make up only one part of Barclays' balance sheet. LIBOR survey responders are supposed to be from the firm's treasury office, or other general office, and kept separate from derivatives traders. During 2005-2007, Barclays' internal emails reveal derivatives traders asking other employees to submit false survey responses to benefit their trading positions. In one particularly telling email exchange, a survey responder says that he or she was happy to help, and the trader thanks the individual. Unlike many other divisions within Barclays, the derivatives traders' preferred LIBOR outcome changes direction from day to day; that is, on some days the derivatives traders prefer LIBOR to be high to benefit their position while on other days the traders prefer LIBOR to be low. Many other lines of business have only one preferred direction; for example, units of Barclays that pay interest will consistently prefer the LIBOR index to be low. In the settlement, Barclays admits that it submitted false survey responses (both too high and too low) during the 2005-2007 period. When global financial markets came under increasing stress during 2008, Barclays' management preferred that Barclays lower its responses to protect the firm's reputation. Barclay's managers said that they did not want Barclays' "head to be above the parapet," lest it be shot at. As financial turmoil increased throughout that year, large complex banks like Barclays were having increasing difficulty in raising funds. At times, Barclays' responses tended to be higher than other responders, drawing the attention of UK officials. UK financial regulators raised concerns with Barclays. If Barclays' LIBOR survey responses were significantly higher than those of other LIBOR panel responders, then global investors might take that as a sign of weakness at Barclays. Individual submissions are made public in part to promote transparency of the index. Upon hearing that UK officials raised concerns with Barclays' management that the firm's responses were high, some Barclays employees concluded that UK officials wanted Barclays to submit lower LIBOR responses, a conclusion that the managers who met with UK officials have said was not warranted. Unlike the 2005-2007 period during which Barclays submitted false responses in both directions, Barclays consistently under-reported its cost of funds in 2008. The Federal Reserve Bank of New York (FRBNY) reportedly raised concerns with Barclays about its LIBOR responses. Reportedly, the FRBNY also raised concerns with UK regulators and the BBA about the methodology for the LIBOR index. In response to congressional inquiries, FRBNY has posted several documents that reveal its concerns with LIBOR as it was being calculated and reported in 2008. Included among the documents are Explanatory Note; April 11, 2008: MarketSOURCE Weekly Market Review; May 6, 2008: Slide Deck of Presentation to U.S. Treasury, "Recent Developments in Short-Term Funding Markets"; May 20, 2008: MarketSOURCE report "Recent Concerns Regarding LIBOR's Credibility"; June 1, 2008: Timothy F. Geithner e-mail to Mervyn King, copying Paul Tucker, with attached "Recommendations for Enhancing the Credibility of LIBOR"; June 3, 2008: Mervyn King e-mail to Timothy F. Geithner; and June 5, 2008: Slide Deck of Presentation to the Interagency Financial Markets Group Meeting, "Market Concerns Regarding LIBOR." | The London Interbank Offer Rate (LIBOR) is an estimate of prevailing interest rates in London money markets. Barclays, a British bank that serves on the panel responding to the LIBOR survey, recently admitted submitting false responses to manipulate the index (and attempting to manipulate a similar index, the Euro Interbank Offer Rate [EURIBOR]). The Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DOJ) reached settlements with Barclays in which the bank agreed to admit fault and pay a large fine. This report answers several frequently asked questions. How is LIBOR calculated? Which banks serve on the dollar LIBOR panel? How can a single bank manipulate LIBOR? How did Barclays manipulate LIBOR? How is LIBOR used in the U.S. financial systems? Are there alternatives to LIBOR? Were U.S. policymakers, such as the Federal Reserve Bank of New York, aware of problems with LIBOR? |
This report describes and analyzes annual appropriations for the Department of Homeland Security (DHS) for FY2018. It compares the enacted FY2017 appropriations for DHS, the Donald J. Trump Administration's FY2018 budget request, and the appropriations measures developed in response. This report identifies additional informational resources, reports, and products on DHS appropriations that provide context for the discussion, and it provides a list of Congressional Research Service (CRS) policy experts with whom clients may consult on specific topics. The suite of CRS reports on homeland security appropriations tracks legislative action and congressional issues related to DHS appropriations, with particular attention paid to discretionary funding amounts. These reports do not provide in-depth analysis of specific issues related to mandatory funding—such as retirement pay—nor do they systematically follow other legislation related to the authorizing or amending of DHS programs, activities, or fee revenues. Discussion of appropriations legislation involves a variety of specialized budgetary concepts. The Appendix to this report explains several of these concepts, including budget authority, obligations, outlays, discretionary and mandatory spending, offsetting collections, allocations, and adjustments to the discretionary spending caps under the Budget Control Act (BCA; P.L. 112-25 ). A more complete discussion of those terms and the appropriations process in general can be found in CRS Report R42388, The Congressional Appropriations Process: An Introduction , coordinated by [author name scrubbed], and the Government Accountability Office's A Glossary of Terms Used in the Federal Budget Process . All amounts contained in the suite of CRS reports on homeland security appropriations represent budget authority. For precision in percentages and totals, all calculations in these reports used unrounded data, which is presented in each report's tables. However, amounts in narrative discussions are rounded to the nearest million (or ten million, in the case of numbers larger than one billion), unless noted otherwise. Data used in this report for FY2017 amounts are derived from the explanatory statement accompanying P.L. 115-31 , the Consolidated Appropriations Act, 2017—Division F of which is the Department of Homeland Security Appropriations Act, 2017. Data for the FY2018 requested and FY2018 enacted levels are drawn from the explanatory statement accompanying P.L. 115-141 , the Consolidated Appropriations Act, 2018—Division F of which is the Department of Homeland Security Appropriations Act 2018. The explanatory statement also includes data on FY2018 supplemental appropriations for DHS enacted prior to March 22, 2018. Data for the House-passed amounts are drawn from H.Rept. 115-239 , which accompanied H.R. 3355 , the FY2018 DHS appropriations bill, modified with information drawn from the Legislative Information System on amendments and structural alterations. Data for the Senate draft amounts are drawn from the draft bill and report released by the Senate Appropriations Committee on November 21, 2017. Scoring methodology is consistent across this report. However, caution should be exercised in comparing this data, developed with Congressional Budget Office methodology, with that developed using Office of Management and Budget methodology, due to slight discrepancies that could result in flawed analysis. This section provides an overview of the process of enactment of appropriations for the Department of Homeland Security for FY2018. It includes the process for the annual appropriations bill from the request through November 2017; two supplemental appropriations bills; and the final consolidated appropriations bill enacted as Division F of P.L. 115-141 . On March 16, 2017, the Trump Administration released a 53-page budget outline, or "skinny budget," which included summary information on the Administration's forthcoming FY2018 budget request. It is not uncommon for such a document to be released by a new Administration in its first term as work continues on more comprehensive budget request documentation. The document indicated that the Administration would request $44.1 billion in net discretionary budget authority for DHS, and stated that the request would include "$4.5 billion in additional funding for programs to strengthen the security of the Nation's borders and enhance the integrity of its immigration system." While selected priority programs were highlighted in the two pages that focused on DHS, detailed information on the overall budget for individual components was not included. On May 23, 2017, the Trump Administration released its complete budget request for FY2018. The Trump Administration requested $44.00 billion in adjusted net discretionary budget authority for DHS for FY2018, as part of an overall budget that the Office of Management and Budget estimated to be $70.69 billion (including fees, trust funds, and other funding that is not annually appropriated or does not score against discretionary budget limits). The request amounted to a $1.59 billion (3.8%) increase from the $42.41 billion in annual and supplemental appropriations enacted for FY2017 through the Department of Homeland Security Appropriations Act, 2017 ( P.L. 115-31 , Division F). The Trump Administration also requested discretionary funding for DHS components that does not count against discretionary spending limits set by the Budget Control Act (BCA; P.L. 112-25 ) and is not reflected in the above totals. The Administration requested an additional $6.79 billion for the Federal Emergency Management Agency (FEMA) in disaster relief funding, as defined by the BCA, and in the budget request for the Department of Defense, a transfer of $162 million in Overseas Contingency Operations/Global War on Terror designated funding (OCO). On July 21, 2017, the House Committee on Appropriations reported out H.R. 3355 , the Department of Homeland Security Appropriations Act, 2018, accompanied by H.Rept. 115-239 . Committee-reported H.R. 3355 included $44.33 billion in adjusted net discretionary budget authority for FY2018. This was $327 million (0.7%) above the level requested by the Administration, and $1.92 billion (4.5%) above the enacted level for FY2017. The House committee-reported bill also included the Administration-requested levels for disaster relief funding. In a departure from the FY2017 appropriations process, the House Appropriations Committee chose to provide the Coast Guard OCO funding as a transfer as requested by the Administration, through H.R. 3219 , the Department of Defense Appropriations Act, 2018, rather than through the DHS appropriations bill. The next week, the House took up H.R. 3219 , the Make America Secure Appropriations Act ( H.R. 3219 ), the first of two consolidated appropriations acts considered by the House in the summer of 2017. It contained four annual appropriations bills, but not the annual appropriations for DHS. On July 26, 2017, H.R. 3219 began consideration under a structured rule (H.Res. 473), making certain amendments in order. The next day, a second rule (H.Res. 478) was adopted, which provided for additional amendments, including one offered by House Appropriations Committee, Homeland Security Subcommittee Chairman John Carter. This amendment added a new division to H.R. 3219 , which consisted only of a Procurement, Construction, and Improvements appropriation for CBP. The appropriation would provide $1,571,239,000 for construction of physical barriers along the Southwestern border of the United States. This funding was specifically directed in the amendment text as follows: $784,000,000 for 32 miles of new border bollard fencing in the Rio Grande Valley, Texas; $498,000,000 for 28 miles of new bollard levee wall in the Rio Grande Valley, Texas; $251,000,000 for 14 miles of secondary fencing in San Diego, California; and $38,239,000 for planning for border wall construction. The overall total of $1,571,239,000 and first three directed amounts were identical to specific recommendations by the House Committee on Appropriations for border infrastructure construction in H.Rept. 115-239 , the committee report accompanying H.R. 3355 . Because of the provisions of the rule, which said the amendment was to "be considered as adopted," no separate vote was taken on adoption of the amendment. An attempt to strike the funding through a motion to recommit the bill failed by a roll call vote, 193-234 (Roll No. 424). The week of September 4, 2017, the House took up the Make America Secure and Prosperous Appropriations Act ( H.R. 3354 ). The legislation was originally presented as Rules Committee Print 115-31, a consolidated appropriations bill which contained the text of the eight remaining annual appropriations bills that were not included in H.R. 3219 . One of those eight was H.R. 3355 , with some modifications. The primary changes to this version of the Department of Homeland Security Appropriations Act, 2018 from its House Appropriations Committee-reported form were a reduction in CBP's Procurement, Construction, and Improvement appropriation to account for the passage by the House of the funding for border barrier planning and construction as noted above, and the addition of specific legislative direction for the use of the remaining appropriation. The direction provided was comprehensive, exceeding that provided in the committee report. The bill also included new general provisions required for inclusion of a stand-alone committee-reported bill in a consolidated appropriations bill and conforming to the likely terms of floor debate. On September 6, 2017, the House took up H.R. 3354 , with an additional modification: the first rule governing the debate on the bill incorporated the text of House-passed H.R. 3219 as part of H.R. 3354 , creating a single bill that included all of the annual appropriations for FY2018. However, the border barrier funding remained in a separate title from the other annual DHS appropriations: Division E of H.R. 3354 is the Department of Homeland Security Appropriations Act, 2018; and Division M is the Department of Homeland Security Border Infrastructure Construction Appropriation Act, 2018. During floor debate, Division E was amended by five stand-alone amendments and one 14-piece en bloc amendment. These reduced appropriations for secretarial and management accounts, with smaller reductions for Customs and Border Protection, and Immigration and Customs Enforcement, while increasing funding for the Office of Inspector General, Science and Technology Directorate, and the Federal Emergency Management Agency. On September 14, 2017, H.R. 3354 passed the House by a vote of 211-198 (Roll No. 528). As it passed the House, the bill included $45.2 billion in adjusted net discretionary budget authority, and $6.8 billion in disaster relief designated appropriations. The Senate Appropriations Committee released a draft bill and explanatory statement on November 21, 2017. The draft legislation would have provided $44.1 billion in adjusted net discretionary budget authority for DHS, as well as $6.8 billion designated as disaster relief, $559 million designated as emergency funding, and $163 million designated as being for overseas contingency operations. No action was taken by the committee or the full Senate on the draft legislation. In the wake of a series of hurricanes and wildfires in 2017, supplemental appropriations were requested for FY2017 in September 2017 and provided in P.L. 115-31 , including $7.4 billion in emergency-designated funding for the Federal Emergency Management Agency's (FEMA's) Disaster Relief Fund (DRF). Once FY2018 began, two additional bills were passed that included emergency-designated supplemental appropriations for DHS. On October 4, 2017, the Trump Administration requested an additional $12.7 billion for the DRF, and $16 billion in debt cancellation for the National Flood Insurance Fund (NFIF). On October 12, the House passed H.R. 2266 with a further House amendment to a Senate amendment to the measure, which originally concerned bankruptcy judgeships. Division A of the amended bill included the requested appropriations. The House amendment included $18.67 billion for the DRF, and also allowed some of that funding to be transferred to two other programs: $4.9 billion would go to FEMA's Disaster Assistance Direct Loan Program account, and $10 million to the DHS Office of Inspector General for oversight of disaster-related activities. The measure also included $577 million for the costs of fighting wildfire on federal lands, and authority to use $1.27 billion of reserve funds for a grant to support nutrition assistance programs in Puerto Rico. The bill was signed into law as P.L. 115-72 on October 26, 2017. The Trump Administration made a second request for FY2018 supplemental appropriations (the third responding to the 2017 disasters) on November 17, 2017, seeking roughly $44.0 billion in additional relief and recovery funding, including almost $24.2 billion for DHS. On December 18, 2017, H.R. 4667 was introduced with House Appropriations Committee language prepared in response to this request. The measure included roughly $81 billion in additional funding, as well as other matters, including disaster recovery reform, agriculture assistance, and nutrition assistance. The House-passed bill included $28.6 billion for DHS. On December 21, 2017, H.R. 4667 was brought to the House Floor under the terms of H.Res. 670, a resolution reported from the House Committee on Rules which added additional disaster-related tax provisions and a designation of low-income communities in Puerto Rico as opportunity zones. The bill passed the House 251-169, and was sent to the Senate. On February 7, 2018, the Senate took up H.R. 1892 , an unrelated piece of legislation, and Senate Majority Leader Mitch McConnell introduced S.Amdt. 1930 which would become the Bipartisan Budget Act of 2018. Subdivision I of Division B of the amendment was titled "Further Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2018" and included more than $84 billion in additional disaster assistance funding, including $24.7 billion for DHS. The amendment was agreed to by a vote of 71-28 on February 9, 2018. The amended bill passed the House by a vote of 240-186 later that same day and was signed into law by President Trump as P.L. 115-123 . On March 22, 2018, the House Rules Committee reported out a resolution that made in order a consolidated appropriations bill as an amendment to H.R. 1625 , a House bill already amended and passed by the Senate. The bill included all twelve annual appropriations measures and several other authorization bills, including modifications to the disaster relief allowable adjustment. An explanatory statement serving the purpose of a conference report accompanying the consolidated appropriations bill was printed in the Congressional Record that same day. The amendment included the Department of Homeland Security Appropriations Act, 2018, as Division F, which would provide $47.7 billion in adjusted net discretionary budget authority for DHS, as well as $7.4 billion designated as disaster relief and $163 million designated as being for overseas contingency operations. The House agreed to the amendment by a vote of 256-167, sending the amended bill back to the Senate. On March 23, the Senate passed the amended bill by a vote of 65-32, and it was presented to the President and signed into law as P.L. 115-141 later that same day. Generally, the homeland security appropriations bill includes all annual appropriations provided for DHS, allocating resources to every departmental component. Discretionary appropriations provide roughly two-thirds to three-fourths of the annual funding for DHS operations, depending how one accounts for disaster relief spending and funding for overseas contingency operations. The remainder of the budget is a mix of fee revenues, trust funds, and mandatory spending. When DHS was established in 2003, components of other agencies were brought together over a matter of months, in the midst of ongoing budget cycles. Rather than developing a new structure of appropriations for the entire department, Congress and the Administration continued to provide resources through existing account structures when possible. At the direction of Congress, in 2014 DHS began to work on a new Common Appropriations Structure (CAS), which would standardize the format of DHS appropriations across components. In an interim report in 2015, DHS noted that operating with "over 70 different appropriations and over 100 Programs, Projects, and Activities ... has contributed to a lack of transparency, inhibited comparisons between programs, and complicated spending decisions and other managerial decision-making." After several years of work and negotiations with Congress, DHS made its first budget request in the CAS for FY2017, and implemented it while operating under the continuing resolutions funding the department in October 2016. All DHS components have implemented the structure except for the Coast Guard, due to limitations of its current financial management system. A visual representation of the FY2018 enacted funding in this new structure follows in Figure 1 . On the left are appropriations categories of the revised CAS with a black bar representing the total FY2018 funding levels requested for DHS for each category. A catch-all category is included for budget authority associated with the legislation that does not fit the CAS categories, and a separate category is included for appropriations for the Coast Guard, which, as noted above, has not transitioned its accounting system to the CAS format. Colored lines flow to the DHS components listed on the right, showing how the amount of funding for each appropriations category is distributed across DHS components. Wider lines indicate greater funding levels, so it is possible to understand how components may be funded differently. For example, while CBP gets most of its funding from Operations and Support appropriations, FEMA receives most of its funding from the Disaster Relief Fund appropriation. Appropriations measures for DHS typically have been organized into five titles. The first four are thematic groupings of components, while the fifth provides general direction to the department, and sometimes includes provisions providing additional budget authority. Prior to the FY2017 act, the legislative language of many appropriations included directions to components or specific conditions on how the budget priority it provided could be used. Similarly, general provisions provided directions or conditions to one or more components. In the FY2017 act, a number of these provisions within appropriations and component-specific general provisions were grouped at the ends of the titles where their targeted components are funded, and identified as "administrative provisions." This practice continued with the FY2018 measures drafted in the House and Senate. The following sections present textual and tabular comparisons of FY2017 enacted and FY2018 requested and enacted appropriations for the department. The structure of the appropriations reflects the organization outlined in the detail table of the explanatory statement accompanying P.L. 115-141 . The tables summarize the appropriations, subtotaling the resources provided, requested, recommended, and enacted for each component. Only the formal request for FY2018 annual appropriations is reflected in the "Request" column. The tables include data on enacted annual and supplemental appropriations. In cases where appropriations are provided for a title's components in other parts of the bill, those are shown separately. Where supplemental appropriations with an emergency designation were requested or provided for a given component in FY2017 or FY2018, those are displayed after discussion of annual appropriations. Following the methodology used by the appropriations committees, totals of "appropriations" do not include resources provided by transfer or under adjustments to discretionary spending limits (i.e., for emergency requirements, overseas contingency operations for the Coast Guard or the cost of major disasters under the Stafford Act for the Federal Emergency Management Agency). Amounts covered by adjustments are included with discretionary appropriations in a separate total for "discretionary funding." A subtotal for each component of total estimated budgetary resources that would be available under the legislation and from other sources (such as fees, mandatory spending, and trust funds) for the given fiscal year is also provided at the end of each component section. At the bottom of each table, totals indicate the total net discretionary appropriation for the title on its own, the total net discretionary funding from the annual appropriations bill and any supplemental appropriations (when such were provided), and the projected total estimated budgetary resources for each phase in the appropriations process shown in the table. Departmental Management and Operations, the smallest of the component-specific titles, contains appropriations for the Office of the Secretary and Executive Management, the Management Directorate, Analysis and Operations (A&O), and the Office of the Inspector General (OIG). For FY2017, these components received almost $1.25 billion in net discretionary funding through the appropriations process. The Trump Administration requested $1.29 billion in FY2018 net discretionary funding for components included in this title. In addition, $24 million was requested as a transfer from the Disaster Relief Fund to the OIG. Not including the transfer, the appropriations request was $38 million (3.1%) more than the amount provided for FY2017. House-passed H.R. 3354 included $1.31 billion in FY2018 net discretionary funding for the components funded in this title. This was $22 million (1.7%) more than requested by the Trump Administration and $60 million (4.8%) more than the amount provided for FY2017. The Senate draft included $1.18 billion in FY2018 net discretionary funding for the components funded in this title. This was $111 million (8.6%) less than requested by the Trump Administration and $73 million (5.9%) less than the amount provided for FY2017. In addition, the Senate draft also included $48 million as a transfer from the Disaster Relief Fund to the OIG, double what had been requested by the Administration. Together, P.L. 115-123 and P.L. 115-141 included $1.36 billion in FY2018 net discretionary funding for the components funded in this title. When the $25 million in FY2018 supplemental appropriations are set aside, the enacted annual appropriations were $50 million (3.9%) more than requested, and almost $89 million (7.1%) above the FY2017 funding level. Table 1 shows these comparisons in greater detail. As resources were requested and provided for the Management Directorate and Office of the Inspector General from outside Title I, separate lines are included for each of those components showing a total for what is provided solely within Title I, then the individual non-Title I items, followed by the total annual appropriation for the components. Security, Enforcement, and Investigations, comprising roughly three-quarters of the funding appropriated for the department, contains appropriations for U.S. Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), the Coast Guard (USCG), and the U.S. Secret Service (USSS). For FY2017, these components received $34.48 billion in net discretionary budget authority through the appropriations process, and $162 million in Overseas Contingency Operations funding, for a total of $34.64 billion in net discretionary funding. The Trump Administration requested $36.31 billion in FY2018 net discretionary funding for components included in this title, as part of a total budget for these components of $44.58 billion for FY2018. The funding request was $1.66 billion (4.8%) more than the amount provided for FY2017, while the total resources proposed were $2.96 billion (7.1%) more than FY2017. House-passed H.R. 3354 included $36.32 billion in FY2018 net discretionary funding for the components funded in this title. This was $14 million (0.0%) more than requested by the Trump Administration and $1.68 billion (4.8%) more than the amount provided for FY2017. The total budgetary resources projected would have been $643 million (1.4%) less than the Administration's request (largely due to rejection of a proposed TSA fee increase), but $2.32 billion (5.6% more) than projected for FY2017. The Senate draft included $36.34 billion in FY2018 net discretionary funding for the components funded in this title. This was $31 million (0.1%) more than requested by the Trump Administration and almost $1.70 billion (4.9%) more than the amount provided for FY2017. The total budgetary resources projected would have been $626 million (1.4%) less than the Administration's request (largely due to rejection of a proposed TSA fee increase), but $2.34 billion (5.6%) more than projected for FY2017. Together, P.L. 115-123 and P.L. 115-141 included $39.51 billion in FY2018 net discretionary funding for the components funded in this title. When the $1.09 billion in FY2018 supplemental appropriations are set aside, the enacted annual appropriations were $2.15 billion (5.9%) more than requested, and almost $3.81 billion (11.0%) more than the amount provided for FY2017. Setting aside supplemental funding, the total budgetary resources projected were $46.07 billion—$1.49 billion (3.4%) more than the Administration's request and $4.46 billion (10.7%) more than were projected for FY2017. Table 2 shows these comparisons in greater detail. Protection, Preparedness, Response, and Recovery, the second largest of the component-specific titles, contains appropriations for the National Protection and Programs Directorate (NPPD), the Office of Health Affairs (OHA), and the Federal Emergency Management Agency (FEMA). For FY2017, these components received $6.81 billion in net discretionary appropriations and $6.71 billion in specially designated funding for disaster relief through the annual appropriations process. In addition to that annual funding, $7.4 billion was provided for FEMA's Disaster Relief Fund (DRF) in emergency supplemental appropriations in FY2017. Incorporating all these elements, the total net discretionary funding level for all Title III components was $20.78 billion for FY2017. The Trump Administration requested $5.89 billion in FY2018 net discretionary appropriations for components included in this title, and $6.79 billion in specially designated funding for disaster relief as part of a total discretionary funding level for these components of $12.43 billion for FY2018. Setting aside the $7.4 billion in FY2017 supplemental appropriations, the appropriations request was $946 million (7.1%) less than the amount provided for FY2017 in net discretionary funding. House-passed H.R. 3354 included $13.35 billion in FY2018 net discretionary funding for the components funded in this title. This was $920 million (7.4%) more than requested by the Trump Administration and $26 million (0.2%) less than the amount provided for FY2017, setting aside supplemental funding. The total budgetary resources projected would have been $894 million (4.7%) more than the Administration's request, but $186 million (0.9%) more than projected for FY2017, setting aside supplemental funding. The House-passed bill included within these totals the requested disaster relief funding of $6.79 billion. The Senate draft included $13.23 billion in FY2018 net discretionary funding for the components funded in this title. This was $795 million (6.4%) more than requested by the Trump Administration and $151 million (1.1%) more than the amount provided for FY2017, setting aside supplemental funding. The total budgetary resources projected would have been $721 million (3.8%) more than the administration's request, but $13 million (0.1%) more than projected for FY2017, setting aside supplemental funding. The Senate draft also included within these totals the requested disaster relief funding of $6.79 billion, as well as $559 million in emergency designated funds for the base operations of the Disaster Relief Fund. Together, P.L. 115-123 , P.L. 115-72 , and P.L. 115-141 included $72.61 billion in FY2018 net discretionary funding for the components funded in this title, including $58.23 billion in supplemental appropriations, mostly for FEMA's DRF. When the supplemental appropriations are set aside, the $14.38 billion in enacted annual discretionary funding was $1.95 billion (15.7%) more than requested, and $1.00 billion (7.5%) more than the amount provided for FY2017. The total budgetary resources projected would have been $1.92 billion (2.4%) more than the Administration's request, and almost $1.22 billion (6.2%) more than projected for FY2017, setting aside supplemental funding. The act also included within these totals $7.37 billion in funding designated as disaster relief, $573 million (8.4%) more than was requested. Table 3 shows these comparisons in greater detail. As some annually appropriated resources were provided for FEMA from outside Title III in FY2017, a separate line is included for FEMA showing a total for what is provided solely within Title III, then the non-Title III appropriation, followed by the total annual appropriation for FEMA. Title IV, Research and Development, Training, and Services, the second smallest of the component-specific titles, contains appropriations for the U.S. Citizenship and Immigration Services (USCIS), the Federal Law Enforcement Training Center (FLETC), the Science and Technology Directorate (S&T), and the Domestic Nuclear Detection Office (DNDO). In FY2017, these components received $1.50 billion in net discretionary funding, as part of a total budget of $5.56 billion. The Trump Administration requested $1.36 billion in FY2018 net discretionary funding for components included in this title, as part of a total budget for these components of $5.67 billion for FY2018. The funding request was $136 million (9.1%) less than the amount provided for FY2017, although the overall budget request was $114 million (2.1%) higher than the budget projected for FY2017, due to changes in anticipated fee collections. House-passed H.R. 3354 provided the components included in this title $1.44 billion in net discretionary funding. This was $76 million (5.5%) more than requested, and $60 million (4.0%) less than the amount provided for FY2017. The total budgetary resources projected would have been $76 million (1.3%) more than the administration's request, and $190 million (3.4%) more than were projected for FY2017. The Senate draft included $1.40 billion in FY2018 net discretionary funding for the components funded in this title. This was $41 million (3.0%) more than requested by the Trump Administration and $95 million (6.4%) less than the amount provided for FY2017. The total budgetary resources projected would have been $41 million (0.7%) more than the administration's request, and $155 million (2.8%) more than projected for FY2017. Together, P.L. 115-123 and P.L. 115-141 included $1.57 billion in FY2018 net discretionary funding for the components funded in this title. When the $10 million in FY2018 supplemental appropriations are set aside, the enacted annual appropriations were $200 million (14.7%) more than requested, and $65 million (4.3%) more than the amount provided for FY2017. The total budgetary resources projected are $251 million (4.4%) more than requested by the Administration, and $366 million (6.6%) more than projected for FY2017. Table 4 shows these comparisons in greater detail. As noted above, the fifth title of the act contains general provisions, the impact of which may reach across the entire department, affect multiple components, or focus on a single activity. Rescissions of prior-year appropriations—cancellations of budget authority that reduce the net funding level in the bill—are found here. For FY2017, Division F of P.L. 115-31 included $1.48 billion in rescissions. For FY2018, the Administration proposed rescinding $593 million in prior-year funding. House Appropriations Committee-reported H.R. 3355 included $1.21 billion in rescissions, but these were reduced to $332 million in House-passed H.R. 3354 . The Senate draft included $577 million in rescissions. Division F of P.L. 115-141 included $489 million in rescissions. Funding is also included in Title V for the Financial Systems Modernization initiative and a grant program for Presidential Residence Protection costs, which are reflected in the tables for Title I and Title III respectively, as those titles fund the components that manage these resources. For additional perspectives on FY2018 DHS appropriations, see the following: CRS Report R44604, Trends in the Timing and Size of DHS Appropriations: In Brief ; CRS Report R44052, DHS Budget v. DHS Appropriations: Fact Sheet ; and CRS Report R44919, Comparing DHS Component Funding, FY2018: In Brief . Readers also may wish to consult CRS's experts directly. The following table lists names and contact information for the CRS analysts and specialists who contribute to CRS DHS appropriations reports. Budget Authority, Obligations, and Outlays Federal government spending involves a multistep process that begins with the enactment of budget authority by Congress. Federal agencies then obligate funds from enacted budget authority to pay for their activities. Finally, payments are made to liquidate those obligations; the actual payment amounts are reflected in the budget as outlays. Budget authority is established through appropriations acts or direct spending legislation and determines the amounts that are available for federal agencies to spend. The Antideficiency Act prohibits federal agencies from obligating more funds than the budget authority enacted by Congress. Budget authority also may be indefinite in amount, as when Congress enacts language providing "such sums as may be necessary" to complete a project or purpose. Budget authority may be available on a one-year, multiyear, or no-year basis. One-year budget authority is available for obligation only during a specific fiscal year; any unobligated funds at the end of that year are no longer available for spending. Multiyear budget authority specifies a range of time during which funds may be obligated for spending, and no-year budget authority is available for obligation for an indefinite period of time. Obligations are incurred when federal agencies employ personnel, enter into contracts, receive services, and engage in similar transactions in a given fiscal year. Outlays are the funds that are actually spent during the fiscal year. Because multiyear and no-year budget authorities may be obligated over a number of years, outlays do not always match the budget authority enacted in a given year. Additionally, budget authority may be obligated in one fiscal year but spent in a future fiscal year, especially with certain contracts. In sum, budget authority allows federal agencies to incur obligations and authorizes payments, or outlays, to be made from the Treasury. Discretionary funded agencies and programs, and appropriated entitlement programs, are funded each year in appropriations acts. Discretionary and Mandatory Spending Gross budget authority , or the total funds available for spending by a federal agency, may be composed of discretionary and mandatory spending. Discretionary spending is not mandated by existing law and is thus appropriated yearly by Congress through appropriations acts. The Budget Enforcement Act of 1990 defines discretionary appropriations as budget authority provided in annual appropriations acts and the outlays derived from that authority, but it excludes appropriations for entitlements. Mandatory spending , also known as direct spending , consists of budget authority and resulting outlays provided in laws other than appropriations acts and is typically not appropriated each year. Some mandatory entitlement programs, however, must be appropriated each year and are included in appropriations acts. Within DHS, Coast Guard retirement pay is an example of appropriated mandatory spending. Offsetting Collections Offsetting funds are collected by the federal government, either from government accounts or the public, as part of a business-type transaction such as collection of a fee. These funds are not considered federal revenue. Instead, they are counted as negative outlays. DHS net discretionary budget authority , or the total funds appropriated by Congress each year, is composed of discretionary spending minus any fee or fund collections that offset discretionary spending. Some collections offset a portion of an agency's discretionary budget authority. Other collections offset an agency's mandatory spending. These mandatory spending elements are typically entitlement programs under which individuals, businesses, or units of government that meet the requirements or qualifications established by law are entitled to receive certain payments if they establish eligibility. The DHS budget features two mandatory entitlement programs: the Secret Service and the Coast Guard retired pay accounts (pensions). Some entitlements are funded by permanent appropriations, and others are funded by annual appropriations. Secret Service retirement pay is a permanent appropriation and, as such, is not annually appropriated. In contrast, Coast Guard retirement pay is annually appropriated. In addition to these entitlements, the DHS budget contains offsetting Trust and Public Enterprise Funds. These funds are not appropriated by Congress. They are available for obligation and included in the President's budget to calculate the gross budget authority. 302(a) and 302(b) Allocations In general practice, the maximum budget authority for annual appropriations (including DHS) is determined through a two-stage congressional budget process. In the first stage, Congress sets overall spending totals in the annual concurrent resolution on the budget. Subsequently, these totals are allocated among the appropriations committees, usually through the statement of managers for the conference report on the budget resolution. These amounts are known as the 302(a) allocations . They include discretionary totals available to the House and Senate Committees on Appropriations for enactment in annual appropriations bills through the subcommittees responsible for the development of the bills. In the second stage of the process, the appropriations committees allocate the 302(a) discretionary funds among their subcommittees for each of the appropriations bills. These amounts are known as the 302(b) allocations . These allocations must add up to no more than the 302(a) discretionary allocation and form the basis for enforcing budget discipline, since any bill reported with a total above the ceiling is subject to a point of order. The 302(b) allocations may be adjusted during the year by the respective Appropriations Committee issuing a report delineating the revised suballocations as the various appropriations bills progress toward final enactment. No subcommittee allocations are developed for conference reports or enacted appropriations bills. Table A-1 shows comparable figures for the 302(b) allocation for FY2017, based on the adjusted net discretionary budget authority included in Division F of P.L. 115-31 , the President's request for FY2018, and the House and Senate subcommittee allocations for the Homeland Security appropriations bills for FY2018. The Budget Control Act, Discretionary Spending Caps, and Adjustments The Budget Control Act established enforceable discretionary limits, or caps, for defense and nondefense spending for each fiscal year from FY2012 through FY2021. Subsequent legislation, including the Bipartisan Budget Act of 2013, amended those caps. Most of the budget for DHS is considered nondefense spending. In addition, the Budget Control Act allows for adjustments that would raise the statutory caps to cover funding for overseas contingency operations/Global War on Terror, emergency spending, and, to a limited extent, disaster relief and appropriations for continuing disability reviews and control of health care fraud and abuse. Three of the four justifications outlined in the Budget Control Act for adjusting the caps on discretionary budget authority have played a role in DHS's appropriations process. Two of these—emergency spending and overseas contingency operations/Global War on Terror—are not limited. The third justification—disaster relief—is limited. Under the Budget Control Act, the allowable adjustment for disaster relief was determined by the Office of Management and Budget (OMB), using the following formula until FY2019: Limit on disaster relief cap adjustment for the fiscal year = Rolling average of the disaster relief spending over the last ten fiscal years (throwing out the high and low years) + the unused amount of the potential adjustment for disaster relief from the previous fiscal year. The disaster relief allowable adjustment for FY2018 was $7.366 billion, and was used to support appropriations to FEMA's Disaster Relief Fund (DRF). The Bipartisan Budget Act of 2018 amended the above formula, increasing the allowable size of the adjustment by adding 5% of the amount of emergency-designated funding for major disasters under the Stafford Act, calculated by OMB as $6.296 billion. The act also extended the availability of unused adjustment capacity. OMB plans to release a sequestration update report for FY2019 in August 2018, which is to include the new official estimate for the FY2019 allowable adjustment. | This report provides an overview and analysis of FY2018 appropriations for the Department of Homeland Security (DHS). The primary focus of this report is on congressional direction and funding provided to DHS through the appropriations process. It includes an Appendix with definitions of key budget terms used throughout the suite of Congressional Research Service reports on homeland security appropriations. It also directs the reader to other reports providing context for specific component appropriations. As part of an overall budget that the Office of Management and Budget (OMB) estimated to be $70.69 billion (including fees, trust funds, and other funding that is not annually appropriated or does not score against discretionary budget limits set by the Budget Control Act (BCA; P.L. 112-25)), the Trump Administration requested $44.00 billion in adjusted net discretionary budget authority for DHS for FY2018. The request amounted to a $1.59 billion (3.8%) increase from the $42.41 billion in annual and supplemental appropriations enacted for FY2017 through the Department of Homeland Security Appropriations Act, 2017 (P.L. 115-31, Division F). The Administration also requested discretionary funding for DHS components that does not count against discretionary spending limits and is not reflected in the above totals. The Administration requested an additional $6.79 billion for the Federal Emergency Management Agency (FEMA) in disaster relief funding, as defined by the BCA, and in the budget request for the Department of Defense (DOD), a transfer of $162 million in Overseas Contingency Operations/Global War on Terror designated funding (OCO). On July 21, 2017, the House Committee on Appropriations reported out H.R. 3355, the Department of Homeland Security Appropriations Act, 2018, accompanied by H.Rept. 115-239. Committee-reported H.R. 3355 included $44.33 billion in adjusted net discretionary budget authority for FY2018. This was $327 million (0.7%) above the level requested by the Administration, and $1.92 billion (4.5%) above the enacted level for FY2017. The House committee-reported bill included the Administration-requested levels for disaster relief funding—and the House Appropriations Committee chose to provide the Coast Guard OCO funding as a transfer as requested, through H.R. 3219, the Department of Defense Appropriations Act, 2018. The Senate Appropriations Committee released a draft bill and explanatory statement on November 21, 2017. No further action was taken on the annual appropriations legislation for DHS as a stand-alone bill. Prior to the resolution of FY2018 annual appropriations the Trump Administration requested two tranches of supplemental appropriations in response to a series of natural disasters in 2017. Congress provided $59.3 billion to DHS, including $42.2 billion for the Disaster Relief Fund and $16.0 billion in debt cancellation for the National Flood Insurance Program. On March 22, 2018, the House voted on a consolidated appropriations bill, which included the Department of Homeland Security Appropriations Act, 2018, as Division F, providing $47.7 billion in adjusted net discretionary budget authority for DHS, as well as $7.4 billion designated as disaster relief and $163 million designated as being for overseas contingency operations. The House passed the bill by a vote of 256-167. The next day, the Senate passed the bill by a vote of 65-32, and it was presented to the President and signed into law as P.L. 115-141 that same day. This report will be updated in the event of further FY2018 supplemental appropriations action. |
Since 1995, Congress has on three occasions approved legislation to regulate lobbyists' contacts with executive branch officials. Prior to 1995, lobbying laws only required that lobbyists contacting Members of Congress register with the Clerk of the House of Representatives and the Secretary of the Senate. Under current lobbying laws, individuals are required to register with the Clerk and the Secretary when lobbying either legislative or executive branch officials. Federally registered lobbyists who wish to lobby executive branch departments and agencies regarding funds provided by the Emergency Economic Stabilization Act and the American Recovery and Reinvestment Act of 2009 are subject to additional restrictions pursuant to a series of memoranda and guidelines issued between January and July 2009. This report outlines the development of registration requirements for lobbyists engaging executive branch officials since 1995. It also summarizes steps taken by the Obama Administration to limit and monitor lobbying of the executive branch; discusses the development and implementation of restrictions placed on lobbying for Recovery Act and EESA funds; examines the Obama Administration's decision to stop appointing lobbyists to federal advisory bodies and committees; considers third-party criticism of current executive branch lobbying policies; and evaluates options for possible modifications in current lobbying laws and practices. In 1995, the Lobbying Disclosure Act (LDA) repealed the Lobbying Act portion of the Legislative Reorganization Act of 1946 and created a system of detailed registration and reporting requirements for lobbyists. It included a provision requiring lobbyists to register with Congress and the disclosure of lobbying contacts with certain "covered" executive branch employees. The LDA was amended in 1998 to make technical corrections, including altering the definition of executive branch officials covered by the act. In 2007, the Honest Leadership and Open Government Act further amended LDA definitions on covered officials. The Lobbying Act of 1946 focused on lobbyists' interactions with Congress, and was silent on lobbying the executive branch. The LDA, for the first time, included executive branch officers and certain employees by defining them as "covered officials." Section 3 of LDA defines a covered executive branch official as (A) the President; (B) the Vice-President; (C) any officer or employee, or any individual functioning in the capacity of such an officer or employee, in the Executive Office of the President; (D) any officer or employee serving in a position in level I, II, III, IV, or V of the Executive Schedule, as designated by statute or Executive order; (E) any member of the uniformed services whose pay grade is at or above O-7 under section 201 of title 37, United States Code ; and (F) any officer or employee serving in a position of a confidential policy-determining, policy-making, or policy-advocating character described in section 7511(b)(2) of title 5, United States Code . Under the LDA, lobbyists who contact these executive branch officials are now required to register with the Clerk of the House and the Secretary of the Senate, and to disclose lobbying contacts and activities. The LDA made these requirements identical for covered legislative and executive branch officials and assigned to the Clerk of the House and the Secretary of the Senate the responsibility of collecting registration and disclosure statements. In April 1998, the LDA was amended to make technical corrections. Part of the technical corrections was a minor change in the U.S. Code section cited by the LDA defining covered officials. The amendment changed the reference in the LDA from 5 U.S.C. Section 7511 (b)(2) to 5 U.S.C. Section 7511 (b)(2)(B) to reflect the ability to the Office of Personnel Management to exempt a position from the competitive service. The Honest Leadership and Open Government Act (HLOGA) of 2007 also amended the LDA. HLOGA did not further alter the definition of a covered executive branch official but did refine thresholds and definitions of lobbying activities, change the frequency of reporting for registered lobbyists and lobbying firms, require additional disclosures, create new semi-annual reports on campaign contributions, and add disclosure requirements for coalitions and associations. Since its inception, the Obama Administration has focused on ethics and the potential influence of lobbyists on executive branch personnel. One of President Barack Obama's first actions was to issue ethics and lobbying guidelines for executive branch employees. These guidelines laid the foundation for formal lobbying restrictions issued in July 2009. On January 21, 2009, President Obama issued Executive Order 13490, "Ethics Commitments by Executive Branch Personnel." The executive order created an ethics pledge for all executive branch appointments made on or after January 20, 2009; defined terms included in the pledge; allowed the Director of the Office of Management and Budget (OMB), in consultation with the counsel to the President, to issue ethics pledge waivers; instructed the heads of executive agencies to consult with the Director of the Office of Government Ethics to establish rules of procedure for the administration of the ethics pledge; and authorized the Attorney General to enforce the executive order. In a press release summarizing the executive order, the White House explained the ethics pledge and the importance of following ethics and lobbying rules: The American people ... deserve more than simply an assurance that those coming to Washington will serve their interests. They deserve to know that there are rules on the books to keep it that way. In the Executive Order on Ethics Commitments by Executive Branch Personnel , the President, first, prohibits executive branch employees from accepting gifts from lobbyists. Second, he closes the revolving door that allows government officials to move to and from private sector jobs in ways that give that sector undue influence over government. Third, he requires that government hiring be based upon qualifications, competence and experience, not political connections. He has ordered every one of his appointees to sign a pledge abiding by these tough new rules as a downpayment on the change he has promised to bring to Washington. Requirement of an ethics pledge above and beyond the general oath of office administered to all government employees reinstates a similar requirement instituted by President William Jefferson Clinton in 1993. The effect of such a policy is undetermined for the recruitment and retention of governmental employees or for the barring of federally registered lobbyists from serving in executive branch positions. On January 27, 2009, just a week after Barack Obama became President, Secretary of the Treasury Timothy Geithner announced restrictions on lobbying, by individuals registered as lobbyists, to obtain Emergency Economic Stabilization Act (EESA) funds. The guidance was designed to combat potential lobbyist influence on the disbursement of EESA funds, to remove politics from funding decisions, to offer certification to Congress that each investment decision was based "only on investment criteria and the facts of the case," and to provide transparency to the investment process. The guidance classified contacts between federally registered lobbyists and executive branch officials into two broad categories: (1) unrestricted oral communications on logistical questions and at widely attended gatherings and (2) oral communications during the period following submission of a formal application for federal assistance under EESA until preliminary approval of EESA funds. The guidance also covers oral and written communication about EESA policy or applications for funding or pending applications. Restrictions on lobbyist communication with executive branch officials are mirrored in the updated guidelines issued by OMB for the Recovery Act lobbying discussed below. As with the Recovery Act restrictions, federally registered lobbyists may ask logistical questions of executive branch officials responsible for disbursing EESA funds and speak with those officials at widely attended gatherings. All other contacts between federally registered lobbyists and executive branch officials must be documented if they concern EESA policy, applications for funding, or pending applications. In contrast to the Recovery Act guidelines, which restrict contact by all non-governmental persons, the EESA guidelines continue to apply only to federally registered lobbyists. Following the passage of the American Recovery and Reinvestment Act of 2009, the White House was concerned about the potential ability of lobbyists to influence stimulus funds that would be allocated by the executive branch. On March 20, 2009, the White House issued a memorandum outlining proposed restrictions on federally registered lobbyists' contacts with executive department and agency officials on stimulus funds. Following a 60-day review and comment period, updated guidance was issued by the Office of Management and Budget (OMB) for communication with federally registered lobbyists regarding stimulus funds in July 2009. To ensure the responsible and transparent distribution of funds pursuant to the American Recovery and Reinvestment Act of 2009 (Recovery Act), President Obama, on March 20, 2009, issued a memorandum to the heads of the executive departments and agencies prescribing restrictions on oral communications with lobbyists on Recovery Act funds. In the memorandum's introductory remarks, President Obama stated that, In implementing the Recovery Act, we have undertaken unprecedented efforts to ensure the responsible distribution of funds for the Act's purposes and to provide public transparency and accountability of expenditures. We must not allow Recovery Act funds to be distributed on the basis of factors other than the merits of proposed projects or in response to improper influence or pressure. We must also empower executive department and agency officials to exercise their available discretion and judgment to help ensure that Recovery Act funds are expended for projects that further the job creation, economic recovery, and other purposes of the Recovery Act and are not used for imprudent projects. The President's memorandum outlined four policies for executive branch departments and agencies handing out Recovery Act funds: (1) ensuring that decision making is merit based for grants and other forms of federal financial assistance, (2) avoiding the funding of "imprudent" projects, (3) ensuring transparency for communications with registered lobbyists, and (4) providing OMB assistance to departments and agencies for implementation of the memorandum. To ensure transparency when executive department or agency officials are contacted by federally registered lobbyists for Recovery Act projects, Section 3 of the memorandum provides five guidelines for interaction with lobbyists: 1. Executive departments and agencies cannot consider the views of lobbyists concerning projects, applications, or applicants for funding. 2. Agency officials cannot communicate orally (in-person or by telephone) with registered lobbyists about Recovery Act projects, applications, or funding applications and must inquire that the individuals or entities are not lobbyists under the Lobbying Disclosure Act of 1995. 3. Written communication from a registered lobbyist must be publicly posted by the receiving agency or governmental entity on its recovery website within three business days of receipt. 4. Executive departments and agencies can communicate orally with registered lobbyists if particular projects, applications, or applicants for funding are not discussed, and if that government official documents in writing and posts to the department or agency's Recovery Act website "(i) the date and time of the contact on policy issues; (ii) the names of the registered lobbyists and the official(s) between whom the contact took place; and (iii) a short description of the substance of the communication." 5. Agency officials must reconfirm, when scheduling and prior to communications, that any individuals or parties participating in the communication are not registered lobbyists. On April 7, 2009, pursuant to President Obama's earlier memorandum, OMB Director Peter Orszag issued "sample interim guidance" for departments and agencies which "outlines the actions employees are required to take ... whenever they receive or participate in oral communications with any outside persons or entities regarding Recovery Act funds." The interim guidance was not designed as a ban on communications with federally registered lobbyists. Instead, "communications with Federally registered lobbyists should proceed, but in compliance with the [outlined] ... protocol." The interim guidance divided communications between executive branch employees and registered lobbyists into three categories: unrestricted oral communications, restricted oral communications, and written communications. The Orszag memorandum does not place restrictions on employees' contact with federally registered lobbyists "concerning general questions about the logistics of the Recovery Act funding or implementation" including administrative requests. Instead, the interim guidance document outlines four general topics of discussion which are not covered by the President's memorandum: (1) how to apply for funding under the Recovery Act; (2) how to conform to deadlines; (3) to which agencies or officials applications or questions should be directed, [and] (4) requests for information about program requirements and agency practices under the Recovery Act. In addition, the Orszag memorandum does not restrict communications or interactions with registered lobbyists at "widely attended" public gatherings. Restrictions, however, "do apply to private (non-public) oral communications between Federal officials and federally registered lobbyists that may happen to occur at, or on the heals of, a widely attended gathering." For oral communication between executive branch employees and federally registered lobbyists on policy matters or in support of specific Recovery Act projects or applications for funding, the contact must be documented. While executive branch employees "should ask if any person participating in the oral communication is a Federally registered lobbyist," if the contact is a federally registered lobbyist, the employee must initiate a four-step process to document the communication. If, at any point in the process, the communication ceases, the employee can suspend the collection of data. The four-step process is as follows: 1. Inform the person(s) of applicable restrictions through the use of two sample templates that can be read or provided to the federally registered lobbyist. These state: Under the President's Memorandum, we cannot engage in any oral communications with Federally registered lobbyists about the use of Recovery Act funds in support of particular projects, applications, or applicants. All such communications by Federal lobbyists must be submitted in writing, and will be posted publicly on our agency's recovery website within 3 days. If the oral communication is about general policy issues concerning the Recovery Act and does not touch upon particular projects, applications or applicants for funding, a Federally registered lobbyist may participate in the conversation. We will document the fact of the policy conversation in writing, including the name of the lobbyist and other participants, together with a brief description of the conversation, for public posting on our agency's recovery website within 3 days. 2. If the oral communications proceeds, only logistical questions or general information about Recovery Act programs should be discussed. No discussion of particular projects, applications, or applicants for funding is permitted. 3. Each in-person or telephone conversation on Recovery Act policy matters should be documented with the date of contact, the names of the parties to the conversation, the name of the lobbyist's client(s), and a one-sentence description of the substance of the conversation. 4. Information about the contact should be submitted to the appropriate person in the employee's agency. "That official should review the form for completeness and forward it for posting on [the] agency's website within 3 business days of the communication." If executive branch employees receive written communication about Recovery Act projects, applications, or applicants from federally registered lobbyists, such communication must be forwarded to a designated agency official by e-mail. The designated agency official must then forward the communication for posting to the agency's Recovery Act website. On July 24, 2009, OMB Director Orszag released updated guidance on communications with registered lobbyists Recovery Act funds. Changes made to the interim guidance document include expansion of restrictions to "all persons outside the Federal Government (not just federally registered lobbyists) who initiate oral communications concerning pending competitive applications under the Recovery Act." Restrictions for oral communication of logistical questions and oral communications at widely attended gatherings did not change from the policies established by the interim guidance document. The updated guidance document, however, differentiates between oral communications between the submission of a formal application and the award of a grant, and oral and written communication concerning policy and projects for funding. Communication between interested parties and executive branch employees "[d]uring the period of time commencing with the submission of a formal application by an individual or entity for a competitive grant or other competitive form of Federal financial assistance under the Recovery Act, and ending with the award of the competitive funds" is restricted. Federal employees "may not participate in oral communications initiated by any person or entity concerning a pending application for a Recovery Act competitive grant or other competitive form of Federal financial assistance, whether or not the initiating party is a federally registered lobbyist." These restrictions apply unless (i) the communication is purely logistical; (ii) the communication is made at a widely attended gathering; (iii) the communication is to or from a Federal agency official and another Federal Government Employee; (iv) the communication is to or from a Federal agency official or an elected chief executive of a state, local or tribal government, or to or from a Federal agency official and the Presiding Office or Majority Leader in each chamber of a state legislature; or (v) the communication is initiated by a Federal agency official. If communication concerns a pending application and is not exempted, the employee is directed to terminate the conversation. Restrictions on other oral and written communication with federally registered lobbyists about pending applications use the same thresholds for reporting as provided in the interim guidance document for " Restricted Oral Communication ." This includes informing the contact that the conversation will be documented; documenting the contact by recording the contact date, names of parties to the conversation, the name of the lobbyist's client, a one-sentence description of the conversation, and attachments of any written materials provided by outside participants during the meeting; and submitting of the forms to the agency for posting on the Recovery Act website. Further broadening the restrictions on lobbyists, the White House, on September 23, 2009, announced a new policy to restrict the number of federally registered lobbyists serving on agency advisory boards and commissions in an effort to "reduce the influence of special interests in Washington." In October 2009, Norm L. Eisen, special counsel to the President for ethics and government reform, issued two blog posts to clarify the White House position on federally registered lobbyists serving on federal advisory committees and to respond to criticism leveled by the American League of Lobbyists and the chairs of the Industry Trade Advisory Committees (ITAC). In his response, Mr. Eisen stated the following: While we recognize the contributions some of those who will be affected have made to these committees, it is an indisputable fact that in recent years, lobbyists for major special interests have wielded extraordinary power in Washington, DC, resulting in a national agenda too often skewed in favor of the interests that can afford their services. It is that problem that the President has promised to change, and this is a major step in implementing that change. Implementation of these recommendations was initially made by individual agencies and departments during the recertification and reappointment process for each advisory committee. Additionally, the White House stated that they were not attempting to stifle lobbyists' ability to advocate on behalf of their clients, just that "industry representatives shouldn't be given government positions from which to make their case." On June 18, 2010, the White House issued a memorandum announcing a formal policy of not making "any new appointments or reappointments of federally registered lobbyists to advisory committees and other boards and commissions." In a blog post accompanying the presidential memorandum, the White House reiterated why the President believes that prohibiting lobbyists from serving on federal advisory committees is a prudent course of action: For too long, lobbyists have wielded disproportionate influence in Washington. It's one thing for lobbyists to represent their clients' interests in petitions to the government, but it's quite another, and not appropriate, for lobbyists to hold privileged positions [that] could enable them to advocate for their clients from within the government. It was for this reason that the President took steps on his first day in office to close the revolving door through which lobbyists rotated between private industry and full-time executive branch positions. Today's step goes further by barring lobbyist appointments to part-time agency advisory positions. The memorandum further directed the Office of Management and Budget (OMB) to "issue proposed guidance designed to implement this policy to the full extent permitted by law" within 90 days, and to issue final guidance following a public comment period. On November 2, 2010, OMB issued proposed guidance and invited comments from interested parties. Included in the guidance were proposed rules to apply the federally registered lobbying ban to all boards and commissions regardless of Federal Advisory Committee Act (FACA) status or whether the committee was created by statute, executive order, or agency authority. On October 5, 2011, OMB issued final guidance for the appointment of federally registered lobbyists. As initially provided for in the presidential memorandum and the proposed guidance, the final guidance provides that after June 18, 2010, federally registered lobbyists (as defined by 2 U.S.C. Section 1605) are not to be appointed to advisory committees, boards, commissions, councils, delegations, conferences, panels, task forces, or other similar groups (or sub-groups) regardless of whether the entity was created by the President, Congress, or an executive branch agency or official, and regardless of whether FACA applies to the entity. Additionally, only former federally registered lobbyists who have "filed a bona fide de-registration or has been de-listed by his or her employer as an active lobbyist reflecting the actual cessation of lobbying activities or if they have not appeared on a quarterly lobbying report for three consecutive quarters as a result of their actual cessation of lobbying activities" are eligible for appointment. Critiques of the Obama Administration's policy toward federally registered lobbyists have focused on Recovery Act restrictions and lobbyists serving as members of federal advisory committees. In each instance, the American League of Lobbyists has written to the White House critiquing the programs and suggesting policy modifications. Criticism of executive branch policies on interactions between federally registered lobbyists and executive branch officials developed shortly after the President's March 20, 2009, memorandum outlining Recovery Act lobbying restrictions. On March 31, 2009, the American Civil Liberties Union (ACLU), Citizens for Responsibility and Ethics in Washington (CREW), and the American League of Lobbyists (ALL) sent a letter to White House Counsel Gregory Craig and, at the same time, issued a press release asking the White House to rescind the restrictions. In its letter, the groups stated their support for "efforts to ensure all American Recovery and Reinvestment Act of 2009 ('Recovery Act') funds are expended in a transparent and responsible manner," but felt that "[s]ection 3 [of the President's Memorandum], 'Ensuring Transparency of Registered Lobbyists Communications,' [was] an ill-advised restriction on speech and not narrowly tailored to achieve the intended purpose." The groups' press release emphasized that the directive was both too narrow and too broad, and it encroached on individuals' right to petition the government. The press release stated the following: In their letter, the groups said the directive was both too narrow—because it did not apply to non-registered lobbyists such as bank vice presidents or corporate directors—and also too broad, because it incorrectly assumed that all registered lobbyists may exert improper pressure for clients seeking funding for Recovery Act projects. Additionally, the right to petition the government is one of the main tenets of our country's founding principles. To state that one class of individuals may not participate in the same manner as all others is clearly a violation of this principle. The updated guidance document issued by the White House on July 24, 2009, included some of the changes that CREW, ACLU, and ALL had requested. The updated guidance included the expansion of restrictions to cover "all persons outside the Federal Government (not just federally registered lobbyists) who initiate oral communications concerning pending competitive applications under the Recovery Act." Following the September 23, 2009, White House blog post outlining future restrictions on the appointment of federally registered lobbyists to executive branch agency boards and commissions, both the lobbying community and members of the Industry Trade Advisory Committees criticized the White House's position. On October 19, 2009, the 16 chairs of the Industry Trade Advisory Committees wrote a letter to the Secretary of Commerce, Gary Locke, and the U.S. Trade Representative, Ron Kirk, outlining their concerns over the new policy of prohibiting federally registered lobbyists from serving on federal advisory committees. The three substantive and procedural concerns outlined in the letter are: that banning federally registered lobbyists from serving on federal advisory committees will "undermine the utility of the advisory committee process, the level of advice that the advisory committees provide, and, consequently, the ability of the United States to achieve balanced and effective trade policies"; that the "new policy will undermine the broader goals of transparency with respect to lobbying which are the hallmarks of the Advisory Committee process." In addition, "because the policy focuses on registered lobbyists, it actually incentivizes individuals who desire to remain on the Committee to de-register as a registered lobbyist under the LDA"; and that the illegal actions of a few individuals are being used to prejudge all federally registered lobbyists. The White House, in a letter from Norm L. Eisen, special counsel to the President, responded to the Industry Trade Advisory Committee's letter on October 21, 2009, and stated that Your arguments that only lobbyists can bring the requisite experience to provide wise counsel, or that reaching beyond the roster of industry lobbyists for appointees will result in a "lack of diversity," are unconvincing on their face. We believe the committees will benefit from an influx of businesspeople, consumers and other concerned Americans who can bring fresh perspectives and new insights to the work of government. Following the issuance of draft guidance in November 2010, OMB solicited public opinions on banning federally registered lobbyists from serving on advisory committees. Among the opinions submitted to OMB were critiques provided by 10 individuals and organizations and generally restated themes present in earlier American League of Lobbyists correspondence. In some instances, however, organizations highlighted new reasons for opposing the ban. For example, the AFL-CIO stated that the Administration was drawing arbitrary lines between federally registered lobbyists and other employees who work for the same company or organization. In their letter to White House General Counsel Preeta D. Bansal, the AFL-CIO stated the following: The Administration's policy also embraces a flawed and arbitrary distinction between lobbyists another who serve the same organizations—including, of course, those who, unlike lobbyists, actually lead and set policy for them. Self-evidently, it is not the commercial interest or public policy preferences of "lobbyists" themselves that the Administration is concerned may be implicated by their service on advisory committees. Rather, it is the interests and preferences of their employers or clients, which direct them and for which they serve as advocates and experts.... If the Administration seeks to constrain and expose private influence in the advisory committees program, then its polices should be directed at the actual private decision-makers and beneficiaries of government spending, not their subordinate advisers and representatives. Creation of restrictions on federally registered lobbyists' access to executive branch departments and agencies has already changed the relationship between lobbyists and covered executive branch officials. If desired, there are additional options which might further clarify lobbyists' relationships with executive branch officials. These options each have advantages and disadvantages for the future relationships between lobbyists and governmental decision-makers. CRS takes no position on any of the options identified in this report. If current disclosure requirements are not determined to be sufficient to capture program level lobbying activity, or if current executive branch restrictions were made permanent, the Lobbying Disclosure Act could be amended to institute provisions similar to current executive branch lobbying restrictions. Currently, lobbyists must file quarterly disclosure reports with information on their activities and covered officials contacted. In addition, the LDA, as amended by the Honest Leadership and Open Government Act of 2007, requires federally registered lobbyists to file semi-annual reports on certain campaign and presidential library contributions. The disclosure requirements might be further amended to cover program specific disbursement information. Changes to the LDA would require the introduction and passage of a bill by Congress, as well as the President's signature. The White House or the Recovery Accountability and Transparency Board could create a central database to collect all Recovery Act projects and contacts by federally registered lobbyists in a single, searchable location. Creating a central, searchable portal might allow for department and agencies to see which lobbyists, if any, are involved in a given project and allow individuals and groups to better understand which departments and agencies are responsible for projects of interest. A similar website has been established for stimulus fund recipients to register and disclose how funds are being spent. Congress or the President might determine that the current lobbying registration and disclosure provisions, executive orders, and executive branch memoranda on Recovery Act lobbying restrictions are effective. Instead of amending the LDA, issuing additional executive orders, or issuing additional memoranda, Congress or the President could continue to utilize existing law to provide lobbyists access to covered governmental officials. Changes to the LDA or executive branch policy could be made on an as-needed basis through changes to LDA guidance documents issued by the Clerk of the House and Secretary of the Senate, through executive order, or through the issuance of new memoranda by the President. | Under the Lobbying Disclosure Act (LDA) of 1995, as amended, individuals are required to register with the Clerk of the House of Representatives and the Secretary of the Senate if they lobby either legislative or executive branch officials. In January 2009, Secretary of the Treasury Timothy Geithner placed further restrictions on the ability of lobbyists to contact executive branch officials responsible for dispersing Emergency Economic Stabilization Act (EESA, P.L. 110-343) funds. Subsequently, President Barack Obama and Peter Orszag, Director of the Office of Management and Budget (OMB), issued a series of memoranda between March and July 2009 that govern communication between federally registered lobbyists and executive branch employees administering American Recovery and Reinvestment Act of 2009 (P.L. 111-5) funds. Most recently, in October 2011, OMB published final guidance on the appointment of federally registered lobbyists to federal advisory bodies and committees. The guidance stipulates that federally registered lobbyists be prohibited from serving on advisory committees governed by the Federal Advisory Committee Act (FACA). The Recovery and Reinvestment Act lobbying restrictions focus on both written and oral communications between lobbyists and executive branch officials. Pursuant to the President's memoranda, restrictions have been placed on certain kinds of oral and written interactions between "outside persons and entities" and executive branch officials responsible for Recovery Act fund disbursement. The President's memoranda require each agency to post summaries of oral and written contacts with lobbyists on dedicated agency websites. EESA regulations are virtually identical, but only apply to federally registered lobbyists. This report outlines the development of registration requirements for lobbyists engaging executive branch officials since 1995. It also summarizes steps taken by the Obama Administration to limit and monitor lobbying of the executive branch; discusses the development and implementation of restrictions placed on lobbying for Recovery Act and EESA funds; examines the Obama Administration's decision to stop appointing lobbyists to federal advisory bodies and committees; considers third-party criticism of current executive branch lobbying policies; and provides options for possible modifications in current lobbying laws and practices. For further analysis on lobbying registration and disclosure, see 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]; CRS Report RL34725, "Political" Activities of Private Recipients of Federal Grants or Contracts, by [author name scrubbed]; and CRS Report R40245, Lobbying Registration and Disclosure: Before and After the Enactment of the Honest Leadership and Open Government Act of 2007, by [author name scrubbed]. |
Today, Indian gaming is big business. In 2010, 237 of the 565 federally recognized tribes operated 422 tribal gaming enterprises which generated $25.6 billion in revenues. Twenty-eight states have some form of Indian gaming. Indian gaming accounted for 25% of the total revenues of the legal gaming industry and is its fastest-growing segment. Indian gaming started out small. In the 1980s, when the federal government severely cut funds for Indian tribes, Indian tribes began to turn to high-stakes bingo and other gaming to raise money to fund tribal government operations. The Department of the Interior and other federal agencies actively encouraged tribal bingo to raise revenue to fund tribal governments. However, the legality of these operations was uncertain. Local and state authorities threatened to shut down these operations, claiming that they violated state law. Although federal courts enjoined state enforcement actions, states continued to pursue them. The legality of Indian gaming under federal law was also questionable. Meanwhile, a number of bills were introduced in Congress to regulate the growing Indian gaming industry. In 1987, in California v. Cabazon Band of Mission Indians , the Supreme Court settled that Indian tribes could engage in gaming on tribal land free from state law. The Court held that federal and tribal interests supporting tribal gaming preempted state laws regulating tribal gaming on tribal land. It did not address federal authority over Indian gaming. Cabazon focused congressional efforts to regulate Indian gaming that culminated in the passage of the Indian Gaming Regulatory Act (IGRA). IGRA provides a statutory basis for Indian tribes to conduct gaming on "Indian lands"; establishes a framework for regulating Indian gaming that divides authority between tribes, states, and the federal government; and created the National Indian Gaming Commission (NIGC) with authority to regulate tribal gaming on the federal level. IGRA prohibits gaming on most land acquired in trust after its effective date, October 17, 1988. However, there are important exceptions for certain newly acquired lands. For the purposes of regulation, IGRA divided Indian gaming into three classes: class I gaming includes social or traditional gaming played for prizes of minimal value and is subject to exclusive tribal regulation; class II gaming includes bingo and similar games and non-banked card games, and is subject to regulation by the tribes and NIGC, and may be conducted only in states that allow such gaming; and, class III gaming includes all other games and may be conducted only pursuant to tribal-state compacts approved by the Secretary of the Interior (Secretary) in states that allow such gaming or pursuant to procedures approved by the Secretary under circumstances specified by IGRA. IGRA also created the NIGC. NIGC has responsibility to monitor class II gaming and to approve tribal gaming ordinances and management contracts, and authority to impose fines and close gaming operations based on a violation of IGRA, NIGC regulations, or tribal gaming ordinances. Class III gaming is the most lucrative class of gaming, and a tribal-state compact is the key to a tribe's ability to engage in class III gaming. IGRA requires that states negotiate class III gaming compacts in "good faith." In order to provide states with an incentive to negotiate class III gaming compacts, IGRA provided that tribes may sue states in federal district court to enforce the good faith requirement. Upon a judicial finding of bad faith, IGRA provided a mechanism by which tribes may engage in class III gaming in the face of recalcitrant states. However, in Seminole Tribe of Florida v. Florida , the Supreme Court held that Congress did not have authority under the Indian Commerce Clause to waive the states' sovereign immunity to lawsuits by tribes to enforce the requirement that states negotiate class III gaming compacts in good faith. Seminole shifted the balance of power struck in IGRA between the tribes and the states in favor of the states by taking away the tribes' recourse when states refuse to negotiate class III compacts or demand concessions prohibited by IGRA. Increasingly, states have demanded that tribes agree to share gaming revenues and make concessions on issues unrelated to gaming in order to obtain class III gaming compacts. More recently, Congress's attention has focused primarily on off-reservation gaming—that is, gaming on Indian lands located away from a tribe's reservation. There have been several bills introduced which would amend IGRA to limit tribes' ability to game on land located away from their reservations. In the 1980s, the Department of the Interior and other executive branch agencies supported tribes developing gaming operations as a way to raise money to fund their governments. However, it appears that tribal bingo operations violated the Federal Assimilative Crimes Act (FACA) and the Organized Crime Control Act (OCCA). Both of these acts made it a federal crime to conduct gaming in Indian country if that gaming would violate state law if it were conducted in the state. In addition, the Johnson Act prohibited gaming devices, such as slot machines, in Indian country. Although federal officials never took steps to shut down tribal bingo, these operations were vulnerable to being shut down should the federal government have a change of heart and choose to enforce FACA or OCCA. In 1987, the Supreme Court considered whether states could enforce state gaming laws against tribal gaming operations on tribal land. The Cabazon and Morongo Bands of Mission Indians are two federally recognized tribes with reservations in Riverside County, California. Each Band conducted bingo on its reservation pursuant to a tribal ordinance approved by the Secretary. Cabazon also had a card club. All the tribes' games were open to the public and played predominantly by non-Indians. The profits from these games were the tribes' sole source of income and the games were a major source of employment for tribal members. The state sought to enforce Section 326.5 of the California penal code. Section 326.5 does not strictly prohibit bingo. Rather it permits it under certain circumstances: the games must be operated and staffed by members of designated charitable organizations who may not be compensated for their work; profits must be kept in separate accounts and used only for charitable purposes; and, prizes may not exceed $250 per game. Riverside County also sought to apply its ordinances regulating bingo and prohibiting the card games. The federal district court and the U.S. Court of Appeals for the Ninth Circuit both held that the state and the county did not have authority over the tribal bingo and card games. The Supreme Court began its analysis by noting that "tribal sovereignty is dependent on, and subordinate to, only the Federal Government, not the States. It is clear, however, that state laws may be applied to tribal Indians on their reservations if Congress has expressly so provided." California and the county argued that Congress provided for their authority over the tribal games under Public Law 280 and OCCA. Public Law 280 granted to certain states, including California, criminal and civil adjudicatory jurisdiction over Indian country. Therefore "when a State seeks to enforce a law within an Indian reservation under the authority of Pub. L. 280, it must be determined whether the law is criminal in nature, and thus fully applicable to the reservation …, or civil in nature, and applicable only as it may be relevant to private civil litigation in state court." Rejecting California's argument that its gaming laws were criminal in nature because they carried criminal penalties, the Court held that the difference between laws that are criminal in nature and those that are civil in nature depends on whether the law is "prohibitory" or "regulatory." "The shorthand test is whether the conduct at issue violates the State's public policy." The Court concluded, "[i]n light of the fact that California permits a substantial amount of gambling activity, including bingo, and actually promotes gambling through its state lottery, we must conclude that California regulates rather than prohibits gambling in general and bingo in particular." Because Section 326.5 was regulatory in nature, Public Law 280 did not authorize California to enforce it on the reservations. The Court also rejected the state's and county's argument that they had authority to enforce state law on the reservations under OCCA. "There is nothing in OCCA indicating that the States are to have any part in enforcing federal criminal laws or are authorized to make arrests on Indian reservations that in the absence of OCCA they could not effect.... [T]here is no warrant for California to make arrests on reservations and thus, through OCCA, enforce its gambling laws against Indian tribes." The tribes urged the Court to simply affirm the lower court without further analysis, relying on the statement from McClanahan v. Arizona State Tax Comm'n that "'state laws generally are not applicable to tribal Indians on an Indian reservation except where Congress has expressly provided that State laws shall apply.'" However, the Court noted that the law is not that black and white. In particular, the Court noted two cases concerning on-reservation tribal sales of cigarettes to non-Indians in which the Court held that even though Congress did not expressly authorize the states to apply its sales tax on the tribes, the state could require the tribes to collect state sales tax. Because Cabazon also involved a "state burden on tribal Indians in the context of their dealings with non-Indians," the Court determined that: [d]ecision in this case turns on whether state authority is pre-empted by the operation of federal law; and state jurisdiction is pre-empted if it interferes or is incompatible with federal and tribal interests reflected in federal law, unless the state interests at stake are sufficient to justify the assertion of state authority. The inquiry is to proceed in light of traditional notions of Indian sovereignty and the congressional goal of Indian self-government, including its overriding goal of encouraging tribal self-sufficiency and economic development. The Court characterized the federal goals of "encouraging tribal self-sufficiency and economic development" as "important." In support of that conclusion, the Court cited a number of executive branch policies and actions to demonstrate the magnitude of these interests: a statement by the President that, as part of the overriding policy of self-determination, tribes needed to reduce their dependence on federal funds; the Department of the Interior's (Interior's) promotion of tribal bingo enterprises by making grants and guaranteeing loans to construct bingo facilities, approving tribal ordinances establishing and regulating tribal bingo, reviewing tribal bingo management contracts, and issuing detailed guidelines governing that review; and the Department of Housing and Urban Development and the Department of Health and Human Services providing financial assistance for the construction of bingo facilities. The Court wrote that those policies and actions, "which demonstrated the Government's approval and active promotion" of tribal bingo, were "of particular relevance" because gaming was the tribes' sole source of revenues and without it, they would not be able to realize the federal policy goals of self-determination and economic self-sufficiency. The state and county sought to minimize these interests by arguing that the tribes were merely marketing an exemption from state law. In Washington v. Confederated Tribes of the Colville Indian Reservation , the Court "held that the State could tax cigarettes sold by tribal smokeshops to non-Indians, even though it would eliminate their competitive advantage and substantially reduce revenues used to provide tribal services, because the Tribes had no right to market an exemption from state taxation to persons who would normally do their business elsewhere." The Court distinguished the revenue generated from gaming from the revenue generated by cigarette sales based on the degree to which the tribes "generated value" in the service or product sold: [In Confederated Tribes, w]e stated that it is painfully apparent that the value marketed by the smokeshops to persons coming from outside is not generated on the reservations by activities in which the Tribes have a significant interest. Here, however, the Tribes are not merely importing a product onto the reservations for immediate resale to non-Indians. They have built modern facilities which provide recreational opportunities and ancillary services to their patrons, who do not simply drive onto the reservations, make purchases and depart, but spend extended periods of time there enjoying the services the Tribes provide. The Tribes have a strong incentive to provide comfortable, clean, and attractive facilities and well-run games in order to increase attendance at the games.... [T]he Cabazon and Morongo Bands are generating value on the reservations through activities in which they have a substantial interest. The Court apparently distinguished bingo enterprises from smokeshops, therefore, because the tribes invested more money and effort in bingo facilities than in smokeshops, and the customers were attracted by more than just the opportunity to play bingo free from the limitations from state law. The state and county also argued that the Court's opinion in Rice v. Rehner supported application of their laws to tribal gaming. In Rice the Court held that California could require a federally licensed Indian trader who was a tribal member and operated a general store on a reservation to obtain a state liquor license for sales for off-premises consumption. The Court distinguished Rice based on the difference in federal policies concerning tribal and state authority over liquor and federal policies concerning tribal and state authority over gaming on Indian reservations: [O]ur decision [in Rice ] rested on the grounds that Congress had never recognized any sovereign tribal interest in regulating liquor traffic and that Congress, historically, had plainly anticipated that the States would exercise concurrent authority to regulate the use and distribution of liquor on Indian reservations. There is no such traditional federal view governing the outcome of this case, since, as we have explained, the current federal policy is to promote precisely what California seeks to prevent. Essentially, therefore, Rice did not apply to Indian gaming because federal policy, as determined by the executive branch, promoted Indian gaming that was free from state regulation. California also asserted that its interest in preventing organized crime from infiltrating tribal bingo outweighed the federal and tribal interests and justified imposing its laws on tribal gaming. While acknowledging that the state had a legitimate interest, the Court found it was insufficient "to escape the pre-emptive force of federal and tribal interests apparent in this case" because there was no proof that organized crime had infiltrated the tribes' gaming and because federal policy, as determined by the executive branch, favored tribal gaming. The Court concluded "that the State's interest in preventing the infiltration of the tribal bingo enterprises by organized crime does not justify state regulation of the tribal bingo enterprises in light of the compelling federal and tribal interests supporting them. State regulation would impermissibly infringe on tribal government." Three Justices dissented from the majority opinion. The primary argument of the dissent was that action by the executive branch is not enough to exempt Indian gaming from state law—Congress must act to exempt Indian gaming. The dissent also disagreed with the majority's analysis of Public Law 280. The dissenters believed the plain language of Public Law 280 authorized California to apply its gaming laws to the tribes' bingo operations: "Congress expressly provided that the criminal laws of the State of California 'shall have the same force and effect within such Indian country as they have elsewhere within the state.'" While acknowledging that the prohibitory/regulatory distinction drawn by the majority was consistent with precedent, the dissent stated that the Court's more recent decisions "have made it clear, however, that commercial transactions between Indians and non-Indians—even when conducted on a reservation—do not enjoy any blanket immunity from state regulation." The majority had distinguished this case from Rice v. Rehner , in which the Court held the state could require a tribal member who was a federally licensed Indian trader selling liquor on the reservation to obtain a state liquor license for off-premises sales, on the grounds that Congress never recognized a tradition of tribal sovereignty over alcohol on Indian reservations, but it did recognize that states would have concurrent jurisdiction over alcohol on Indian reservations. The dissent rejected this explanation by quoting Rice itself: "'If there is any interest in tribal sovereignty implicated by imposition of California's alcoholic beverage regulation, it exists only insofar as the State attempts to regulate Rehner's sale of liquor to other members of the Pala Tribe on the Pala Reservation.'" According to the dissent, therefore, the tribe's sovereign interest was limited to sales between tribal members, implying that the state had an interest in regulating transactions between Indians and non-Indians on the reservation. The dissent also rejected the majority's conclusion that tribal bingo was consistent with the state public policy because the state regulated bingo, rather than prohibited it. "To argue that the tribal bingo games comply with the public policy of California because the State permits some other gambling is tantamount to arguing that driving over 60 miles an hour is consistent with public policy because the State allows driving at speeds of up to 55 miles an hour." The dissenters believed that even if Public Law 280 did not authorize the state to apply its gaming laws to the tribes' bingo operations, the state had authority to apply the gaming laws under Washington v. Confederated Tribes of the Colville Indian Reservation . In that case, the dissent noted, the Court rejected the tribe's argument that, because the revenues from the smokeshops funded essential government services, the state did not have authority to tax on-reservation cigarette sales to non-Indians. However, the majority seemed to accept that same argument here when it noted that the revenue from gaming was necessary for the tribes to realize the policy goals of self-determination and economic self-sufficiency. In addition, the dissent wrote, just as the smokeshops were marketing an exemption from state taxation, the tribal bingo operations were marketing an exemption to state law. "[I]t is painfully obvious that the value of the Tribe's asserted exemption from California's gambling laws is the primary attraction to customers who would normally do their gambling elsewhere." The dissent stated the state had both "economic and protective" interests that justified applying the gaming laws to tribal bingo. The state had determined that: its interest in generating revenues for the public fisc and for certain charities outweighs the benefits from a total prohibition against publicly sponsored games of chance. Whatever revenues the Tribes receive from their unregulated bingo games drain funds from the state-approved recipients of lottery revenues—just as tax-free cigarette sales in the Confederated Tribes case diminished the receipts the tax collector would otherwise have received. The dissent thought the majority dismissed the state's concerns about criminal activity associated with "unregulated" tribal bingo too readily. "[U]nless Congress authorizes and regulates these commercial gambling ventures catering to non-Indians, the State has a legitimate law enforcement interest in proscribing them." The dissent closed with the following: Appellants and the Secretary of the Interior may well be correct, in the abstract, that gambling facilities are a sensible way to generate revenues that are badly needed by reservation Indians. But the decision to adopt, to reject, or to define the precise contours of such a course of action, and thereby to set aside the substantial public policy concerns of a sovereign State, should be made by the Congress of the United States. It should not be made by the Court, by the temporary occupant of the Office of the Secretary of the Interior, or by non-Indian entrepreneurs who are experts in gambling management but not necessarily dedicated to serving the future well-being of Indian tribes. It appears, therefore, that Indian gaming escaped regulation by the states because the majority accepted that the executive branch's policies and actions supporting tribal bingo as a means for tribes to realize greater self-determination and economic self-sufficiency could pre-empt state law. Although the Indian tribes won a big victory in Cabazon , their right to engage in gaming was vulnerable because if the executive branch ever decided not to encourage Indian gaming as a means to realize federal policy goals of self-determination and economic self-sufficiency, under the reasoning of Cabazon , states would be able to enforce their gaming laws against tribal gaming on tribal land. Moreover, tribal gaming operations apparently were still subject to closure under FACA and OCCA. Therefore, federal legislation was needed to secure the tribes' ability to engage in gaming free from state regulation. One of IGRA's policy goals was "to provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments." Furthermore, Congress needed to provide for regulation of Indian gaming to satisfy state and federal entities concerned about criminal infiltration of Indian gaming. Congress had been considering Indian gaming bills for approximately four years when the Supreme Court decided Cabazon . IGRA was not so much a direct response to Cabazon , as it was the culmination of congressional efforts which were focused by the Court's decision in Cabazon . As explained in the Senate report on the bill that became IGRA, Congress sought to "preserve the right of tribes to self-government while, at the same time, to protect both the tribes and the gaming public from unscrupulous persons. An additional objective inherent in any government regulatory scheme is to achieve a fair balancing of competitive economic interests." The states wanted Congress to authorize state regulation of Indian gaming, to subject Indian gaming to the same rules as non-Indian gaming, and to allow state taxation of Indian gaming. The tribes opposed any state regulation and lobbied for exclusive tribal regulation. As a fallback position, tribes were prepared to accept federal, but not state, regulation. In IGRA, Congress maintained the current regulatory scheme of tribal and federal regulation of bingo and provided a framework for the regulation of Indian casino gaming which would not unilaterally impose state jurisdiction on the tribe's gaming, but would allow tribes to determine the extent to which they were willing to subject themselves to state jurisdiction through a tribal-state compact. IGRA provided a statutory basis for Indian gaming on "Indian lands" and struck a balance between tribal, state, and federal interests in its scheme for regulating Indian gaming. It also created the National Indian Gaming Commission (NIGC) as an independent agency to oversee and regulate Indian gaming on the federal level. Because IGRA authorizes Indian gaming only on "Indian lands," it is important to understand what land constitutes "Indian lands." Section 2703(4) defines "Indian lands" to include any lands within a reservation and any land outside a reservation which is either held in trust or the title to which is subject to restriction "over which an Indian tribe exercises governmental power." For non-reservation trust or restricted fee land, therefore, the tribe must exercise "governmental authority" over it. A prerequisite to exercising governmental power over trust or restricted fee land is jurisdiction. A tribe cannot satisfy the requirement that it exercises governmental power over the land by taking unilateral action, such as obtaining the landowner's consent to its authority, posting the land as tribal territory, flying the tribal flag on the land, or providing periodic law enforcement on the land. Rather, the tribe must have jurisdiction over the land under federal law. A tribe's jurisdiction over land depends on whether the land is "Indian country." Indian country includes reservations, dependent Indian communities, and allotments held in trust or restricted fee. Only land that has been set aside for Indian use and is superintended by the federal government qualifies as Indian country. Land need not be formally declared a reservation to qualify as Indian country as a reservation; rather it is enough if it is tribal trust land. Therefore, outside of a reservation, a tribe exercises jurisdiction over land that is its own trust land or an allotment belonging to a member of the tribe. Having jurisdiction and exercising governmental power are not the same thing. Aside from jurisdiction, courts have looked for "concrete manifestations" that the tribe exercises governmental authority. In Rhode Island v. Narragansett Indian Tribe , the court accepted the tribe receiving funds to administer federal programs under the Indian Self-Determination and Education Assistance Act, establishing a housing authority and receiving funds for federal programs from the Department of Housing and Urban Development, and receiving "treatment as a state" status for the purposes of federal environmental statutes as sufficient to establish that it exercised governmental power. "Indian lands," therefore, include any land within an Indian reservation and trust or restricted fee land over which the tribe has jurisdiction under federal law and exercises governmental power. The trust or restricted fee land can be owned by the tribe itself or a tribal member. IGRA explicitly prohibits gaming on land acquired by the Secretary in trust after October 17, 1988, the effective date of IGRA. However, there are a number of restrictions on, and exceptions to, this prohibition. The prohibition does not apply to land acquired by the Secretary that is "located within or contiguous to the boundaries of the reservation of the Indian tribe on October 17, 1988." It also does not apply if the tribe has no reservation on October 17, 1988, and (1) the lands are located in Oklahoma and are within the boundaries of the tribe's former reservation or are contiguous to other trust land held for the tribe; or (2) the lands are located in a state other than Oklahoma and are within the tribe's last recognized reservation within the state or states in which the tribe is located now. There are two exceptions to the prohibition. The first exception, referred to as the "two part determination," allows gaming on trust land acquired after October 17, 1988, if the Secretary, after consulting with the tribe and appropriate state and local officials, "determines that a gaming establishment on the newly acquired lands would be in the best interest of the Indian tribe and its members, and would not be detrimental to the surrounding community, but only if the Governor of the State in which the gaming activity is to be conducted concurs in the Secretary's determination." The second exception applies to lands that are taken into trust as part of a settlement of a land claim, as part of "the initial reservation of an Indian tribe acknowledged by the Secretary under the Federal acknowledgment process," or as part of "the restoration of lands for an Indian tribe that is restored to Federal recognition." IGRA provides federal authorization for tribal gaming, including slot machines, on "Indian lands." IGRA deals with the regulation of Indian gaming by dividing gaming into three classes and apportioning responsibility for regulating each class between tribes, states, and the federal government. IGRA defines "class I gaming" to mean "social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in by individuals as a part of, or in connection with, tribal ceremonies or celebrations." Class I gaming is regulated exclusively by the tribes and is not subject to the provisions of IGRA. Class II gaming is defined as "the game of chance commonly known as bingo (whether or not electronic, computer, or other technologic aids are used in connection therewith) … including (if played in the same location) pull-tabs, lotto, punch boards, tip jars, instant bingo and other games similar to bingo." The NIGC regulations provide that "electronic, computer, or other technologic aids" means a machine or device that simply assists the player in playing the game. It cannot be a facsimile of the game —in other words, the player must play against other players, not a machine. If the device merely broadens the participation in a game by allowing a player to play against more players, or to play at a remote location, it qualifies under class II. In addition to bingo and similar games, class II gaming also includes card games that are either "explicitly authorized by the laws of the State, or are not explicitly prohibited by the laws of the State and are played at any location in the State." However, such card games must conform to state laws regarding hours of operation and "limitations on wagers or pot sizes." IGRA explicitly provides that class II does not include "any banking card games, including baccarat, chemin de fer, or blackjack (21), or electronic or electromechanical facsimiles of any game of chance or slot machines of any kind." Class II gaming may be conducted on Indian lands located in a state that "permits such gaming for any purpose by any person, organization or entity." IGRA maintained the regulatory scheme that existed in Cabazon —tribal regulation with federal oversight. Under IGRA, class II gaming is subject to regulation by the tribes—it must be conducted under a tribal gaming ordinance—and subject to the oversight of the NIGC—the NICG must approve tribal gaming ordinances and has the responsibility for monitoring and inspecting class II operations. IGRA defines class III gaming simply as "all forms of gaming that are not class I or class II gaming." The NIGC has defined class III gaming in its regulations as "including but not limited to" any card game that is played against the house, "such as baccarat, chemin de fer, blackjack (21), and pai gow," and casino games "such as roulette, craps, and keno." It also includes slot machines, sports betting and pari-mutuel wagering (horse racing, dog racing, and jai alai), and lotteries. IGRA authorizes class III gaming subject to three conditions. First, class III gaming activities must be authorized by a tribal gaming ordinance that satisfies the same requirements as the ordinance governing class II gaming and is approved by NIGC. Second, class III gaming can only occur in a state that permits "such gaming for any purpose by any person, organization or entity." Jurisdictions vary on whether "such gaming" refers to the particular gaming activity or refers to class III gaming in general. Third, class III gaming can only be conducted pursuant to a tribal-state gaming compact approved by the Secretary or under procedures promulgated by the Secretary under circumstances identified in IGRA. In Cabazon , the Court recognized that the state had a legitimate interest in preventing infiltration of Indian gaming by organized crime. Because there was no evidence of infiltration of tribal bingo operations, the Court did not find that the state's interest was sufficient to justify state regulation. However, the drafters of IGRA did not believe that this reasoning applied to casino gaming. Because casino gaming was perceived as more vulnerable to criminal activity than bingo, the drafters of IGRA believed states had a legitimate interest in having a hand in regulating casino gaming. Congress recognized that both tribes and states have interests in class III gaming on tribal lands. A tribe's governmental interests include raising revenue for the benefit of the tribal community and reservation residents, promoting public safety as well as law and order on tribal lands, realizing the objectives of economic self-sufficiency and Indian self-determination, and regulating activities of persons within its jurisdictional borders. A State's governmental interests with respect to class III gaming on Indian lands includes the interplay of such gaming with the State's public policy, safety, law and other interests, as well as impacts on the State's regulatory system, including its economic interest in raising revenue for its citizens. The compact provision was a compromise between the state's position of exclusive state regulation and the tribal position of exclusive tribal regulation. IGRA identifies particular subjects that are appropriate for compact negotiation: the application of criminal and civil laws of the tribe and the state; the allocation of civil and criminal jurisdiction between the tribe and the state; assessment of fees by the state to recoup the cost of regulating the tribe's gaming; tribal taxation; and, remedies for breach of contract. In addition, IGRA provides a catch-all for "subjects that are directly related to the operation of gaming activities." Congress intended that gaming compacts would be limited to issues related to gaming and would not "be used as a subterfuge for imposing State jurisdiction on tribal lands." IGRA specifically provides that although states may recoup the costs of regulating a tribe's gaming, they may not "impose any tax, fee, charge, or other assessment upon an Indian tribe … to engage in a class III activity." Compacts take effect when the Secretary publishes notice in the Federal Register that he has approved the compact. The Secretary may disapprove a tribal-state compact only if it violates IGRA, any other provision of federal law, or "the trust obligations of the United States to Indians." If the Secretary does not approve or disapprove of a compact within 45 days of the date on which the compact was submitted for approval, "the compact shall be considered to have been approved by the Secretary, but only to the extent the compact is consistent with the provisions of this chapter." IGRA established the NIGC to provide federal regulation of Indian gaming. NIGC is funded through fees on class II and class III gaming and appropriations. It is composed of a chairman who is appointed by the President with the advice and consent of the Senate, and two "associate members" who are appointed by the Secretary. Members serve for three-year terms, which may be renewed. Members can be removed only for cause. Both political parties must be represented among the members and at least two of the members must be enrolled members of Indian tribes. NIGC plays a role in regulating class II and class III gaming by approving gaming ordinances and management contracts and taking enforcement actions. It also makes initial determinations of whether land qualifies as "Indian land" and is, therefore, eligible for gaming. Tribes can conduct class II and class III gaming only if they have an ordinance or a resolution authorizing and regulating the gaming that is approved by the chairman of NIGC. The IGRA provisions regarding tribal gaming ordinances are aimed at ensuring that the tribe itself is responsible for the gaming, that the revenues from tribal gaming are used primarily to benefit the tribe and its members, and that the integrity of the tribal gaming operation is adequately protected. IGRA mandates that the chairman approve any ordinance that: ensures that the tribe has "the sole propriety interest and responsibility for the conduct of any gaming"; limits the uses to which gaming revenues may be put to those that benefit the tribe, tribal members, charities, or local governments; requires annual outside audits of gaming operations, which the tribe must provide to the NIGC, and independent audits of contracts exceeding $25,000 annually; requires that construction, maintenance, and operation of the gaming facility is conducted "in a manner which adequately protects the environment and the public health and safety"; and provides a system for background checks of key persons, a standard for employing individuals to ensure the integrity of the gaming operations, and a gaming licensing process. If the chairman does not act within 90 days, IGRA deems the ordinance approved. For class III ordinances, there are two limitations on the chairman's authority to approve them which provide additional safeguards for the tribes and the integrity of the gaming. The chairman "shall approve any [class III] ordinance or resolution ... unless the Chairman specifically determines that": the ordinance was not adopted in compliance with the governing documents of the tribe; or the tribal governing body was "significantly and unduly influenced" in its adoption of the ordinance by a person who "has been determined to be a person whose prior activities, criminal record, if any, or reputation, habits, and associations pose a threat to the public interest or to the effective regulation and control or gaming, or create or enhance the dangers of unsuitable, unfair, or illegal practices, methods, and activities in the conduct of gaming or the carrying on of the business and financial arrangements incidental thereto." Indian tribes may enter into management contracts for the operation and management of class II and class III gaming, subject to the approval of NIGC. IGRA provisions regarding NIGC review of management contracts are aimed at ensuring tribal control of Indian gaming, ensuring that tribes are the primary beneficiaries of Indian gaming, and protecting the integrity of Indian gaming. Ultimately, NIGC has discretion to disapprove a management contract if "a trustee, exercising the skill and diligence that a trustee is commonly held to, would not approve the contract." The chairman has authority to impose civil fines up to $25,000 against the tribal operator or management contractor per violation of IGRA, NIGC regulations, or tribal gaming ordinances. A tribal operator or management contractor may appeal the fine to the full commission at a hearing prescribed by regulations. The chairman may order the temporary closure of an Indian gaming operation for "substantial violation" of IGRA, NIGC regulations, or tribal ordinances. Within 30 days of the chairman's order closing a gaming operation, the Indian tribe or management contractor has a right to a hearing before the full commission to determine whether the order should be made permanent. The commission must make a decision within 60 days. Whenever the NIGC has "reason to believe" that a tribal operator or management contractor is engaged in activities that may result in a fine, permanent closure of the operation, or modification of the management contract, the NIGC must provide a "written complaint stating the acts or omissions which form the basis for such belief and the action or choice of action being considered." The full commission has authority to adopt regulations for assessing and collecting civil fines, to establish the fees that the commission will collect to fund its activities, and to authorize the chairman to issue subpoenas. The commission also has responsibility to monitor class II gaming "on a continuing basis"; to inspect class II premises; to conduct background investigations; to "demand access to and inspect, examine, photocopy, and audit all papers, books, and records respecting gross revenues of class II gaming conducted on Indian lands and any other matters necessary to carry out the duties of the Commission under this chapter"; and to conduct hearings and administer oaths. IGRA directs that NIGC submit a report, with minority views, to Congress every two years concerning matters related to NIGC's administration, recommended amendments to IGRA, and "any other matter considered appropriate by the Commission." In addition to the above authorities provided by IGRA, the NIGC makes "Indian land" determinations, which determine whether a given parcel of land qualifies as Indian land and classification determinations, which determine whether a particular device qualifies as a class II or class III game. For non-reservation land, the NIGC determines whether the tribe has jurisdiction and exercises governmental power over the land. As mentioned above, class III gaming can only occur under a tribal-state compact or under procedures promulgated by the Secretary under circumstances identified in IGRA. A tribe seeking to engage in class III gaming must request the state in which the Indian lands are located to negotiate a class III gaming compact. IGRA provides that upon receiving such a request, "the State shall negotiate with the Indian tribe in good faith to enter into such a compact." In order to make sure that states negotiate in good faith, IGRA gave jurisdiction to federal district courts over "any cause of action initiated by an Indian tribe arising from the failure of a State to enter into negotiations with the Indian tribe for the purpose of entering into a Tribal-State compact ... or to conduct such negotiations in good faith." In Seminole Tribe of Florida v. Florida , the Supreme Court held that Congress did not have authority under the Indian Commerce Clause to waive states' sovereign immunity to lawsuits by tribes to enforce the good faith bargaining requirement. It held further that the doctrine of Ex parte Young did not authorize suits against the governor for failing to negotiate in good faith because Congress provided the exclusive mechanism to remedy a state's violation of IGRA. After Seminole , therefore, IGRA no longer guaranteed that tribes would be able to engage in class III gaming if a state refused to negotiate. The Supreme Court's decision in Seminole struck down IGRA's procedures that practically guaranteed that a tribe would be able to engage in class III gaming even when the state objected. The Secretary adopted regulations—called Secretarial Procedures—that provide an administrative process, modeled after the IGRA process, under which a tribe could conduct class III gaming when a state asserts its sovereign immunity to a lawsuit brought by the tribe to enforce the good faith requirement. Once a state asserts its sovereign immunity, a tribe may submit a proposal for class III gaming to the Secretary. The Secretary then gives the state 60 days to comment and submit its own proposal. If the state does not submit a proposal, the Secretary reviews the tribe's proposal and either approves it or offers the tribe and the state a conference to address "unresolved issues and areas of disagreements." The Secretary must then make a "final decision either setting forth the Secretary's proposed Class III gaming procedures for the Indian tribe, or disapproving the proposal." If the state submits a proposal, the Secretary appoints a mediator who will follow the IGRA procedures to resolve the differences between the two proposals. The Secretary may reject the mediator's proposal but he "must prescribe appropriate procedures within 60 days under which Class III gaming may take place." While IGRA required a judicial finding of a state's bad faith, the Secretary's regulations apply anytime a state asserts its sovereign immunity, regardless of whether it was negotiating in good faith. Moreover, IGRA provided for a mediator selected by the court and proscribed the Secretary's discretion in prescribing class III procedures by requiring that they be consistent with the mediator's proposal. In Texas v. United States , the U.S. Court of Appeals for the Fifth Circuit held that IGRA did not authorize the Secretary to promulgate the Secretarial Procedures. In particular, the court noted that IGRA required involvement of the judiciary in finding bad faith and selecting a mediator, and circumscribed the Secretary's discretion to select procedures under which a tribe may engage in class III gaming by requiring that they be consistent with the compact the mediator selected. Because the Secretarial Procedures did not require a judicial finding of bad faith and judicial appointment of a mediator, they were found to be inconsistent with IGRA. IGRA practically guaranteed that tribes would be able to engage in Class III gaming even over the objections of a state by providing that tribes could sue states in federal district court. After Seminole , IGRA no longer carried that guarantee. The Secretarial Procedures were designed to replace IGRA's procedures to allow tribes to conduct class III gaming when a state refuses to waive its sovereign immunity. Texas v. United States invalidated the Secretarial Procedures for the states of Mississippi, Louisiana, and Texas, the states located within the Fifth Circuit. Although the Secretarial Procedures are still presumably valid outside the Fifth Circuit, Texas v. United States has raised uncertainty about their legality. At least one commentator has argued that the Supreme Court's decision in Seminole upset the balance of power between the tribes and the states in favor of the states. Seminole left states in a position to dictate terms to tribes and many states began negotiating for a share of gaming revenues. Although IGRA explicitly prohibits states from imposing a tax or a fee on Indian gaming, the Secretary and the courts have allowed revenue sharing provided the tribes get something to which they are not otherwise entitled, usually exclusivity for Indian gaming, in return. However, revenue sharing percentages have increased even as states have not been able to offer greater exclusivity. Such revenue sharing appears to violate IGRA's prohibition on state taxation of Indian gaming. In Rincon Band of Luiseno Mission Indians of the Rincon Reservation v. Schwarzenegger , the U.S. Court of Appeals for the Ninth Circuit found that in negotiating an amendment to the tribe's compact, California's demand for a substantial percentage of the gaming revenues which would be paid to the state's general fund, was made in bad faith, in part, because the state was not offering any greater exclusivity than the tribe had under its existing compact. Rincon has limited implications for states other than California because, California waived its sovereign immunity to suits to enforce the good faith negotiation requirement. Because of Seminole , most tribes that want to engage in class III gaming apparently have no alternative but to agree to revenue sharing if the state demands it. Although it is not as common as revenue sharing, some states are trying to obtain tribal concessions on issues unrelated to tribal gaming as a condition of agreeing to a class III compact. For example, in Wisconsin, Governor Tommy Thompson proposed that the Wisconsin tribes relinquish their hunting and fishing rights and agree to state taxation of on-reservation cigarette and gasoline sales. In California, environmental and labor issues have been included in class III compacts with tribes throughout the state. Because most tribes have no recourse in the face of such demands, states may continue to raise non-gaming issues in compact negotiations. Recent proposed amendments to IGRA have been aimed primarily at IGRA's provisions allowing gaming on newly acquired lands. Because location near a large metropolitan center may be critical to large profits for Indian gaming, tribes have tried to acquire Indian lands away from their reservations near population centers under the exceptions to IGRA's prohibition on gaming on newly acquired lands. Gaming on land acquired in trust pursuant to the exceptions is controversial. As of June 2010, 31 applications for land into trust were granted under the exceptions. Because of the controversy, however, off-reservation gaming has caught the attention of Congress. Introduced in the 112 th Congress, S. 771 would restrict gaming on newly acquired lands by requiring that tribes demonstrate to the Secretary that they have a "substantial, direct, modern connection" and a "substantial, direct, aboriginal connection" to the newly acquired lands. If the Secretary determines there is a modern connection to the land, he would have to certify the following: If the tribe has a reservation, the land is within 25 miles of the tribal headquarters or other government facilities on the reservation; from October 17, 1988, the tribe has demonstrated a routine presence on the land; and the tribe has not been restored to federal recognition or acknowledged within the preceding five years. If the tribe does not have a reservation, the land is located within 25 miles of where a substantial number of members live; from October 17, 1988, the tribe has demonstrated a routine presence on the land; the land was within the first-submitted request for land since acknowledgment or restoration or the application to take land into trust was within five years of acknowledgment or restoration; and the tribe is not gaming on other land. In determining that the tribe has an aboriginal connection to the land, the Secretary would have to consider the following: The tribe's historical presence on the land; Whether the membership can demonstrate lineal descent or cultural affiliation with the land; The area in which the tribe's language was spoke; The proximity of tribal sacred sites; Forcible removal from the land; and Other factors that demonstrate the tribe's presence prior to its fist interactions with non-natives, the federal government, or another sovereign. S. 2676 , introduced in the 110 th Congress, would have amended IGRA in several ways. First, it would have struck all the exceptions to the prohibition on gaming on newly acquired lands, except for the two part determination. Second, it would have amended the two part determination to require that the Secretary consult with tribal, state, and local jurisdictions within 60 miles of the trust land and require that the Secretary consider the "results of a study of the economic impact of the gaming establishment" in determining that the gaming operation would not have a negative impact on any tribal, state, or local jurisdiction located within 60 miles. The proposed bill would also require the concurrence of the state legislature, as well as the governor, for the two part determination. In addition, it would have required that the tribe satisfy certain criteria to demonstrate that it has a "geographic, social, and historical nexus" to the land. The proposed bill would have amended IGRA's authorization of class II gaming by restricting class II gaming to lands that were Indian lands on the date of enactment or land acquired afterwards provided the tribe indicated it would engage in class II gaming on the land when it filed its application for taking the land into trust. It also would restrict a tribe's ability to change the use of non-gaming trust land to use it for gaming. S. 2676 would also have amended the authority of the chairman of NIGC to authorize background checks of the ten persons or entities with the greatest financial interest in any of the gaming enterprises regulated by the NIGC and any other person the NIGC deems appropriate. The Limitation of Tribal Gaming to Existing Tribal Lands Act of 2007, H.R. 2562 from the 110 th Congress, would have struck all of IGRA's exceptions for gaming on newly acquired lands, except for the two part determination. It would have amended the two part determination to require concurrence of the state legislature, as well as the governor. H.R. 1654 , also introduced in the 110 th Congress, would require the Secretary to determine that gaming on all newly acquired lands was in the best interest of the tribe and not detrimental to the surrounding community. In addition, in the 112 th Congress, H.R. 4033 , the Giving Local Communities a Voice in Tribal Gaming Act, has been introduced. This bill would amend IGRA to give local jurisdictions a veto over class III gaming establishments to which the state has agreed in compacts entered after January 1, 2011. Initially, Indian gaming arose on a small scale in response to cut-backs in funding for tribes in the 1980s. Because of the executive branch's support of Indian gaming as a legitimate source of tribal revenues, in Cabazon , the Supreme Court found that federal and tribal interests supporting tribal gaming outweighed state interests in regulating Indian gaming. Congress passed IGRA after Cabazon to provide a statutory basis for tribal gaming, to establish a system for regulating Indian gaming, and to establish the NIGC. IGRA divides Indian gaming into three classes. Class I gaming includes traditional or social gaming and is regulated exclusively by the tribes. Congress affirmed Cabazon as to bingo, or class II gaming, by providing that it is subject to tribal regulation with federal oversight by the NIGC. However, Congress recognized that states had greater interests in casino-style, or class III, gaming and, therefore, gave states a role in regulating class III gaming through the tribal-state compact. In order to engage in class III gaming, a tribe must have a gaming compact that allows them to do so, or have procedures issued by the Secretary after a good faith lawsuit. The NIGC plays an important role in regulating tribal gaming by approving tribal gaming ordinances, approving management contracts, imposing fines and closing gaming operations for violations of IGRA, NIGC regulations, or tribal ordinances, and monitoring class II operations. NIGC also makes determinations about whether land qualifies as "Indian land." IGRA created an incentive for states to negotiate gaming compacts by providing that tribes could take states that did not negotiate in good faith to federal court. If, after a finding by the court of bad faith on the part of the state, the state and the tribe could not agree to a compact, IGRA provided a mechanism by which a tribe could engage in class III gaming without a state's agreement. However, in Seminole , the Supreme Court held that Congress did not have authority to waive the states' sovereign immunity to the tribes' lawsuits. Although IGRA bars states from imposing a tax or fee on Indian gaming and limits the issues subject to negotiation between tribes and states to those that are gaming related, states have been negotiating for a share of tribal gaming revenues and bringing non-gaming issues into compact negotiations. Because, after Seminole , tribes cannot resort to the courts to enforce IGRA's limitations, they have tended to accept arguably prohibited conditions in their compacts. Congress has been most interested in off-reservation gaming on newly acquired lands. In the past five years, several bills have been introduced which would amend IGRA to limit the ability of tribes to game on newly acquired lands. | In the 1980s, a number of Indian tribes developed high-stakes bingo and other gaming operations to raise non-federal revenue to fund their governments. In 1988, after the Supreme Court held, in California v. Cabazon Band of Mission Indians, that federal and tribal interests in Indian gaming preempted state law such that state regulation of gaming did not apply to tribal gaming operations on tribal land, Congress passed the Indian Gaming Regulatory Act (IGRA). IGRA provides a statutory basis for Indian tribes to conduct gaming on "Indian lands" and establishes a regime for regulating Indian gaming. It prohibits gaming on newly acquired land—that is, land acquired in trust after October 17, 1988—subject to two exceptions: the "two part determination"; and, land taken in trust as part of a land settlement, restoration of land for a restored tribe, or the initial reservation of a newly acknowledged tribe. In establishing a framework for regulating Indian gaming, IGRA was intended to balance the interests of the tribes, the states, and the federal government in Indian gaming and apportion responsibility for regulating it accordingly. To do this, IGRA divides Indian gaming into three classes: class I includes traditional or social gaming and is subject to exclusive tribal regulation; class II covers bingo and similar games and is subject to tribal regulation and oversight by the National Indian Gaming Commission (NIGC); and, class III includes all other gaming, including casino gaming or Las Vegas-style gaming, and generally can only be conducted pursuant to tribal-state compacts that must be approved by the Secretary of the Interior. IGRA also created the NIGC to provide regulation of Indian gaming on the federal level. The tribal-state compact is the key to tribal casino gaming. Recognizing that some states might simply stonewall tribes and refuse to negotiate class III gaming compacts, Congress required that upon a request from a tribe to negotiate a compact, a state must negotiate in good faith. In order to create an incentive for states to negotiate in good faith, IGRA provided that tribes could sue states in federal district court for failing to negotiate in good faith. IGRA prescribes a series of steps to ensure that ultimately a tribe would be able to engage in class III gaming even over the state's objections. However, in Seminole Tribe of Florida v. Florida, the Supreme Court held that Congress did not have authority under the Indian Commerce Clause to waive the states' sovereign immunity to suits by tribes to enforce the good faith negotiation requirement. This decision, therefore, removed IGRA's practical guarantee that tribes would be able to engage in class III gaming over the objections of the state and gave states a veto over tribal class III gaming—a state can simply refuse to negotiate a class III compact to deny a tribe the ability to engage in class III gaming. Increasingly, states have demanded significant revenue sharing and non-gaming concessions in exchange for class III compacts. In the last five years, there have been several bills introduced in Congress to amend IGRA, primarily to restrict off-reservation gaming. Two bills have been introduced in the 112th Congress to amend IGRA. H.R. 4033, the Giving Local Communities a Voice in Tribal Gaming Act, would give local jurisdictions the right to veto a class III gaming operation that the state has agreed to in a compact. S. 771, the Tribal Gaming Eligibility Act, would restrict the availability of off-reservation land for gaming by requiring that tribes demonstrate, by meeting certain criteria, that they have modern and historical ties to the land on which they propose to game. |
Recent high-profile incidents of sexual violence on campus have heightened congressional and administrative scrutiny of the policies and procedures that institutions of higher education (IHEs) use to address such violence. The Obama Administration has taken steps to facilitate the reporting of sexual violence and to help ensure that appropriate procedures and services are in place. Meanwhile, legislators have introduced several bills that seek to strengthen or build on existing laws pertaining to campus sexual violence, including, in the 114 th Congress, the Campus Accountability and Safety Act (CASA, H.R. 1310 / S. 590 ), SOS Campus Act (SOS, H.R. 1490 / S. 706 ), HALT Campus Sexual Violence Act (HALT, H.R. 2680 ), Safe Campus Act of 2015 (Safe Act, H.R. 3403 ), and Fair Campus Act of 2015 (Fair Act, H.R. 3408 ). Currently, there are two federal statutes that address sexual violence on college campuses: the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, as amended (Clery Act), and Title IX of the Education Amendments of 1972 (Title IX). The Department of Education (ED) has primary responsibility for enforcing these laws. This report provides background information on sexual violence on campus and its prevalence, descriptions of the Clery Act and Title IX, and an analysis of prominent policy and legal issues related to these two statutes. It also includes a brief description of a related third statute focused on educational privacy. Campus sexual violence is a widely acknowledged problem. Victims of sexual violence may suffer from a variety of physical and mental health conditions including injuries, unintended pregnancy, sexually transmitted diseases, post-traumatic stress disorder, depression, suicidality, and substance abuse. College students who are the victims of sexual violence may experience a decline in academic performance, drop out, leave school, or transfer. Although the effects of sexual violence are well understood, the scope and scale of sexual violence is not. Finding ways to accurately assess and establish the prevalence of sexual violence has been a major focus of federal policy efforts. A number of studies have attempted to shed light on the incidence and nature of sexual violence (in general and on campus), but there is little agreement in findings, and estimates of sexual violence can vary widely. These variations may stem, at least in part, from the different sources of data used to calculate estimates and the research challenges associated with each of those data sources. Data used to estimate sexual violence may come from various sources, including crime data reported to police or survey data collected by researchers. The following sections describe some of the research challenges associated with crime and survey data, and highlight some of the efforts to improve federal and IHE sexual violence data collections. (Data on reports of campus sexual violence under the Clery Act are included in Table A-1 .) One source of information about the prevalence of campus sexual violence is crime data reported to (and by) the police. The Federal Bureau of Investigation (FBI) tracks and publishes such data in its annual report, Crime in the United States . Crime in the United States includes information collected from law enforcement agencies throughout the United States through the Uniform Crime Reporting (UCR) Program. The 2014 edition includes data on reported campus crimes (including rape), by state, in " Table 9. Offences Known to Law Enforcement, by State by University and College, 2014 ." (This table is too large to incorporate in this report. However, data are available at https://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2014/crime-in-the-u.s.-2014/offenses-known-to-law-enforcement/browse-by/universities-and-colleges.) Many experts believe official crime statistics (possibly significantly) underestimate the prevalence of sexual violence. Such violence has been found to be underreported to police. Some of the reasons that have been implicated in research on the underreporting of sexual violence include not having proof that the incident occurred, belief that the violence was a personal matter, fear on the part of the accuser of retaliation by the perpetrator or of hostile treatment by authorities, known perpetrator (such as a boyfriend), certain campus policies, victim perception that the event was not rape (perhaps because no weapon was used), embarrassment, location of the event (on- or off-campus), and the role (if any) of drugs and alcohol. In addition to crime data, a second research technique relies on information collected (typically through interviews or by questionnaire) from a sample of individuals selected from a specific population or cohort—that is, a survey. Many estimates of sexual violence in general (and on campus) come from studies that rely on retrospective survey data. These estimates vary considerably across studies. For example, one often cited web-based survey of students—the 2007 Campus Sexual Assault Study —found that one in five undergraduate women attending one of two large public universities had experienced a completed or attempted sexual assault since entering college. A 2014 study of data from the nationally representative National Crime Victimization Survey (NCVS), on the other hand, estimated that the rate of rape and sexual assault among college females was 6.1 per 1,000 students. (Some researchers have cautioned against relying on either of these surveys for definitive statements on the prevalence of sexual violence on campus in the United States.) Why the gap in findings? One answer is study design. Methodological and research choices can significantly affect measurement, response, and survey conclusions in research on sexual violence. Some of the factors in the survey research processes used in this research area that appear to influence findings include the following: the purpose and context of the survey (e.g., to identify crimes of sexual violence or public health issues); how the survey is administered (telephone survey, in person interview, self-administered computer survey, etc.); whether the respondent has privacy during the survey; the time frame of the survey (e.g., whether the respondent is asked to provide data for the past six months, the past 12 months, or over their lifetime); and whether behaviorally specific definitions are provided for all of the types of sexual violence being surveyed. Response rates and question wording can also affect study conclusions. Surveys with low response rates (that is, the number or people who participate compared to the number of people who were asked to participate) or a non-random, non-nationally representative sample, may suffer from sampling or selection bias. Question wording can also have a significant effect on participant response and survey findings in sexual violence research. The two main federal surveys that examine sexual violence include (1) the Department of Justice (DOJ), Bureau of Justice Statistics' (BJS) National Crime Victim Survey (NCVS), which views sexual violence from a criminal justice or crime perspective ; and (2) the Department of Health and Human Service ( HHS ), Centers for Disease Control and Prevention's (CDC) National Intimate Partner and Sexual Violence Survey (NISVS), which views sexual violence through the lens of public health. As previously mentioned, a 2014 analysis of NCVS data estimated that the rate of rape and sexual assault among female student victims was 6.1 per 1,000 between 1995 and 2013 . (This may be an undercount.) The estimated rate of rape and sexual assault was higher for nonstudents— 7.6 per 1,000 — than for students, but student victims were less likely to report to police than nonstudent victims (20% vs 32%) . An analysis of data from the 2010 NISVS estimated that nearly one in five women (18.3%) and one in 71 men (1.4%) ha ve been raped at some time in their lives. The same analysis estimated that n early "1 in 2 women (44.6%) and 1 in 5 men (22.2%) experienced sexual violence victimization other than rape at some point in their lives." The analysis of 2010 NISVS data did not distinguish between students and nonstudents. It is unclear how these data might apply to campus sexual violence. Further, the data may be limited by low response rates and other factors related to question wording, research approach, and survey administration. Given the challenges associated with determining the utility of currently available survey data used in research on sexual violence , the BJS has been involved in a multiyear effort to evaluate its National Crime Victim Survey and to identify, develop, and test the best methods for collecting self-report data on rape and sexual assault. As part of that effort, BJS asked the National Research Council's Committee on National Statistics to convene an expert panel to investigate and "recommend best practices for measuring rape and sexual assault on the NCVS and other BJS household surveys." The panel published its findings in 201 4 . BJS' s efforts to improve the National Crime Victim Survey are ongoing. Results from an assessment of certain collection methods (e.g., survey administration) may be available in late 2016 or early 2017; field testing of a redesigned survey instrument is anticipated in 2017. Improvement efforts also seek to address demand for state and local-level victimization estimates . In addition to efforts that are underway to improve the National Crime Victim Survey , DOJs Office on Violence Against Women has been working with BJS to develop and test a campus climate survey that researchers or IHEs may use to assess the prevalence and nature of sexual violence on an individual campus or higher education system. As described in a technical report on the new survey, campus climate surveys provide one vehicle for measuring the problem of rape and sexual assault among college students, and have the potential to collect information that is needed to understand which policies and programs are most effective at reducing the prevalence of rape and sexual assault, providing effective and necessary services to victims, investigating sexual victimization incidents, and holding perpetrators accountable. The final technical report on the validation study of the new campus climate survey instrument was published in January 2016. Some IHEs already collect information on campus sexual violence through independently developed, single institution- or higher education system-specific campus climate surveys. (Reports on the results of these surveys may often be found online.) In 2015, the Association of American Universities (AAU) published findings from a campus climate survey of 27 institutions. 150,072 students participated—a 19.3% response rate, which the AAU survey report noted was lower than the response rate in similar surveys and may have contributed to sampling bias. Nevertheless, the AAU campus climate survey found that, "11.7 percent of student respondents across 27 universities reported experiencing nonconsensual sexual contact by physical force, threats of physical force, or incapacitation since they enrolled...." Both the Clery Act and Title IX contain provisions intended to protect students at IHEs from sexual violence. Indeed, the Obama Administration's 2014 initiative to combat sexual violence on college campuses emphasizes the responsibilities of IHEs under the two statutes. Nevertheless, it is important to remember that the Clery Act and Title IX are two different laws with two different purposes. Those purposes happen to overlap in the context of sexual violence on college campuses. Because an IHE's mishandling of sexual violence incidents may lead to violations of one or both laws, there has been some confusion about the comparative scope and applicability of the Clery Act and Title IX. Some of the differences between the two laws are described below. The primary purpose of the Clery Act is disclosure of campus crime statistics and policies. Under Clery, all public and private IHEs that participate in HEA Title IV student financial assistance programs must track crimes in and around their campuses, and report these data to their campus community and to ED. Notably, the Clery Act requires such reports for all types of crimes and offenses enumerated in the law, not just crimes of sexual violence. The Clery Act also requires that IHEs develop and publish certain policies relating to campus crime and safety, including policies related to sexual violence, as well as those that relate to emergency response, evacuation, and related topics. In contrast, Title IX is a civil rights law that prohibits discrimination on the basis of sex under any education program or activity that receives federal funding. Under Title IX, sexual harassment, which includes sexual violence, is a form of unlawful sex discrimination. Unlike the Clery Act, whose coverage is limited to IHEs that receive student financial aid funds under the HEA, Title IX is applicable to education programs or activities that receive any type of federal funding, including any public or private elementary, secondary, and postsecondary school that receives such funds. Title IX and the Clery Act differ not only in their purpose and coverage, but also in their enforcement and remedies. ED's Federal Student Aid (FSA) office oversees educational institutions' compliance with the student financial aid requirements under Title IV of the HEA, including requirements related to the Clery Act. In this role, FSA conducts program reviews of institutions' compliance with Title IV student financial aid requirements, including compliance with the Clery Act. After conducting a review of an IHE's compliance with the Clery Act, the FSA may impose a fine of up to $35,000 per Clery Act violation. FSA also has authority to suspend institutional participation in federal financial student aid programs for violations of the Clery Act, although it appears that this penalty has never been imposed. Meanwhile, for purposes of enforcing Title IX at the administrative level, federal agencies are responsible for ensuring that education programs or activities that receive federal funding are complying with Title IX. Although each agency enforces Title IX compliance among its own recipients, ED, which administers the vast majority of federal education programs, is the primary agency conducting administrative enforcement of Title IX. Such enforcement by ED's Office for Civil Rights (OCR) may occur as part of a routine compliance audit or in response to a complaint filed by an individual. The administrative sanction for violating Title IX is suspension or termination of federal funding, although such a penalty is the last resort, and may occur only if OCR has first sought an informal resolution with the IHE in question. Both the Clery Act and Title IX are discussed in greater detail below. The Clery Act requires IHEs to do two things: (1) report campus crime statistics, and (2) establish and disseminate campus safety and security policies. These requirements apply to sexual violence on campus and to other crimes and offenses specified in the statute, such as murder and hate crimes. Both the campus crime statistics and campus safety and security policies must be compiled and distributed to current and prospective students and employees in an institution's Annual Security Report (ASR). The most recent amendments to the Clery Act were adopted as part of the Violence Against Women Reauthorization Act of 2013 (VAWA, P.L. 113-4 ). This report refers to and describes the Clery Act as it exists in April 2016, which includes amendments made under VAWA, as well as other enacted changes made to the statute between 1990 and 2016. This report also refers to certain Clery Act regulations and the Handbook for Campus Safety and Security Reporting (Clery Handbook). Data on the number of reported crimes under the Clery Act, and a list of IHEs that received Final Program Review Determinations in response to claims of a violation of the Clery Act, are included in Appendix A . Under the Clery Act, IHEs must collect and report data on criminal offenses—and offenses referred for disciplinary action—that have been reported to a campus security authority or local police if the offense occurred on Clery geography (on or around campus). The Clery Act further requires IHEs to publish this information (for the most recent three years) in their Annual Security Reports (ASR). ASRs must be published by October 1 st of each year. In addition, the Clery Act directs IHEs to submit campus crime statistics to ED, which is done through a web-based data collection portal, in the fall of each year. Campus Security Authorities . Campus security authorities—who play a role in collecting and reporting campus crime statistics—are referenced, but not defined, in the Clery Act. However, under ED's Clery Act regulations, a campus security authority is defined as (i) A campus police department or a campus security department of an institution. (ii) Any individual or individuals who have responsibility for campus security but who do not constitute a campus police department or a campus security department under paragraph (i) of this definition, such as an individual who is responsible for monitoring entrance into institutional property. (iii) Any individual or organization specified in an institution's statement of campus security policy as an individual or organization to which students and employees should report criminal offenses. (iv) An official of an institution who has significant responsibility for student and campus activities, including, but not limited to, student housing, student discipline, and campus judicial proceedings. If such an official is a pastoral or professional counselor as defined below, the official is not considered a campus security authority when acting as a pastoral or professional counselor. As described by ED's Clery Handbook, campus security authorities are responsible for collecting and reporting (to the IHE's designated official) Clery Act reportable data and crimes. ED's Clery Act regulations specify that Clery Act reporting does not also require an investigation of the alleged crime or disclosure of personally identifying information about the victim. (Such duties may be required under other laws.) Clery Geography . Clery geography includes campus areas, noncampus areas, and public property. These terms are defined in Section (6)(A)(ii) of the Clery Act, and are included in ED's Clery Act regulations under the definition of "Clery geography." Under the Clery Act, (ii) The term "campus" means- (I) any building or property owned or controlled by an institution of higher education within the same reasonably contiguous geographic area of the institution and used by the institution in direct support of, or in a manner related to, the institution's educational purposes, including residence halls; and (II) property within the same reasonably contiguous geographic area of the institution that is owned by the institution but controlled by another person, is used by students, and supports institutional purposes (such as a food or other retail vendor). (iii) The term "noncampus building or property" means- (I) any building or property owned or controlled by a student organization recognized by the institution; and (II) any building or property (other than a branch campus) owned or controlled by an institution of higher education that is used in direct support of, or in relation to, the institution's educational purposes, is used by students, and is not within the same reasonably contiguous geographic area of the institution. (iv) The term "public property" means all public property that is within the same reasonably contiguous geographic area of the institution, such as a sidewalk, a street, other thoroughfare, or parking facility, and is adjacent to a facility owned or controlled by the institution if the facility is used by the institution in direct support of, or in a manner related to the institution's educational purposes. Additionally, Section (6)(B) of the Clery Act specifies that when branches, schools, or administrative divisions within an institution are not "within a reasonably contiguous geographic area," they are to be treated as separate campuses for Clery Act reporting requirements. Reportable Crimes and Offenses . The list of Clery Act reportable crimes and offenses is generally described in the statute. However, ED's Clery Act regulations add additional detail—distinguishing, for example, in the category of "murder," between criminal homicide and negligent manslaughter. As enumerated in the Clery Act regulations, reportable crimes include (i) Primary crimes, including— (A) Criminal homicide: (1) Murder and nonnegligent manslaughter; and (2) Negligent manslaughter. (B) Sex offenses: (1) Rape; (2) Fondling; (3) Incest; and (4) Statutory rape. (C) Robbery. (D) Aggravated assault. (E) Burglary. (F) Motor vehicle theft. (G) Arson. (ii) Arrests and referrals for disciplinary actions, including— (A) Arrests for liquor law violations, drug law violations, and illegal weapons possession. (B) Persons not included in paragraph (c)(1)(ii)(A) of this section who were referred for campus disciplinary action for liquor law violations, drug law violations, and illegal weapons possession. (iii) Hate crimes, including— (A) The number of each type of crime in paragraph (c)(1)(i) of this section that are determined to be hate crimes; and (B) The number of the following crimes that are determined to be hate crimes: (1) Larceny-theft. (2) Simple assault. (3) Intimidation. (4) Destruction/damage/vandalism of property. (iv) Dating violence, domestic violence, and stalking as defined in paragraph (a) of this section. Sections (6) and (7) of the Clery Act provide crime definitions for Clery Act purposes. Under these sections, the above-listed primary crimes (murder, sex offenses, etc.) and hate crimes are to be compiled according to the definitions used in the DOJ's Uniform Crime Reporting (UCR) system. "Dating violence," "domestic violence," and "stalking" are defined in accordance with VAWA. Section (1)(F)(ii) of the Clery Act requires that hate crimes be reported by category of bias: race, gender, gender identity, sexual orientation, religion, ethnicity, national origin, and disability. Other provisions require that crimes be recorded by calendar year and location, but do not require identification of the victim. Under the Clery Act, IHEs are required to establish a wide variety of safety- and security-related policies and to include statements on these policies in their ASRs. The following list includes a selected summary of some of these required policy statements, focusing most closely on policies related to sexual violence. For a complete, detailed list of required policy statements see the Clery Act, Clery Act regulations, and Clery Handbook. As per the Clery Act, an ASR must include campus crime statistics, as well as a statement of campus policies regarding campus law enforcement (including the law enforcement authority of campus security personnel, and the relationship between campus security personnel and local or state law enforcement agencies); procedures to report criminal actions and emergencies; policies to encourage crime reporting (when the victim elects or is unable to do so); and policies concerning the institution's response to such reports; programs to prevent sexual violence, procedures the institution will follow in response to a report of sexual violence, and the standard of evidence that will be used in any institutional proceedings that result from such a report; sexual violence awareness and prevention programs for all incoming students and new employees, including a statement from the IHE prohibiting such violence; the definition of sexual violence in the applicable jurisdiction and definition of consent; and options for bystander intervention and risk reduction; sanctions that may be imposed following a final determination in an institutional proceeding arising from a report of sexual violence; procedures that alleged victims should follow after sexual violence has occurred; including evidence preservation, information about to whom the alleged offense should be reported, and options for reporting (or not reporting) such incidents to campus authorities or law enforcement; as well as (where applicable) information about orders of protection and similar orders that may be obtained through a court process; procedures for institutional disciplinary action, including a clear statement that such proceedings shall provide a prompt, fair, and impartial investigation and resolution; and be conducted by officials who receive annual training on issues relating to sexual violence and on how to conduct investigations and hearings in response to a report of such violence; both the accuser and accused are entitled to have others present during such proceedings (including an advisor of choice); and shall receive simultaneous notification in writing of the outcome of such proceedings, appeal procedures, changes in the results that occur before final determination, and the final determination. how the IHE will protect the confidentiality of the victim or alleged victim, as well as information about counseling, health, and legal services; and information on options for changing academic schedules, housing assignments, etc. The Clery Act also prohibits the Secretary of Education from requiring IHEs to adopt particular policies, procedures, or practices; and prohibits retaliation against anyone exercising his or her rights or responsibilities under the act. ED's Office of Federal Student Aid (FSA) is responsible for administration and oversight of the Clery Act. It monitors ASRs submitted by IHEs, and may initiate a review to evaluate an IHE's compliance with Clery Act requirements. A review may be initiated when a complaint is received, a media event raises concerns, the IHE's independent audit identifies serious noncompliance, or through a review selection process that may also coincide with state reviews performed by the FBI's Criminal Justice Information Service (CJIS) Audit Unit. A Clery review may consist of examining an IHE's crime log, ASR, and incidents that have been reported to local police. The review may or may not include an onsite visit to the IHE. Once a review is completed, ED issues a Program Review report that describes noncompliance concerns and gives the IHE an opportunity to respond. After reviewing all of the information it has received, ED issues a Final Program Review Determination letter. Based on the findings, the Final Program Review Determination may be referred to FSA's Administrative Actions and Appeals Service Group for consideration of possible adverse administrative action. Under current law, ED may impose a fine of up to $35,000 for each Clery violation, and it may suspend an IHE's participation in federal student financial aid programs (although it appears that the latter sanction has never been imposed). However, a Final Program Review Determination may or may not actually result in adverse administrative actions (including fines), depending on the findings in the case. FSA maintains a searchable website showing which IHEs have received a Final Program Review Determination from ED. ( Table A-2 compiles this information and lists IHEs that have received a Final Program Review Determination, by year.) Some concerns have been expressed about the sufficiency of Clery Act enforcement, including staff levels, at ED. In a May 19, 2014 roundtable discussion addressing campus sexual violence, then-Acting Assistant Secretary of the Office of Postsecondary Education, Lynn Mahaffie, indicated that her office employed 13 staff focused exclusively on monitoring compliance with the Clery Act and the Drug-Free Schools and Communities Act (DFSCA, as reflected in 34 C.F.R. Part 86). These staff conduct approximately 20 reviews per year. Overall, Mahaffie indicated that her office conducts approximately 300 program reviews per year of IHE's compliance with financial aid requirements in two categories: general assessment reviews and compliance assurance reviews. All general assessment reviews also include a basic Clery Act and DFSCA compliance check. ED provides information (which ultimately aids enforcement) on procedures for IHE's to follow in meeting campus safety and security requirements. This information is included in the Clery Handbook and online tutorial, "Campus Safety and Security Reporting Training." Title IX (P.L. 92-318) is a federal civil rights law that prohibits discrimination on the basis of sex in any education program or activity receiving federal financial assistance. The scope of this prohibition is quite broad, encompassing discrimination against both women and men. The statute applies in a wide variety of educational contexts, such as school admissions, athletics, educational services, extracurricular activities, employment, and more. Because Title IX applies to education programs or activities that receive federal funding, the vast majority of public and private institutions of higher education must comply with the statute's requirements or risk losing federal aid. The current effort to combat sexual violence on college campuses is derived from Title IX's prohibition against sexual harassment. Under Title IX, sexual harassment is a form of sex discrimination that may occur when the harassing conduct is severe or pervasive enough that it creates a hostile environment that interferes with a student's ability to access the educational program or activity in question. In 2011, ED released guidance clarifying that sexual violence in schools is a form of sexual harassment that is prohibited by Title IX. Supplemental guidance was released in 2014. Although Title IX also prohibits a school employee's sexual harassment of students, ED's sexual violence guidance focuses only on the issue of student-on-student sexual harassment. The applicability of the 2011 guidance was reinforced in 2014 when the Obama Administration launched its initiative to prevent sexual violence on college campuses. As part of this effort, the Administration established a website to inform students about their rights under current law and to remind institutions of their legal obligations under Title IX and the Clery Act. Although the initiative appears to be focused primarily on efforts to enforce existing law, ED did issue additional guidance to remind schools of their Title IX obligations related to sexual violence. In the meantime, ED has also stepped up efforts to ensure that schools are complying with these requirements. ED's administrative enforcement efforts and sexual violence guidance are discussed in more detail below, following a brief discussion of the difference between administrative and individual enforcement under Title IX. As a preliminary matter, it is important to distinguish between administrative and individual enforcement under Title IX. At the administrative level, federal agencies are responsible for ensuring that entities that receive federal education funding are complying with Title IX. Although each agency enforces Title IX compliance among its own recipients, ED, which administers the vast majority of federal education programs, is the primary agency conducting administrative enforcement of Title IX. Such enforcement by OCR may occur as part of a routine compliance audit or in response to a complaint filed by an individual. In addition to administrative enforcement, Title IX has been interpreted to contain an implied private right of action that allows an individual to sue in federal court for monetary damages and injunctive relief. Thus, individuals who believe they have been victims of unlawful sexual harassment have two different, but not mutually exclusive, options: (1) they may file complaints with OCR and rely on ED to take action if a school is found to be violating Title IX; and/or (2) they may sue their educational institutions directly. If a school is sued for monetary damages, it may be held strictly liable if an employee sexually harasses a student, but liability for student-on-student sexual harassment in this context would attach only if the school had actual knowledge of and was deliberately indifferent to the harassment. In contrast, for purposes of administrative enforcement by ED, a grant recipient such as a school violates Title IX if the recipient knows or reasonably should know about student-on-student harassment, but fails to take immediate action to eliminate the harassment, prevent its recurrence, and address its effects. The 2014 initiative to combat sexual violence on college campuses has primarily focused on Title IX administrative enforcement. Thus, this area is explored in greater detail below. For more information on private Title IX lawsuits against schools, see CRS Report RL33736, Sexual Harassment: Developments in Federal Law , by Jody Feder. Two different federal agencies have administrative enforcement authority regarding Title IX violations involving campus sexual violence. In the lead role is ED, which enforces an educational institution's compliance with Title IX requirements via several different mechanisms, including periodic compliance reviews, as well as investigations conducted in response to complaints. If an individual believes an educational institution has violated Title IX, he or she may file a Title IX complaint with OCR. At that point, OCR must conduct an investigation of the institution and, if a violation is found, seek an informal resolution. If informal resolution fails, then OCR may seek to suspend or terminate the institution's federal funding. Notably, suspension or termination of federal funding is currently the only enforcement mechanism available to ED or other federal agencies when an agency cannot reach a voluntary resolution agreement with an institution that it has found to be noncompliant. This penalty has rarely, if ever, occurred in the Title IX context, but the threat of losing federal funding appears to motivate institutions to reach compliance agreements with ED. A suspension or termination of funding must be limited to the particular program, or part thereof, that is out of compliance with Title IX. A school may challenge such an enforcement action by seeking a hearing before an Administrative Law Judge (ALJ) in ED's Office of Hearings and Appeals (OHA). ALJ decisions may be appealed to OHA's Civil Rights Reviewing Authority and, in some cases, to the Secretary. A school may also opt to challenge the agency's action in federal court, but may do so only after exhausting its administrative appeals. In addition to ED, the Civil Rights Division (CRD) at DOJ plays a significant role in enforcing laws that prohibit sex discrimination in education. CRD has two primary duties: coordination and litigation. With respect to coordination, the division's Federal Coordination and Compliance Section is responsible for coordinating the efforts of federal agencies to consistently and effectively implement and enforce Title IX. In this role, the section "operates a comprehensive, government-wide program of technical and legal assistance, training, interagency coordination, and regulatory, policy, and program review." With respect to litigation, CRD is responsible for representing federal agencies such as ED when an agency has referred a determination of Title IX noncompliance to DOJ for judicial enforcement of any sanctions an agency has imposed. Thus, the division's Educational Opportunities Section is authorized to sue in federal court on behalf of an agency for violations of the statute. Such suits may seek injunctive relief, specific performance, or other remedies. The Educational Opportunities Section is also responsible for enforcing Title IV of the Civil Rights Act (P.L. 88-352), which prohibits public schools and colleges from discriminating on the basis of race, color, national origin, sex, and religion. Despite DOJ's role in Title IX enforcement, ED remains the lead agency that administers Title IX with respect to traditional educational institutions. As a result, this report primarily focuses on ED's part in combating campus sexual violence. ED pursues this goal by performing periodic compliance reviews of grant recipients, as well as by conducting investigations in response to Title IX complaints filed with the agency. Available data on ED's Title IX enforcement activities are included in Appendix B . As part of its administrative enforcement effort with respect to Title IX, ED released guidance related to sexual violence in both 2011 and 2014. As defined by ED, sexual violence "refers to physical sexual acts perpetrated against a person's will or where a person is incapable of giving consent." Collectively, the 2011 and 2014 guidance documents clarify that sexual violence, including rape, sexual assault, sexual battery, and sexual coercion, is a form of sexual harassment that violates Title IX. Specifically, the guidance notes that a single instance of sexual violence may be sufficiently severe such that it creates a hostile environment that limits or denies a student's ability to participate in or benefit from the educational program. Any school that knows or should have known about possible harassment must "take immediate action to eliminate the harassment, prevent its recurrence, and address its effects." The 2011 and 2014 guidance extensively detail the types of action a school is expected to take in order to comply with Title IX. In general, a school's duties fall into one of two categories: preventive measures and responsive measures. Under Title IX, an educational institution has an affirmative duty to prevent sexual violence against its students. This duty includes a responsibility to disseminate a nondiscrimination notice, to designate an employee to coordinate Title IX compliance, to provide sexual harassment training to employees, and to adopt and publish grievance procedures. Other proactive steps may include providing preventive education programs and materials, as well as victim services. ED's guidance provides additional information regarding the role of the Title IX coordinator. According to ED, the coordinator's responsibilities "include overseeing the school's response to Title IX reports and complaints and identifying and addressing any patterns or systemic problems revealed by such reports and complaints." Coordinators should be adequately trained, available to meet with students, and informed about relevant complaints. A school may assign its Title IX coordinator or coordinators with additional responsibilities, such as providing training to students, faculty, and staff; conducting Title IX investigations; determining sanctions and remedies; and coordinating with victims' service providers. Finally, the guidance stipulates that coordinators should not have other job duties, such as general counsel or athletics director, that may create a conflict of interest. In 2015, ED issued a guidance package that provides additional detail regarding requirements related to Title IX coordinators. With respect to grievance procedures, the guidance sets forth several parameters. For example, grievance procedures should specify investigative measures and identify the time frames for various stages of the proceedings, as well as provide both parties with an opportunity to present witnesses and other relevant evidence. Moreover, although such procedures may include informal mechanisms such as mediation, "it is improper for a student who complains of harassment to be required to work out the problem directly with the alleged perpetrator, and certainly not without appropriate involvement by the school." In addition, the guidance requires that all individuals responsible for implementing a school's grievance procedures, including Title IX coordinators, investigators, and adjudicators, must have training or experience regarding how to apply the school's grievance procedures and handle sexual violence complaints. The guidance provides a more detailed list of the elements that should be included in a school's Title IX grievance procedures. The guidance also describes who is a responsible employee that is required to report allegations of sexual violence. Responsible employees are defined to include any employee who: "has been given the duty of reporting incidents of sexual violence or any other misconduct by students to the Title IX coordinator or other appropriate school designee, or whom a student could reasonably believe has this authority or duty." Such employees must report incidents to the Title IX coordinator and/or other designated school officials, although school counselors are exempt from these reporting requirements, and schools may designate additional individuals, such as volunteers in sexual assault centers, as confidential sources. Schools must also provide training to all responsible employees regarding how to report, respond to, and prevent sexual violence. Detailed training requirements are set forth in the guidance. As part of their Title IX responsibility to respond to complaints regarding sexual violence, schools must conduct investigations and take steps to resolve complaints. According to ED, the term "investigation" refers to the process the school uses to resolve sexual violence complaints. This includes the fact-finding investigation and any hearing and decision-making process the school uses to determine: (1) whether or not the conduct occurred; and (2) if the conduct occurred, what actions the school will take to end the sexual violence, eliminate the hostile environment, and prevent its recurrence, which may include imposing sanctions on the perpetrator and providing remedies for the complainant and broader student population. Under Title IX, an investigation must be "prompt, thorough, and impartial." A school's obligation to investigate sexual violence complaints applies regardless of whether or not the alleged incident occurred on school campus or off-campus. In addition, a school must conduct an investigation into allegations of sexual violence regardless of whether local law enforcement launches its own criminal investigation. The guidance specifies that schools should notify complainants of their right to file a criminal complaint, but should not wait for a criminal investigation to conclude before starting their own Title IX investigation. It is important to note that the victim of the sexual violence is generally the one who decides whether to file a complaint with the police, the educational institution, or both, although some states may have mandatory reporting laws that require school officials to notify law enforcement regarding certain types of crimes. The guidance also sets forth several requirements related to confidentiality. In general, if a complainant wishes to preserve his or her confidentiality or to avoid the formal complaint resolution process, the school must take reasonable steps to accommodate the student's request. Nevertheless, because an educational institution that knows or reasonably should be aware of sexual harassment is obligated to take steps to prevent discrimination from reoccurring, there may be cases in which a school is unable to comply with the complainant's request. The guidance discusses the factors that a school should consider when determining whether to fulfill a student's request for privacy. It is also important to note that a complainant's confidentiality request may conflict with an alleged perpetrator's right to access his or her educational records under the Family Educational Rights and Privacy Act (FERPA, P.L. 93-380 ). The intersection between FERPA and Title IX is discussed in a separate section below. The Disciplinary Hearing Once the initial fact-finding stage of the investigation is complete, an educational institution will generally hold a hearing to determine whether a Title IX violation has occurred and, if so, what sanctions should be imposed on the perpetrator. Often, such hearings are conducted as part of the regular disciplinary process that most schools have established to evaluate violations of an institution's code of conduct. An institution may use its traditional disciplinary process to resolve Title IX complaints as long as its grievance procedures conform to the requirements of Title IX. One such Title IX requirement pertains to the standard of proof that should apply when resolving Title IX complaints. In the past, some schools have used a "clear and convincing evidence" standard, which requires a finding that it is highly probable or reasonably certain that a violation occurred, while other schools relied on the less stringent "preponderance of the evidence" standard that requires a school to determine whether it is more likely than not that sexual harassment occurred. The preponderance of the evidence standard is the standard of proof that generally applies in civil rights cases, as well as many other types of civil litigation and administrative adjudication. As a result, the guidance specifies that schools must adopt this standard when resolving Title IX complaints. As discussed in more detail below, adoption of this preponderance of the evidence standard has proved controversial. Final Stages of Investigation After the disciplinary process has concluded, a school must provide both parties with written notice of the outcome, consistent with FERPA requirements relating to the privacy of educational records. OCR has indicated that a typical investigation should take approximately 60 days to complete, although the agency has acknowledged that this time frame may vary depending on the circumstances involved. If a school determines that a hostile environment exists, it must take corrective action "to eliminate the harassment, prevent its recurrence, and address its effects." In addition to disciplinary action taken against the perpetrator, corrective action may include remedies for the complainant. Such remedies may include interim measures that may be taken before the complaint is resolved, such as accommodations regarding living arrangements, class schedules, course work, or extracurricular activities. Schools should also notify complainants of their rights under Title IX and refer them to available counseling resources. The guidance provides a detailed list of the types of remedies an educational institution may wish to consider. If OCR finds that an educational institution has not complied with its Title IX obligation to prevent and respond to sexual violence, then the agency has broad discretion to negotiate a wide range of remedies and corrective action with that institution. If OCR and the institution cannot reach a voluntary agreement, then OCR may seek to suspend or terminate federal funding. The guidance provides a series of examples of the various types of remedies that OCR might seek if it finds that an institution is not in compliance with Title IX's prohibition against sexual harassment. Educational institutions should also be aware that Title IX prohibits retaliation. Thus, a school violates Title IX if it retaliates against a student, parent, teacher, or other employee who complains about sexual violence or participates in an investigation related to such a complaint. According to ED, an educational institution must take steps to prevent retaliation against a complainant by an alleged perpetrator. Finally, it is important to note that ED has clarified that Title IX's prohibition against sex discrimination encompasses gender stereotyping that results in discrimination on the basis of gender identity. Thus, sexual violence against individuals who fail to conform to stereotypical notions of masculinity or femininity is subject to the requirements outlined in ED's guidance. The guidance also provides information regarding the applicability of Title IX's prohibition against sexual violence to special populations, including disabled students and students who are not citizens. FERPA ( P.L. 93-380 ) guarantees students access to their education records, while limiting the disclosure of those records to third parties. FERPA privacy protections that extend to an alleged perpetrator, therefore, may conflict at times with the Title IX rights afforded to an alleged victim of sexual violence. As noted above, an educational institution is required under Title IX to take steps to preserve a complainant's confidentiality if so requested. An alleged perpetrator, however, has the right to review the complaint if it is an educational record within the meaning of FERPA. Under such circumstances, an educational institution must provide the alleged harasser with access to the information contained in the complaint but should, to the extent possible, avoid revealing the complainant's name or other identifying information. FERPA also prohibits educational institutions that receive federal funds from releasing students' educational records without prior written consent. On its face, this prohibition would appear to prevent a school from disclosing the results of a disciplinary hearing that are part of a perpetrator's educational record. However, FERPA contains a number of exceptions. For example, a postsecondary institution may disclose to an alleged victim of any crime of violence or nonforcible sex offense the final results of any disciplinary proceeding conducted by the institution against the alleged perpetrator. Likewise, an institution may disclose to anyone the final results of any disciplinary proceeding conducted against a student who is an alleged perpetrator of any crime of violence or nonforcible sex offense if the institution determines as a result of the proceeding that the student committed a violation of the institution's rules or policies with respect to such crime or offense. Thus, FERPA permits, but does not require, a school to publicly disclose the results of a disciplinary hearing involving sexual violence. This section discusses several policy and legal issues that have arisen with respect to the Clery Act and Title IX. IHEs have come under increasing scrutiny due to allegations that some may be underreporting crimes of sexual violence at their campuses as required by the Clery Act. In addition, the lack of consistency in the way crimes are reported across IHEs has raised questions about the usefulness of these statistics in assessing the extent of sexual violence and how it is being handled across IHEs. The American Association of University Professors has stated that "[w]hile a small number of institutions have put in place rigorous procedures for obtaining, collating, tracking, processing, and reporting Clery statistics, a standardized model for the overall process does not yet exist." IHEs that are the most rigorous in monitoring and collecting statistics on campus sexual violence may report more complaints of sexual violence than IHEs that are not as diligent in monitoring and reporting such complaints. Thus, in press accounts and in their ASRs, IHEs that may be in compliance with Clery reporting requirements may appear to have a more serious sexual violence problem than IHEs that may not be in compliance (and may actually have a more serious sexual violence problem). These potential discrepancies are important for IHEs because press accounts and ASR data on campus sexual violence may be viewed by current and prospective students and their families to evaluate the safety of IHEs. The possibility that some IHEs may be underreporting incidents of sexual violence, as well as the inconsistency across IHEs in the rigor with which sexual violence is monitored and reported, have prompted some to suggest that more objective measures of sexual violence at IHEs, such as school climate surveys, might be useful to get a clearer picture of the extent of sexual violence across IHEs. As noted above, the Title IX guidance requires schools to adopt a preponderance of the evidence standard for disciplinary hearings involving sexual violence. This requirement has proved controversial. Indeed, some critics contend that use of this standard is unfair, arguing that alleged perpetrators who are subject to this standard are being deprived of their due process rights. From a legal perspective, however, it is well established that different rights and corresponding procedures attach in the administrative versus judicial setting, and that it is common for an individual to be subject to both criminal and civil proceedings based on the same incident. In general, the standard of proof is higher in the criminal context because more is at stake, while a lesser standard of proof is permitted in civil proceedings because the potential loss of rights is less significant. The concept of procedural due process has its origins in the due process clause of the U.S. Constitution, which prohibits government action that would deprive any person of "life, liberty, or property, without due process of law." The premise behind due process is that the government, for reasons of basic fairness, must provide certain procedures before taking any of these important interests away from protected parties. The Supreme Court has stated that due process "is a flexible concept that varies with the particular situation," and has made it clear that "something less than a full evidentiary hearing is sufficient prior to adverse administrative action." Ultimately, the degree of procedural protection that is due depends on the nature of the individual and governmental interests at stake and varies significantly in the civil and criminal context. It is also important to note that the due process clause applies only to governmental actors, not private entities. Thus, public IHEs must provide due process protections to students who are subject to disciplinary proceedings, but private IHEs are not subject to the same requirement. Although it is possible that state statutory or common law due process protections may apply in the private setting, the relationship between private IHEs and their students is generally governed by contract law. Under this arrangement, a student who accepts an offer of admission to an IHE agrees to abide by a school's rules and policies regarding attendance. Such rules and policies, which are generally established at the institution's discretion, may or may not include certain procedural protections for students who violate the school's code of conduct. Thus, a private IHE is under no obligation to provide due process rights when sanctioning students unless it has specified that it will do so. However, ED's Title IX guidance does clarify that if an educational institution provides procedural rights to one party, such as the right to present witnesses or have an attorney present, then these rights must be available to both parties. Likewise, although Title IX does not require schools to have a process for appealing disciplinary decisions, the guidance recommends that schools adopt such a process and notes that if an appeals process is provided, it must be made available to both parties. Another issue that has arisen under Title IX involves questions about whether the current remedies are sufficient. As noted above, suspension or termination of federal funding is currently the only enforcement mechanism available to ED or other federal agencies when an agency cannot reach a voluntary resolution agreement with an institution that it has found to be noncompliant. On the one hand, the threat of losing federal funding appears to motivate institutions to reach compliance agreements with ED, but some institutions have complained that this potential loss of federal aid is coercive, leading them to enter into such agreements even when they disagree with ED's findings of non-compliance. At the same time, some critics allege that ED relies too heavily on informal Title IX resolutions due to the severe consequences that would attach if the agency suspended or terminated a school's financial aid. According to this critique, because an educational institution may simply enter into a new compliance agreement with ED if it fails to comply with an existing resolution, these informal agreements are ineffective deterrents that effectively allow schools to violate Title IX without incurring significant penalties. It is also important to note that penalties involving suspension or termination of federal funding have rarely, if ever, occurred in the Title IX context. As a result, several legislative proposals would create new penalties, including fines, under Title IX. Recently, at least two legislators have raised questions about ED's legal authority to issue Title IX guidance related to sexual violence at institutions of higher education. Specifically, Senator Lankford alleged in a letter to ED that, among other things, the agency's sexual violence guidance does not merely offer an interpretation of Title IX, but rather functions as a legally binding regulation would and therefore should have been promulgated in accordance with the procedures established under the Administrative Procedure Act (APA). Federal agencies are generally responsible for implementing, interpreting, and enforcing the statutes that they administer. Thus, ED has the initial duty to determine how to apply the statutes under its jurisdiction. Typically, an agency communicates its interpretation regarding a statute's implementation via regulations and informal agency guidance. Although regulations are legally binding, informal guidance is not. Rather, such guidance aids agencies in establishing consistent policies and enforcement priorities, as well as in informing affected parties of the agency's current thinking about how such parties can comply with the law in question. Although agency use of guidance documents is common practice, some critics argue that agencies use guidance documents to effectively change the law or expand the scope of their delegated regulatory authority. In general, the APA imposes various procedural requirements when agencies issue rules, subject to several exceptions. While "legislative" or "substantive" rules that bind the public or an agency must comply with these procedural requirements, "interpretive rules" and "general statements of policy," often known as guidance documents or "nonlegislative rules" are exempt from these strictures. If, however, there is disagreement with an agency's interpretation or enforcement of the statute, an affected party can challenge the agency's action in court. In the event of a legal challenge, the amount of deference that an agency interpretation of its own statute will receive from a reviewing court "has been understood to vary with the circumstances." Although courts will generally defer to an agency's interpretation of an ambiguous statute, such deference is warranted only in instances where that interpretation was formally established via notice-and-comment rulemaking, agency adjudications, or other agency actions that have the force of law. Where an interpretation is presented informally, a lesser form of deference will generally apply. Indeed, in Skidmore v. Swift & Co ., the Supreme Court held that the deference granted to an agency's informal interpretation "will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." Absent a definitive judicial ruling on the subject, it is currently unclear whether ED's sexual violence guidance constitutes informal agency guidance that would be exempt from the APA's procedural requirements and subject to a lesser degree of judicial deference in the event of a legal challenge. However, in response to Senator Lankford's letter, OCR asserted that, although ED "does not view such guidance to have the force and effect of law," the guidance reflects the agency's interpretation of the Title IX statute and regulations. Indeed, under Title IX, federal funding recipients have a duty to prevent and remedy all aspects of sex discrimination. Many of the detailed requirements in ED's guidance appear to have evolved from this basic obligation. It is also important to note that in many instances, ED's guidance appears to be informed by case law. In other words, rather than being derived from statute, many of the Title IX requirements contained in ED's sexual violence guidance are derived instead from judicial decisions involving challenges under these laws, and federal funding recipients who wish to avoid liability under these statutes would be well advised to take these rulings into account. Thus, ED typically incorporates this case law into its guidance documents at least in part to inform affected parties about these non-statutory legal obligations. Ultimately, ED's guidance, which reminds federal funding recipients of their obligation to comply with these civil rights statutes, generally appears to be based on current law, but a final decision regarding any enforcement action that ED might take pursuant to this guidance—or whether the guidance itself complies with the APA—would be up to a reviewing court. Appendix A. Clery Act Data and Enforcement This Appendix includes data on the number of reported crimes under the Clery Act, and a list of IHEs that received Final Program Review Determinations in response to claims of a violation of the Clery Act. (See " Overview of the Clery Act " for more information.) Clery Act Data As previously noted, IHEs must submit data on reported campus crimes to ED annually. ED publishes these data via the Campus Safety and Security Data Analysis Cutting Tool. The tool is searchable by individual or groups of institutions; and by state, enrollment, type of institution (e.g., public, four-year), and instructional program. It also allows users to limit by year and category (e.g., hate crimes on campus in 2012, non-campus arrests in 2011, etc.). Table A-1 includes the number of selected crimes (related to sexual violence) reported to IHEs that, in turn, were reported to ED under the provisions of the Clery Act in 2014. Some analysts have questioned the reliability of Clery Act data. These issues are discussed at greater length in " Reliability of Clery Statistics ." Final Program Review Determinations under the Clery Act Table A-2 lists IHEs that received a Final Program Review Determination in response to claims of a violation of the Clery Act, by year. Appendix B. OCR Title IX Enforcement Data There are limited data regarding OCR's enforcement efforts with respect to sexual violence. As a preliminary matter, it is important to note that OCR has enforcement duties under multiple civil rights statutes, meaning that Title IX enforcement constitutes only a portion of the agency's portfolio. In addition, OCR's responsibility to enforce Title IX extends beyond sexual violence to encompass all forms of sex discrimination in education. According to the most recent data published by ED, over a period of two years (FY2013-14), OCR "received over 5,800 Title IX-related complaints and launched 20 systemic, proactive investigations.... " Of the 5,845 Title IX complaints, 854 were related to sexual harassment and sexual violence. The figures do not indicate whether these complaints of wrongdoing occurred in the elementary and secondary education context or in the higher education setting, nor is a precise breakdown by institution or complaint type available for the investigations begun during this period. However, ED did report that OCR resolved 90 sexual violence-related Title IX investigations, including 25 that resulted in resolution agreements, during the two-year period covered by the report. Overall, the number of Title IX sexual violence complaints that OCR received represented 9% of the total number of civil rights complaints that OCR received in FY2013-FY2014, and the number of sexual violence compliance reviews represented 19% of the total number of civil rights compliance reviews that OCR conducted during this period. Although a comprehensive source of more recent data does not appear to be publicly available, ED has indicated that the number of audits and investigations related to sexual violence has increased in the years since the agency released its 2011 guidance. Reportedly, OCR received 11 sexual violence complaints in FY2009, a figure that increased to 30 in FY2013. ED has also publicly released information regarding institutions currently under investigation for violating Title IX's prohibition against sexual violence. According to ED, as of May 1, 2014, 55 institutions of higher education were under investigation for Title IX violations involving sexual violence. That figure had reportedly risen to 221 cases of sexual violence under investigation at 175 IHEs as of April 6, 2016. Meanwhile, data regarding the duration and outcome of Title IX investigations do not appear to be publicly available, although it does appear that the length of such investigations may vary widely depending on a number of considerations, including the complexity of the allegations, the cooperation of the parties, and other factors. According to one analysis of Title IX sexual harassment complaints filed with OCR between 2003 and 2013, ED dismissed or closed the majority of the complaints it received. ED may opt to make the results of its investigation and any resolution agreement that might result available online. Appendix C. Selected Related Federal Programs and Activities Although the main focus of this CRS report is on Department of Education laws and policies governing IHE response to sexual violence—and on legislative efforts to improve those laws and policies—the Departments of Justice and Health and Human Services administer relevant programs designed to address sexual violence. Some of these programs are included herein in order to provide background for ED's activities, as well as broad context for bills introduced in the 114 th Congress. Campus Program . This DOJ, Office on Violence Against Women (OVW) program provides grants to IHEs to adopt comprehensive response to sexual assault, domestic violence, dating violence, and stalking. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) provided $20.0 million for these activities in FY2016. OVW's FY2017 congressional budget justification states that grantees reported serving an average of 850 victims during each six-month period in 2014. The most frequently provided services were victim advocacy, crisis intervention, counseling and support groups, academic advocacy, and legal advocacy. Grantees reported providing 794 trainings during the year, mostly to student affairs staff, educators, and peer educators. Additionally, grantees reported convening 1,538 events to educate incoming students about preventing sexual and domestic violence. For FY2016, OVW reports that it estimates it will issue 45 awards (out of 242 applicants). Rape Prevention and Education (RPE) Program . The purpose of this CDC program is to strengthen sexual violence prevention efforts at the state, local, and national level. According to the CDC's FY2017 congressional budget justification, The RPE program supports implementation of proven, culturally relevant rape prevention and education activities. In FY 2014, CDC began a five-year cooperative agreement cycle for all 50 states, Washington, D.C., and four territories. Award amounts were determined based on population after providing base funding of $150,000 per state or $35,000 per territory. Grantees use CDC funding to operate state and community hotlines, implement statewide sexual violence prevention plans, and address local needs. Campus sexual violence has been a focus of RPE program activities. The program received $44.4 million in funding in FY2016. | In recent years, a number of high-profile incidents of sexual violence at institutions of higher education (IHEs) have heightened congressional and administration scrutiny of the policies and procedures that IHEs use to address sexual violence on campus. Among other things, concerns have been expressed about standards of evidence used in institutional proceedings that occur in response to a report of sexual violence on campus, the sufficiency of current legal remedies, and Department of Education (ED) guidance to IHEs. Further, although sexual violence on campus is a widely acknowledged problem, its prevalence can be challenging to establish. Published estimates of the scope and scale of sexual violence at IHEs vary considerably across studies and data sources. Efforts to improve these data are an ongoing focus of federal policy. Currently, there are two federal laws that address sexual violence on college campuses: the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, as amended (Clery Act), and Title IX of the Education Amendments of 1972 (Title IX). These two statutes differ in significant respects, including in their purpose, coverage, enforcement, and remedies. The Clery Act requires all public and private IHEs that participate in the student financial assistance programs under Title IV of the Higher Education Act of 1965, as amended (HEA), to track crimes in and around their campuses and to report these data to their campus community and to ED. The Clery Act also requires IHEs to publish information about certain campus safety policies, including policies related to reports of sexual violence. Under the Clery Act, such policies must address campus disciplinary proceedings, crime reporting, victim support, and related topics. ED's Office of Federal Student Aid (FSA) oversees compliance with Title IV, including the requirements related to the Clery Act. In this role, FSA conducts program reviews of IHEs' compliance with student aid and Clery provisions, and may levy fines against IHEs that are in violation. In contrast, Title IX is a civil rights law that prohibits discrimination on the basis of sex under any education program or activity that receives federal funding. Under Title IX, sexual harassment, which includes sexual violence, is a form of unlawful sex discrimination. Unlike the Clery Act, whose coverage is limited to IHEs that receive student financial aid funds under the HEA, Title IX is applicable to education programs or activities that receive any type of federal funding, including any public or private elementary, secondary, and postsecondary school that receives such funds. Although each federal agency enforces Title IX compliance among its own recipients, ED, which administers the vast majority of federal education programs, is the primary agency conducting administrative enforcement of Title IX. Such enforcement by ED's Office for Civil Rights (OCR) may occur as part of a routine compliance audit or in response to a complaint filed by an individual. Federal policymakers have been actively involved in seeking ways to improve how IHEs respond to, investigate, and adjudicate incidents of campus sexual violence. Members of the 114th Congress have introduced several bills that seek to strengthen existing laws pertaining to campus sexual violence. In April 2014, the White House Task Force to Protect Students from Sexual Assault issued its first report—Not Alone—and created a website to address campus sexual violence. |
There has been a great deal of concern over the effect of the current economic downturn on retirement plans. One company recently reported that at the end of 2008, the "chaos" in the financial markets led to a $409 billion deficit in defined benefit pension plan funding for the plans of S&P 1500 companies. The report indicated that this deficit will negatively affect corporate earnings in 2009. Due in part to the large investment losses in pension plans and other retirement accounts, in December of 2008, Congress unanimously enacted H.R. 7327 , the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA" or "the Act"). While several provisions of WRERA make technical corrections to the Pension Protection Act of 2006 ("PPA"), the Act also provides some temporary relief from certain requirements that may be difficult for pension plans to meet due to current economic conditions. This report provides an overview of some of the key provisions of WRERA, in particular, the provisions relating to the funding of single and multiemployer plans, the temporary waiver for required minimum distributions, as well as certain technical corrections and other provisions that affect the two primary types of pension plans, defined benefit and defined contribution plans, as well as individual retirement accounts and annuities (IRAs). Title II of WRERA contains provisions designed to protect both individuals and retirement plans from the potentially large losses of plan amounts due to the decline of the stock market and the current economic climate. These provisions include a temporary waiver of the required minimum distributions, and temporary relief from funding rules created by the PPA that apply to single and multi-employer plans. In essence, these provisions permit a delay in taking required distributions and meeting pension funding obligations, in an effort to give retirement plans and accounts more time for economic conditions to improve and for the losses in investments to be recovered. Under section 401(a)(9) of the Internal Revenue Code, employer-sponsored retirement plans, such as 401(k), 403(b) and 457 plans, and individual retirement accounts and annuities ("IRAs") must make certain annual required minimum distributions in order to maintain their "qualified" (i.e., tax-favorable) status. The theory behind these required distributions is to ensure that tax-deferred retirement accounts that have been established to provide income during retirement are not used as permanent tax shelters or as vehicles for transmitting wealth to heirs. For employer-sponsored plans, required minimum distributions to participants must start no later than April 1 of the year after the year in which the participant either attains age 70 ½,or retires, whichever is later. For traditional IRAs, required minimum distributions must commence by April 1 following the year the IRA owner reaches age 70 ½. Alternative minimum distribution requirements apply to beneficiaries in the event that the participant dies before the entire amount in the participant's account is distributed. Failure to make a required distribution results in an excise tax equal to 50 percent of the required minimum distribution amount that was not distributed for the year, which is imposed on the participant or beneficiary. Following the decline in the stock market, there was concern about individuals taking these required distributions when there has not been enough time to recover losses. Section 201 of WRERA suspends the minimum distribution requirements, both initial and annual required distributions, for defined contribution arrangements, including IRAs, for calendar year 2009. Thus, plan participants and beneficiaries are allowed, but are not required, to take required minimum distributions for 2009. However, it should be noted that the required distributions for 2008, or for years after 2009, are not waived by the new law. The Internal Revenue Code sets out certain minimum funding standards that apply to defined benefit plans. The funding standards for single-employer plans were completely revamped by the PPA, which created more stringent standards than under prior law. When fully phased in, the new funding requirements established by the PPA will generally require plan assets to be equal to 100 percent of plan liabilities on a present value basis. Under these standards, when the value of a plan's assets is less than the plan's "funding target," a plan's minimum required contribution for a plan year is comprised of the plan's " target normal cost," (i.e. , the present value of the benefits expected to be accrued or earned during the year, minus certain plan expenses), plus a "shortfall amortization base," an amount which is established if the plan has a funding shortfall. However, under a special exemption, if the value of the plan's assets is equal to or greater than the funding target, then the shortfall amortization amount will be zero. The PPA also created a transition rule, under which a shortfall amortization base does not have to be established if, for plan years beginning in 2008 and ending in 2010, the plan's assets are equal to a certain percentage of the plan's funding target for that year. The percentage of the funding target is 92 percent for 2008, 94 percent for 2009, and 96 percent for 2010. In other words, the PPA, through this transition rule, gave pension plans a three year period to ease into the new plan funding requirements, in which plans could gradually increase the value of the plan assets, thus relieving them from the burden of having to contribute a large part of the funding shortfall in one year. The PPA placed a limitation on the transition rule, under which the rule will not apply with respect to any plan year after 2008 unless the shortfall amortization base was zero (e.g., the plan failed to meet the transition rule, or be 92 percent funded in 2008). Section 202 of WRERA allows plans to follow the transition rule even if the plan's shortfall amortization base was not zero in the preceding year. Thus, a plan that was not 92 percent funded in 2008 would only be required to be 94 percent funded in 2009, instead of 100 percent. This provision gives plans some additional time to be 100 percent funded, a requirement that may have become more difficult to fulfill because of the decline in the financial markets and the resulting loss of value of plan assets. As provided by the PPA, underfunded single-employer defined benefit plans may be subject to certain restrictions on benefits and benefit accruals. Under one of these restrictions, if a plan's "adjusted funding target attainment percentage" (AFTAP) is less than 60 percent (i.e., generally speaking, if a plan is less than 60 percent funded) for a plan year, a plan must stop providing future benefit accruals. Section 203 of WRERA provides that for the first plan year beginning during the period of October 1, 2008 through September 30, 2009, this restriction on benefit accruals is determined using the AFTAP from the preceding year, instead of the current year, if the AFTAP for the preceding year is greater. Thus, this provision allows a plan to look to the previous year's funding levels in order to determine whether there must be a restriction of benefit accruals. For plans that have lost a lot in the value of plan assets, looking to the AFTAP for the previous year may allow some plans to continue providing future benefit accruals that would otherwise have to cease them. However, plans that have higher funding levels for the current year will not be affected by this provision. Under section 432 of the Internal Revenue Code as created by the PPA, multiemployer plans failing to meet certain funding levels may be subject to certain additional funding obligations and benefit restrictions. These additional requirements depend on whether the plan is in "endangered" or "critical" status. A multiemployer plan is considered to be endangered if it is less than 80 percent funded or if the plan has an accumulated funding deficiency for the plan year, or is projected to have a deficiency within the next six years. A plan that is less than 80 percent funded and is projected to have an accumulated funding deficiency is considered to be "seriously endangered." Endangered plans must adopt a funding improvement plan, which contains options for a plan to attain a certain increase in the plan's funding percentage, while avoiding accumulated funding deficiencies. A multiemployer plan is considered to be in critical status if, for example, the plan is less than 65 percent funded and the sum of the fair market value of plan assets, plus the present value of reasonably anticipated employer and employee contributions for the current plan year and each of the next six plan years is less than the present value of all benefits projected to be payable under the plan during the current plan year and each of the next six years (plus administrative expenses). Plans in critical status must develop a rehabilitation plan containing options to enable the plan to cease being in critical status by the end of the rehabilitation period, generally 10 years. The rehabilitation plan may include reductions in plan expenditures and future benefit accruals. Employers may also have to pay a surcharge in addition to other plan contributions. Each year, a plan's actuary must certify whether or not the plan is in endangered or critical status. Under section 204 of WRERA a sponsor of a multiemployer defined benefit pension plan may elect for the status of the plan year that begins during the period between October 1, 2008 and September 30, 2009, to be the same as the plan's certified status for the previous year. Accordingly, if a plan was not in endangered or critical status for the prior year, the sponsor may elect to retain this status and may avoid additional plan funding requirements. A plan that was in endangered or critical status during the preceding year does not have to update its funding improvement plan, rehabilitation plan, or schedule information until the plan year following the year that the plan's status remained the same. However, for plans that are in critical status, the Act clarifies that the freezing of the certification status does not relieve the plan from certain requirements. Section 432 of the Internal Revenue Code provides that a multiemployer plan that is in endangered or critical status must meet certain additional funding requirements. In general, endangered plans must adopt a funding improvement plan, and critical plans must adopt a rehabilitation plan. Under both a funding improvement and a rehabilitation plan, there is a 10-year period under which a plan must meet a certain funding percentage. Seriously endangered plans have 15 years to improve their funding percentage. Section 205 of WRERA provides that a plan sponsor of a plan in endangered or critical status may elect, for a plan year beginning in 2008 or 2009, to extend the funding improvement period or the rehabilitation period by three years, to 13 years instead of 10 years. Plans in seriously endangered status have a funding improvement period of 18 years, rather than 15 years. The provision gives plans more time to meet their funding obligations. An election must be made by the plan in order to take advantage of this relaxed funding requirement. WRERA made several technical corrections to the Pension Protection Act of 2006 (PPA). Some of the corrections are effective as if they were enacted as part of the PPA, while other provisions are to be applied prospectively. The technical corrections include the following: In general, distributions from retirement plans or accounts are subject to tax in the year they are distributed. Prior to the PPA, in the event that a participant died, distributions from the retirement plan of a participant could transfer (or "rollover") into a surviving spouse's IRA tax-free. This rollover scheme was not available to non-spouse beneficiaries. Under section 402(c)(11) of the Internal Revenue Code, as created by the PPA, certain tax-qualified plans (e.g., a 401(k)) could offer a direct rollover of a distribution to a nonspouse beneficiary (e.g., a sibling, parent, or a domestic partner). The direct rollover must be made to an individual retirement account or annuity (IRA) established on behalf of the designated beneficiary that will be treated as an inherited IRA. As a result, the rollover amounts would not be included in the beneficiary's income in the year of the rollover. The Internal Revenue Service had previously taken the position that section 402(c)(11) permitted, but did not require, plans to provide this type of rollover option. Section 108(f) of the WRERA clarifies that distributions to a nonspouse beneficiary's inherited IRA are to be considered "eligible rollover distributions," and plans are thus required to allow these beneficiaries to make these direct rollovers. Plans must also provide direct rollover notices in order to maintain plan qualification. This provision is effective for plan years beginning on January 1, 2010. In general, an employer that chooses to terminate a fully funded defined benefit plan must comply with certain requirements with regard to participants or beneficiaries whom the plan administrator cannot locate after a diligent search. For these individuals, a plan administrator may either purchase an annuity from an insurer or transfer the missing participant's benefits to the PBGC. Prior to the PPA, the missing participant requirements only applied to single-employer plans. The PPA amended these requirements to apply to multiemployer plans, defined contribution plans, and other plans that do not have termination insurance through the PBGC. Section 104(e) of WRERA specifies that the missing participant requirements apply to plans that at no time provided for employer contributions. WRERA also narrows the missing participant requirements to defined contribution plans (and other pension plans not covered by PBGC's termination insurance) that are qualified plans. The requirements of this section take effect as if they were included in the PPA. Under the funding rules created by the PPA, single-employer defined benefit plans that fall below certain funding levels are subject to several additional requirements. One of these requirements prevents plans that have a funding percentage of less than 60 percent from making "prohibited payments," (i.e., certain accelerated forms of distribution, such as a lump sum payment) to plan participants. Current law also specifies that if the present value of a participant's vested benefit exceeds $5,000, the benefit may not be immediately distributed without the participant's consent. Accordingly, if the vested benefit is less than or equal to $5,000 this consent requirement does not apply. Section 101 of WRERA amends the definition of "prohibited payment" to exclude benefits which may be distributed without the consent of the participant. As a result, lump sum payments of $5,000 or less may be paid by an underfunded plan that is otherwise precluded from paying larger lump sum distributions. This amendment applies to plan years beginning in 2008. Under ERISA, pension plans must meet extensive notice and reporting requirements that disclose information about the plan to participants and beneficiaries as well as government agencies. Among these disclosures is a requirement that a terminating single-employer defined benefit plan provide "affected parties" with certain information required to be submitted to the Pension Benefit Guaranty Corporation (PBGC). Section 105 of WRERA clarifies that in order for a plan to terminate in a distress termination, a plan administrator must not only provide affected parties with information that the administrator had to disclose to the PBGC along with the written notice of intent to terminate, but also certain information that was provided to the PBGC after the notice was given. This information may include a certification by an enrolled actuary regarding the amount of the current value of the assets of the plan, the actuarial present value of the benefit liabilities under the plan, and whether the plan's assets are sufficient to pay benefit liabilities. Further, in an involuntary termination, certain confidentiality provisions exist that prevent the plan administrator or sponsor from providing information about the termination in a form which includes any information that may be associated with, or identify affected parties. Section 105 of WRERA extends this confidentiality protection disclosure of this information by the PBGC. Other notable provisions included in WRERA are the following: Roth IRAs, a type of individual retirement arrangement, are a popular retirement savings vehicle. While contributions to a Roth IRA are not deductible, qualified distributions from a Roth IRA are not included in an individual's gross income. Roth IRAs are subject to certain contribution limitations, however, these limitations do not apply to qualified rollover contributions. Section 125 of the WRERA permits a "qualified airline employee" who receives an "airline payment amount" to transfer any portion of this amount to a Roth IRA as a qualified rollover contribution. This transfer must occur within 180 days of receipt of the amount (or, if later, within 180 days of the enactment of WRERA). Thus, if such amounts are transferred to the former employee's Roth IRA, the employee may benefit, as qualified distributions from Roth IRAs are tax free. This section also provides that certain income limitations placed upon Roth IRA qualified rollover contributions should not apply to this transfer. In order to determine the minimum required contribution that must be made to a single-employer defined benefit plan, and the extent (if any) to which a plan is underfunded, the value of plan assets must be determined. For purposes of the minimum funding rules, the value of the plan's assets is, in general, the fair market value of the assets. However, the Internal Revenue Code, as amended by the PPA, permits plans to calculate the value of the assets by averaging fair market values, but only if (1) the averaging method is permitted under regulations, (2) the calculation is not over a period of more than 24 months, and (3) the averaged amount cannot result in a determination that is at any time less than 90 percent or more than 110 percent of fair market value. This averaging method may be more beneficial for plan sponsors in an economic downturn, as an averaging approach can produce lower asset values when asset values are rising, and higher asset values when asset values are decreasing. Section 121 of WRERA provides that plans using the averaging method must adjust such averaging to account not only for the amount of contributions and distributions to the plan, but also for expected investment earnings, subject to a cap. It has been noted that this provision could result in smaller underfunded amounts and, therefore, smaller required contributions. The PPA created certain relaxed funding requirements for defined benefit plans maintained by a commercial airline or an airline catering service. Under the PPA, plan sponsors of these plans could elect to amortize unfunded plan liabilities over an extended period of 10 years, or may instead follow special rules that permit these plan sponsors to amortize unfunded liabilities over 17 years. Plan sponsors selecting the17-year amortization period, referred to by the Act as an "alternative funding schedule," had to comply with certain benefit accrual requirements, which included freezing some of the benefits offered under the plan and eliminating others. In determining the minimum required contribution to the plan each year for purposes of these special rules, the PPA provided that the value of plan assets generally is the fair market value of the assets. Section 126 of WRERA provides that plans following the alternative funding schedule may determine the value of plan assets in the same manner as other single-employer plans. Thus, plans can use a fair market value determination, or they may use the averaging method as laid out in Section 430(g)(3) of the Internal Revenue Code. | In December of 2008, Congress unanimously enacted the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) (P.L. 110-458), which makes several technical corrections to the Pension Protection Act of 2006 (P.L. 109-280) and contains provisions designed to help pension plans and plan participants weather the current economic downturn. This report highlights the provisions of WRERA relating to the economic crisis, such as the temporary waiver of required minimum distributions and provisions that temporarily relax certain pension plan funding requirements. This report also discusses certain technical corrections to the Pension Protection Act made by WRERA, and certain other notable provisions of the Act affecting retirement plans and benefits. |
Late on September 30, 2013, the Office of Management and Budget (OMB) gave notice to federal agencies that an emergency shutdown furlough would be put in place as a result of the impending lapse in annual appropriations for FY2014. Federal agencies had been directed to develop contingency plans in preparation for this eventuality. On the previous Friday, the Department of Homeland Security (DHS) released its "Procedures Relating to a Federal Funding Hiatus." This document included details on how DHS planned to determine who was required to report to work, cease unexempted government operations, recall certain workers in the event of an emergency, and restart operations once an accord was reached on funding issues. On October 17, 2013, the President signed into law legislation which carries a short-term continuing resolution (CR) funding government operations at a rate generally equivalent to FY2013 post-sequestration levels through January 15, 2014. This act resolves the lapse in funding that began October 1, 2013, returns federal employees to work, and retroactively authorizes pay for both furloughed and exempted employees for the duration of the funding lapse. This report discusses the DHS contingency plan and the potential impacts of a lapse in annual appropriations on DHS operations, and then it discusses several legislative vehicles that mitigated or had the potential to mitigate those impacts. For a broader discussion of a federal government shutdown, please see CRS Report RL34680, Shutdown of the Federal Government: Causes, Processes, and Effects , coordinated by [author name scrubbed]. Lapses in annual appropriations result in a partial shutdown of government operations and emergency furlough of employees—however, they do not result in the complete shutdown of operations. DHS personnel who continue to work without passage of annual appropriations or a continuing resolution generally fall into two categories: those whose activities are not funded through one-year appropriations and those whose work is necessary for the preservation of the safety of human life or the protection of property. The former generally continue to be paid as scheduled, contingent on the availability of funds, whereas the latter are not paid while the lapse in annual appropriations continues. Of DHS's estimated 231,117 civilian and military employees, nearly 200,000 were projected to be exempted from the emergency furlough, according to the department. Most of these employees relied on annual appropriations for their salaries, and therefore were not paid during the funding lapse. Further information about exemptions from operational shutdown and emergency furlough due to a lapse in annual appropriations is outlined below. DHS has a number of functions that are paid for by fee revenues and multi-year appropriations. According to DHS, in the event of a funding lapse, these activities would continue and employees of these programs would continue to work and be paid as long as those revenues and multi-year appropriations were available, because emergency furlough and shutdown of these activities would occur only if resources were depleted. DHS noted several specific activities that would continue to be funded through fee revenues and multi-year appropriations. Under the National Protection and Programs Directorate (NPPD) Office of Biometric Identity Management Federal Protective Service Under the Federal Emergency Management Agency (FEMA) Radiological Emergency Preparedness Program Chemical Stockpile Emergency Preparedness Program Disaster Relief Operations National Flood Insurance Program Under U.S. Citizenship and Immigration Services (USCIS) All programs except for E-Verify In addition to these programs, a survey of the procedures document reveals that some exempt employees at U.S. Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), and the Federal Law Enforcement Training Center (FLETC) may have continued to receive pay despite the lapse in appropriations for FY2014. Fees and multi-year funding must continue to be used for the purposes for which they were collected or provided—they cannot be used to fund broader component or departmental activity (such as salaries) than originally envisioned. In the event of a lapse in annual appropriations, some activities continue if they directly relate to preserving the safety of human life or the protection of property. According to the DHS plan, for an activity to continue under this exception, "there must be some reasonable likelihood that the safety of human life or protection of property would be compromised in some significant degree by the delay in the performance of the function in question. Specifically the risk should be real... and must be sufficiently imminent that delay is not permissible." The DHS procedures go on to note that support functions related to an exempt activity should continue "only to the extent that they are essential to maintain the effectiveness of those activities." Employees who work under this exemption are constrained in their activities—limited to performing activities that are exempted (those that relate to the protection of life and property). At DHS, this work includes the following functions, broken down by component. Under Customs and Border Protection (CBP) Border Security Programs Ports of Entry Operations Under Immigration and Customs Enforcement (ICE) Immigration Enforcement and Removal Operations Immigration and Customs Enforcement Homeland Security Investigations Under Transportation Security Administration (TSA) Transportation Security (including passenger screening) Federal Air Marshal Service Under U.S. Coast Guard (USCG) Military/Defense Operations Maritime Security Maritime Safety Under Secret Service (USSS) Protection of Persons and Facilities Under National Protection and Programs Directorate Cyber Security Under Analysis & Operations (A&O) State and Local Fusion Centers National Operations Center Watch Operations DHS Intelligence Operations Under the Office of Health Affairs BioWatch While a large percentage of DHS employees were still working under this exemption, only those who were exempt from furlough on the basis of funds to pay their salaries being available continued to receive pay for the duration of the funding gap. OMB provides the following guidance regarding pay for exempted employees who are reliant on one-year annual appropriations for their salaries: Without further specific direction or enactment by Congress, all excepted employees are entitled to receive payment for obligations incurred by their agencies for their performance of excepted work during the period of the appropriations lapse. After appropriations are enacted, payroll centers will pay all excepted employees for time worked. Work that is needed for an orderly shutdown : This is a narrow exception that allows for work to shut down non-exempt operations in an orderly fashion when a funding lapse occurs. OMB has determined that this should cover no more than four hours of work completely dedicated to de-activating a function, such as securing documents, completing payroll, etc. Presidential appointees : Presidential appointees who are not covered by a formal leave system—who are entitled to their pay because of their duties rather than the hours worked—cannot be put in "nonduty status" and therefore cannot be subject to furlough. DHS reports that it has 28 such personnel. The terms "exempted employee" and "essential employee" are not interchangeable when discussing federal employees. This is a common misunderstanding, even among members of the media that focus on the federal government on a regular basis. Exemption or exception is determined based on definitions of the Anti-Deficiency Act and the structure of funding that supports various operations. "Essential employees" and "essential functions" are labeled as such because of their roles in providing continuity of government operations (COOP). By DHS's standards, "essential personnel" include "mission critical" and "mission essential" personnel, as well as personnel identified for possible activation depending on the nature of the emergency, emergency personnel, and exempted employees not otherwise covered by the foregoing categories. Therefore, at DHS, one can be considered essential, but not exempt, but not vice versa. Section IV of the DHS procedures document explores these distinctions in more detail. DHS's contingency plan for the October 1, 2013, funding lapse was detailed enough to outline the impact of a shutdown by component using the number of staff in the component as a metric. Staffing impacts of a shutdown are relatively easy to quantify, but should carry a caveat. The number of initially furloughed employees does not tell the entire story of the impact of a government shutdown. In this situation, the government likely draws back significantly from its contracting activities overall, as it cannot spend monies normally provided through the appropriations process. In addition, hiring, procurement, and other projects in process are often stalled, and research efforts could be disrupted. Many excepted personnel are not paid during the lapse in appropriations, and their economic activities are curtailed as well as a result. Therefore, the following numbers only provide a limited perspective on the impact of the funding lapse. Figure 1 shows a graphic representation of the impact of the lapse in appropriations on the department's workforce as outlined in the DHS emergency furlough procedures document. The table immediately following provides the detailed data upon which the graphic is based. As of July 31, 2013, the five largest components by number of staff comprised 87% of total DHS personnel. These components carried the largest share of the projected furlough for DHS as a whole—Customs and Border Protection, Coast Guard, Transportation Security Administration, Immigration and Customs Enforcement, and the Federal Emergency Management Agency bore 77% of the projected furlough total. The remaining 13% of departmental manpower therefore bore 23% of the furlough burden—management, research and development, training, and some operations functions were projected to furlough more than 90% of their personnel. The impact of a shutdown on these functions over the long term, as well as the impact of the projected more than 50% reduction in the staffing for the DHS Office of Inspector General, is unknown, and analysis of those impacts is beyond the scope of this report. While DHS did not associate numbers of furloughed employees with specific programs, the department identified several activities that would be subject to furloughs and curtailment of activities: all non-disaster grant programs; NPPD's Critical Infrastructure Protective Security Advisor Program; Federal Law Enforcement Training Center activities; law enforcement civil rights and civil liberties training; FEMA Flood Risk Mapping program; chemical site security regulatory program; and research and development activities. The DHS plan envisioned situations where a DHS office might need to recall a non-exempt employee to duty to perform an exempt function, such as an unplanned project or activity that qualified as an exempt function, a need to supplement staffing for an existing exempt function, or replacing an exempt employee who was unable to work. Staff who were recalled for a specific project were only to work on that project. As an example, on October 2, 2013, FEMA Administrator Craig Fugate posted on FEMA's website a memorandum to FEMA employees that noted, "Beginning shortly, we will be recalling some employees who were furloughed earlier this week to be able to prepare for a possible emergency response operation to protect life and property." FEMA's Daily Operations Briefing noted the activation of resources in FEMA Regions IV and VI, as well as at the federal level. In a speech at FEMA headquarters on October 7, President Obama noted that 200 furloughed employees had been recalled, and over half of those would be re-furloughed. H.R. 3210 , the Pay Our Military Act, was introduced on September 28, 2013, and signed into law on September 30, 2013, as P.L. 113-39 . This legislation provides FY2014 continuing appropriations during a funding gap for pay and allowances for members of the armed forces on active duty and civilian personnel and contractors providing support for them. The Coast Guard is considered part of the armed forces, and the act provides pay for Coast Guard uniformed personnel on active service and the civilian Coast Guard personnel and contractors in support of them. The Department of Defense (DOD) and DHS did not initially avoid furlough for any of its employees under the provisions of the act, as the Department of Justice had cautioned that the law did not allow them to end furlough for all civilian employees, or allow all contractors to be paid, because of language in the act specifying funding civilian employees and contractors who provide "support" for military personnel in active service. On October 5, 2013, DHS and DOD announced the parameters under which they would be bringing employees back to work and paying contractors beginning the week of October 7. Under Secretary of Defense (Comptroller) Robert Hale described the executive branch's interpretation thusly: "Under our current reading of the law, the standard for civilians who provide support to members of the Armed Forces requires that qualifying civilians focus on the morale, well-being, capabilities and readiness of military members that occurs during a lapse of appropriations." The Administration indicated that salaries would be paid for civilians already working under exemptions, and civilians who provide support to military members on an ongoing basis would be recalled, as well as those civilians "[whose] work, if interrupted by the lapse for a substantial period would cause future problems for military members." Acting Secretary of DHS Rand Beers sent a memorandum to the Commandant of the Coast Guard, outlining the implementation of P.L. 113-39 for the Coast Guard. Several Coast Guard activities were specifically listed in the memorandum that were not to be restored under the act: the National Vessel Documentation Center; the National Maritime Center; Congressional Affairs; and work done in support of non-USCG agencies and activities with the exception of work done in support of DOD. According to the Coast Guard, after implementing P.L. 113-39 , 475 Coast Guard civilian personnel remained furloughed. With the passage of P.L. 113-46 , the lapse in annual appropriations that began October 1, 2013, was resolved. Should those temporary appropriations expire without additional appropriations being enacted for DHS, another shutdown furlough would take effect, but the provisions of P.L. 113-39 would again provide funding for the Coast Guard to continue paying all of its personnel except for these same 475 civilians. Both Under Secretary Hale's conference call and Acting Secretary Beers's guidance memorandum note an important continuing impact of the funding hiatus, even with P.L. 113-39 in place and its implementation clarified. The act only provides for pay and allowances—no other expenses. Hale noted: [W]e have authority to recall most of our civilians and provide them pay and allowances. We don't have authority to enter into obligations for supplies, parts, fuel, et cetera unless it is for an excepted activity, again, one tied to a military operation or safety of life and property. So as our people come back to work, they'll need to be careful that they do not order supplies and material for non-excepted activities. Beers echoes Hale's note of caution: The Act provides appropriations for personnel; it does not provide appropriations for equipment, supplies, materiel, and all the other things that the Department needs to keep operating efficiently, except as provided by the provision relating to contractors. While the Act permits the U.S. Coast Guard to bring many of its civilian employees back to work, and to pay them, if Congress continues to fail to enact an appropriation, many of these workers will cease to be able to do their jobs. Critical parts, or supplies, will run out, and there will be limited authority for the Coast Guard to purchase more. If there comes a time that workers are unable to do their work, the Department will be forced once again to send them home. Estimates of the cost to the economy and the cost to the government of the October 1, 2013, lapse in annual appropriation vary. As noted above, the disruption of DHS activities likely has had some economic impact, even if the total number of employees furloughed was relatively small compared with the overall size of the department. Procurement activities were disrupted to some extent, and DHS is the sixth largest federal agency in terms of procurement spending. Separating the specific economic costs of the shutdown of DHS operations from the shutdown of other governmental elements and the costs incurred by other factors in the economic environment—including the potential for the U.S. to reach its debt limit—is a highly complex task and beyond the scope of this report. DHS required its components to report all costs incurred due to the lapse in appropriations. These are expected to include, but not be limited to: interest incurred for late payments; discounts lost due to late payments; unplanned travel expenses to terminate and restart temporary duty; and direct costs of shutdown of operations (such as IT systems). Multiple press reports have focused on the negative impact of the shutdown on federal employee morale, both exempted and furloughed, and possible impacts on workforce retention. Given that a large ratio of exempt DHS employees worked during the shutdown without a date certain for the receipt of pay, parallel impacts are possible at the department, which already suffers among the worst morale in the federal government, according to third-party research. One impact concurrent with the expiration of the FY2013 funding was the expiration of three authorities that have regularly been extended by legislation in the DHS appropriations bill: the authority of the Secret Service to use funds derived from its investigative activities to support its operation without separate appropriation; the authority for DHS to enter into research and development contracts that do not conform to the Federal Acquisition Regulations; and the authority to regulate high-risk chemical facilities. The third of these was arguably the most significant lapse of authority for those working with DHS. With the expiration of this authority on October 4, 2013, the Chemical Facilities Anti-Terrorism Standards (CFATS) were no longer in effect. On October 17, 2013, P.L. 113-46 reinstated the authority of the DHS to regulate these facilities through January 15, 2014. While no major incidents occurred over the course of the funding lapse, DHS might not have been able to undertake or enforce regulatory action related to these facilities during this time period. DHS indicated that impacts the public would see in the short term would include E-Verify would not be accessible for businesses to determine work eligibility of new employees; FEMA would stop providing flood-risk data for local planners and insurance determinations; and civil rights and civil liberties complaint lines and investigations would shut down. The plan also noted that Coast Guard would stop issuing licenses and seaman documentation, stop doing routine maintenance on aids to navigation, and curtail its fisheries enforcement patrols. Given the continuing appropriation provided by P.L. 113-39 , however, these Coast Guard-specific impacts may have been somewhat mitigated. Several pieces of legislation were introduced that would have impacted the funding status of the Department, allowing it to either pay employees or restore operations to varying degrees during the October 1, 2013, lapse in appropriations. This section of the report focuses on the status and general impact of eight such pieces of legislation on DHS and DHS components alone. Annual Appropriations H.R. 2217 —the Homeland Security Appropriations Act, 2014 Automatic Continuing Resolution H.R. 3210 ( P.L. 113-39 )—the Pay Our Military Act Continuing Resolutions H.J.Res. 59 —the Continuing Appropriations Resolution, 2014 H.J.Res. 79 —the Border Security and Enforcement Continuing Appropriations Resolution, 2014 H.J.Res. 85 —the Federal Emergency Management Agency Continuing Appropriations Resolution, 2014 H.J.Res. 89 —the Excepted Employees' Pay Continuing Appropriations Resolution, 2014 P.L. 113-46 —the Continuing Appropriations Act, 2014 Authorizing Legislation H.R. 3223 —the Federal Employee Retroactive Pay Fairness Act This is the annual appropriations bill for the Department of Homeland Security. The Administration requested $39.0 billion in adjusted net discretionary budget authority for DHS for FY2014. H.R. 2217 as passed by the House would provide $39.0 billion in adjusted net discretionary budget authority. The Senate Appropriations Committee amendment to the bill would provide $39.1 billion in adjusted net discretionary budget authority. Both bills would also provide the $5.6 billion in disaster relief requested by the Administration. The House passed H.R. 2217 on June 6, 2013. The Senate Appropriations Committee reported its proposal for H.R. 2217 on July 18, 2013, but it has not received floor consideration in the Senate. Enactment of this measure would have ended the emergency furlough for the department by providing full-year funding by account for DHS, as well as providing the potential additional detailed direction and context for the department's actions through a conference report joint explanatory statement, such as a conference report. This automatic continuing resolution was introduced on September 28, 2013, and enacted two days later as P.L. 113-39 . It provides "such sums as are necessary" to provide pay and allowances for FY2014 to members of the armed forces on active duty, and to the civilians and contractors employed by DOD and DHS in support of them. It appears that it is intended to provide such funds during any period in FY2014 when full-year or part-year appropriations are not in effect, hence the term "automatic." As noted above, although this legislation could have been interpreted to provide relief to Coast Guard military and civilian personnel and partially end the funding hiatus for part of the government, DOD and DHS did not end furloughs for any of its employees under the provisions of the act until the week of October 7, 2013. The Department of Justice had cautioned that the law did not allow the departments to end furlough for all civilian employees, or allow all contractors to be paid. As noted above, after implementing P.L. 113-39 , 475 Coast Guard personnel remained furloughed until the enactment of P.L. 113-46 , which became the operative appropriations measure for the Department of Defense and DHS. For a more detailed discussion, see " Restoration of Coast Guard Employee Pay Under P.L. 113-39 ," above. The next five pieces of legislation are continuing resolutions with differing scopes. The fifth measure is the continuing resolution enacted as a part of P.L. 113-46 , which ended the lapse in annual appropriations. With its enactment, further action on the other measures in this section in their current form is unlikely. This short-term continuing resolution was introduced September 10, 2013. As introduced, this measure would have provided temporary appropriations for DHS, funding the department at same rate it was for FY2013 (post-sequester) through December 15, 2013, or until it was replaced by another appropriations law. There are four sections in H.J.Res. 59 that contain legislative language that applies to DHS. Generally speaking, the sections carry authority and direction given to DHS and its components in both annual appropriations legislation and CRs covering the department in recent years. Section 122 extends the authority for chemical facility anti-terrorism standards. Section 123 extends the ability of the Secret Service to expend resources gained in the process of their investigations. Section 124 maintains the ability of DHS Science and Technology to use Other Transaction Authority to get R&D services and prototypes without being constrained by Federal Acquisition Regulations. Section 125 allows Customs and Border Protection to apportion its funding to maintain 21,370 border patrol agents and sustain border operations, including the new tethered aerostat program, and allows Immigration and Customs Enforcement to apportion funds to keep 34,000 detention beds. According to the Congressional Budget Office (CBO), the annualized cost of the DHS-related provisions in the continuing resolution as introduced in the House would be $37.7 billion, not including $236 million for overseas contingency operations funding for the Coast Guard, or $6.1 billion for disaster relief funding. None of the proposed amendments to this measure altered provisions directly impacting DHS, except for a Senate change shortening the maximum duration of the bill to November 15, 2013. On October 1, 2013, the House requested a conference with the Senate. The Senate voted to table that request later that same day, and thereby returned H.J.Res. 59 to the House. Enactment of this measure would have ended the emergency furlough for the entire government, at least until its date of expiration. As the measure currently stands, as is usually the case with CRs, account-level direction for funding is not provided, and no explanatory statement of congressional intent (such as a committee report) exists. Figure 2 , at the end of this section, shows a graphical representation of the relative size of DHS annualized appropriations that would be restored under a continuing resolution for the entire department at a rate equivalent to post-sequester resources provided under P.L. 113-6 —the same rate and coverage provided in H.J.Res. 59 and P.L. 113-46 . It compares that annualized appropriation to the resources that would be provided through H.J.Res. 79 , H.J.Res. 85 , and the actions taken in P.L. 113-39 . This continuing resolution was introduced on October 3, 2013. It is a temporary appropriations measure that would provide funding for several DHS components, including U.S. Customs and Border Protection (CBP), U.S. Immigration and Customs Enforcement (ICE), U.S. Coast Guard (USCG), U.S. Citizenship and Immigration Services, and part of the National Protection and Programs Directorate (NPPD)—the Office of Biometric Identity Management. These entities would be funded at the same rate as was provided in P.L. 113-6 , taking into account sequestration, through December 15, 2013, or until it was replaced by another applicable appropriations law. H.J.Res. 79 passed the House on October 10, 2013, by a vote of 249-175. According to CBO, the annualized cost of the measure would be $18.8 billion, not including $236 million for overseas contingency operations funding for the Coast Guard. CBO's scoring assumes that $5 billion in costs for the Coast Guard would have been paid already under H.R. 3210 . Enactment of this measure would have ended the emergency furlough for the five DHS entities listed in the bill, at least until its date of expiration. As the measure currently stands, as is usually the case with continuing resolutions, account-level direction for funding is not provided, and no explanatory statement of congressional intent (such as a committee report) exists. It would also not provide the four legislative extensions of authority for DHS as envisioned under H.J.Res. 59 . The components included in this measure include three of the five largest discretionary budgets at DHS—CBP, ICE, and USCG. These components also represent three of the four largest groups of employees furloughed at DHS, totaling 16,866 employees—54% of DHS's total initial projected furlough. Figure 2 , at the end of this section, shows a graphical representation of the relative size of the DHS appropriations that would be restored under the bill, relative to the resources that would be provided through H.J.Res. 85 and the actions taken in P.L. 113-39 and P.L. 113-46 . As Figure 1 and Figure 2 show, removing the funding hiatus impact on CBP, ICE, Coast Guard, and USCIS would have represented a significant restoration of funding to the department. As noted below, a separate piece of legislation had been passed in the House to fund FEMA over a similar time period. Had these two pieces of legislation been enacted, many other complementary components of DHS would have remained affected by the funding hiatus: the management and intelligence functions of the department, the Office of the Inspector General, the Transportation Security Administration (TSA), the Secret Service, the Office of Health Affairs, the Science and Technology Directorate of the department, the Domestic Nuclear Detection Office, and most of the National Protection and Programs Directorate would have remained unfunded. With the exception of the TSA and the Secret Service, all of these functions were projected to furlough more than 40% of their employees, with most of them projected to furlough over 90%. This CR was introduced October 3, 2013. It would provide temporary funding for the Federal Emergency Management Agency (FEMA) at the same rate as was provided in P.L. 113-6 , taking into account sequestration, through December 15, 2013, or until other appropriations legislation replaces the direction in the bill. H.J.Res. 85 passed the House on October 4, 2013, by a vote of 247-164. According to CBO, the annualized cost of the bill would be $4.1 billion in discretionary budget authority for the department, plus $6.1 billion in disaster relief funding—a total of $10.2 billion. Enactment of this legislation would have ended the emergency furlough for FEMA, at least until its date of expiration. As the measure currently stands, as is usually the case with continuing resolutions, account-level direction for funding is not provided, and no explanatory statement of congressional intent (such as a committee report) exists. It would also not provide the four legislative extensions of authority for DHS as envisioned under H.J.Res. 59 . This bill provides temporary funding to FEMA, leaving the coordinating, managing and oversight functions of the overall department unfunded. It is unclear whether passage of this legislation would provide for a transfer of funds to the DHS OIG to pay for oversight of disaster relief operations, as has occurred in recent years, and whether such a transfer would allow the OIG to conduct those activities. Figure 2 , below, shows a graphical representation of the relative size of the DHS appropriations that would be restored under the bill, relative to the resources that would be provided through H.J.Res. 85 and the actions taken in P.L. 113-39 and P.L. 113-46 . Figure 2 compares the CBO-estimated impact of the two enacted and two proposed temporary appropriations measures affecting DHS. The underlying circle of the pie chart reflects the annualized discretionary budget authority that is provided for DHS through P.L. 113-46 —essentially, the equivalent of the post-sequester appropriated budget for DHS for FY2013. This is the same as the annualized discretionary budget authority that would have been provided to DHS through H.J.Res. 59 . The sections in blue are regular discretionary appropriations, while the tan sections are covered by adjustments for disaster relief and costs of overseas military operations that are provided for under the Budget Control Act. The crosshatched section of the pie represents the annualized budget authority provided under P.L. 113-39 —appropriations that will not lapse for FY2014. The two pieces "lifted" from the circle reflect what continuing appropriations would have been provided under H.J.Res. 79 and H.J.Res. 85 . All of these continuing resolutions, proposed and enacted, had the same rate—the FY2013 post-sequester level of funding provided under P.L. 113-6 . Their coverage differed, however, with only H.J.Res. 59 and P.L. 113-46 covering the entire department (in fact, the entire government), and H.J.Res. 79 , H.J.Res. 85 , and P.L. 113-39 covering appropriations for portions of DHS. As the figure shows, roughly 22% of the DHS budget would not have been covered by the three measures that addressed DHS in part, but not the entire federal government. This continuing resolution was introduced and passed the House on October 8, 2013. It would provide temporary funding to pay the salaries of all federal employees working during the lapse in appropriations who are not paid by other means, through December 15, 2013, or until other appropriations legislation replaces the direction in the bill. H.J.Res. 89 passed the House on October 8, 2013, by a vote of 420-0. At the time the bill passed the House, there was no CBO estimate of the annualized cost of the bill. Enactment of this legislation would not end the emergency furlough for any government component, although it would reduce the economic impact of the shutdown by maintaining the flow of compensation to "excepted" or "exempted" federal workers, including many at DHS. The resolution is drafted to pay "salaries and related expenses" only, so the limitations noted in the analysis of P.L. 113-39 would apply in the case of enactment of this measure as well. As the measure currently stands, as is usually the case with continuing resolutions, account-level direction for funding is not provided, and no explanatory statement of congressional intent (such as a committee report) exists. H.R. 2775 was amended by the Senate on October 16, 2013, to include the Continuing Appropriations Act, 2014 as Division A. The amended measure provides temporary appropriations for the federal government, including DHS, funding the department at same rate it was for FY2013 (post-sequester) through January 15, 2013, or until it is replaced by another appropriations law. H.R. 2775 , as amended, passed the Senate by a vote of 81-18 on October 16, 2013, and several hours later, passed the House of Representatives by a vote of 285-144. The bill was signed into law shortly after midnight on October 17, 2013, and the federal government resumed operations that same day. There are five sections in P.L. 113-46 that contain legislative language that specifically apply to DHS. Four of these sections have the same essential impact as those that were highlighted above as part of H.J.Res. 59 . The fifth, Section 157, mirrors a general provision from P.L. 113-6 , requiring DHS to share reports it provides to the appropriations committees to the House Committee on Homeland Security and the Senate Committee on Homeland Security and Governmental Affairs. Generally speaking, the sections carry authority and direction given to DHS and its components in both annual appropriations legislation and CRs covering the department in recent years. Division A also includes legislative language similar to that of H.R. 3223 (discussed below), which authorizes back pay for all furloughed and exempted federal employees for the period of the October 1, 2013, funding lapse. As with H.J.Res. 59 , according to CBO, the annualized cost of the DHS-related provisions in the act as introduced in the Senate would be $37.7 billion, not including $236 million for overseas contingency operations funding for the Coast Guard, and $6.1 billion for disaster relief funding. These numbers are a projection of what could be spent if the resolution were extended to the end of the fiscal year—the act is currently set to expire on January 15, or when it is replaced by relevant appropriations legislation. Enactment of this measure ended the emergency furlough resulting from the lapse in appropriations on October 1, 2013. As is usually the case with continuing resolutions, account-level direction for funding is not provided, and no explanatory statement of congressional intent (such as a committee report) exists. This is authorizing legislation that states that all employees furloughed as a result of the funding lapse at the beginning of FY2014 shall be paid for that time after the lapse in appropriations ends. The House passed H.R. 3223 by a vote of 407-0 on October 5, 2013. Its stated intent was accomplished through Section 115 of P.L. 113-46 . This would apply to all furloughed employees of DHS, but it would not end the funding lapse or change the operations of DHS directly. Establishment of this obligation could have significant implications for departments' budgeting and performance metrics. Resources budgeted in the expectation of performance of regular departmental duties would instead be expended to compensate staff for conforming to shutdown procedures. | Absent legislation providing appropriations for the Department of Homeland Security (DHS) for FY2014, the Department implemented a shutdown furlough on October 1, 2013. Operations of different components were affected to varying degrees by the shutdown. While an estimated 31,295 employees were furloughed, roughly 85% of the department's workforce continued with their duties that day, due to exceptions identified in current interpretations of law. Some DHS employees were recalled to work after the furloughs began on the basis of unanticipated needs (such as disaster preparedness activities) or the enactment of appropriations legislation that temporarily covered personnel costs. While the DHS shutdown contingency plan's data on staffing and exemptions from furloughs is not a perfect metric for the broad impacts of the lapse in annual appropriations, some of the data provided by DHS lend a perspective on some of the effects on the department's staffing and operations during the funding gap until fuller post-shutdown reviews are completed. Even though most of DHS continued to work through the shutdown, most of the department's civilian employees were not being paid until the lapse was resolved. A handful of activities were paid for through multi-year appropriations or other revenues, however, and employees working in those programs continued to be paid on schedule. During the funding lapse, several pieces of legislation were introduced that would have impacted the funding status of the department, allowing it to either pay employees or restore operations to varying degrees. Two of these were enacted. The Pay Our Military Act (P.L. 113-39) returned almost 5,800 furloughed Coast Guard civilian employees to work and restored pay for active military personnel and the civilian federal employees and the contractors that support them. On October 17, 2013, the President signed into law a Senate-amended version of H.R. 2775 which carried a short term continuing resolution (CR) which funds government operations at a rate generally equivalent to FY2013 post-sequestration levels through January 15, 2014. This act resolves the lapse in funding, returns federal employees to work, and retroactively authorizes pay for both furloughed and exempt (or "excepted") employees for the duration of the funding lapse. This report examines the DHS contingency plan for the funding lapse that began October 1, 2013, and the potential impacts of a lapse in annual appropriations on DHS operations, focusing primarily on the emergency furlough of personnel, and then discusses the legislative vehicles that had the potential to mitigate those same impacts. CRS is continuing to gather information on the actual impact of the shutdown on DHS operations now that the October 1, 2013, lapse has been resolved, and will update this report as warranted. |
Each year, the Senate and House Armed Services Committees report their respective versions of the National Defense Authorization Act (NDAA). These bills contain numerous provisions that affect military personnel, retirees and their family members. Provisions in one version are often not included in another; are treated differently; or, in certain cases, are identical. Following passage of these bills by the respective legislative bodies, a Conference Committee is usually convened to resolve the various differences between the House and Senate versions. In the course of a typical authorization cycle, congressional staffs receive many constituent requests for information on provisions contained in the annual NDAA. This report highlights those personnel-related issues that seem to generate the most intense congressional and constituent interest, and tracks their status in the FY2011 House and Senate versions of the NDAA. The House version of the National Defense Authorization Act for Fiscal Year 2011, H.R. 5136 , was introduced in the House on April 26, 2010, reported by the House Committee on Armed Services on May 21, 2010 ( H.Rept. 111-491 ), and passed by the House on May 28, 2010. The Senate version of the NDAA, S. 3454 , was introduced in the Senate on June 4, 2010 and reported by the Senate Committee on Armed Services on June 4, 2010 ( S.Rept. 111-201 ). However, S. 3454 was never passed by the Senate. Instead of a Conference Committee to resolve differences, a new bill ( H.R. 6523 ) was introduced in the House of Representatives on December 15, 2010. It was passed by the House on December 17, 2010 and passed by the Senate on December 22, 2010. The bill, the Ike Skelton National Defense Authorization Act for Fiscal Year 2011, was signed by the President on January 7, 2010 and became P.L. 111-383 . The entries under the headings "House-passed", "Senate-reported", and "House and Senate-passed " in the tables on the following pages are based on language in these bills, unless otherwise indicated. Where appropriate, related CRS products are identified to provide more detailed background information and analysis of the issue. For each issue, a CRS analyst is identified and contact information is provided. Some issues were addressed in the FY2010 National Defense Authorization Act and discussed in CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. Those issues that were previously considered are designated with a " * " in the relevant section titles of this report. Background: The National Defense Authorization Act for Fiscal Year 2008 ( P.L. 110-181 ) authorized the Army to grow by 65,000 and the Marine Corps by 27,000, to respective end strengths of 547,400 and 202,000 by FY2012. In both FY2009 and FY2010, the Army was authorized additional, but smaller, increases to an FY2010 end strength of 562,400. Even with these increases, the nation's armed forces, especially the Army and Marine Corps, continue to experience high deployment rates and abbreviated "dwell time" at home station. With a significant increase in the number of servicemembers deployed to Afghanistan during 2009 and 2010, some observers have recommended further increases in end strength, especially for the Army. Others, pointing to the potential Army drawdown beginning in 2012 and the high cost of military personnel, have advocated reducing end strength. Discussion: With ongoing operations in both Iraq and Afghanistan, service end strengths remain a high visibility issue because of the impact on dwell time, readiness and unit manning concerns. The House-passed version authorizes an increase of 7,000 for the Army, an increase of 500 for the Air Force, a decrease of 100 for the Navy, and no change for the Marine Corps (see table below). References : Previously discussed in CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed] and CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact: Charles Henning, x[phone number scrubbed]. Background: Although the Reserves have been used extensively in support of operations since September 11, 2001, the overall authorized end-strength of the Selected Reserves has declined by about 2 ½% over the past nine years (874,664 in FY2001 versus 854,500 in FY2010). Much of this can be attributed to the reduction in Navy Reserve strength during this period. There were also modest shifts in strength for some other components of the Selected Reserve. For comparative purposes, the authorized end-strengths for the Selected Reserves for FY2001 were as follows: Army National Guard (350,526), Army Reserve (205,300), Navy Reserve (88,900), Marine Corps Reserve (39,558), Air National Guard (108,022), Air Force Reserve (74,358), Coast Guard Reserve (8,000). Between FY2001 and FY2010, the largest shifts in authorized end-strength have occurred in the Army National Guard (+7,674 or +2%), Coast Guard Reserve (+2,000 or +25%), Air Force Reserve (-4,858 or -7%), and Navy Reserve (-23,400 or -26%). A smaller change occurred in the Air National Guard (-1,322 or -1.2%), while the authorized end-strength of the Army Reserve (-300 or -0.15%) and the Marine Corps Reserve (+42 or +0.11%) have been essentially unchanged during this period. Discussion: The authorized Selected Reserve end-strengths for FY2011 are the same as those for FY2010 with the exception of the Air Force Reserve. The Air Force Reserve's authorized end-strength in FY2010 was 69,500, but the administration requested an increase to 71,200 (+1,700), noting that "The Fiscal Year 2011 end strength amount includes the increase associated with the Department of Defense decision to halt the drawdown of active duty Air Force end strength at 330,000 personnel." Reference(s): None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed] Background: Ongoing military operations in Iraq and Afghanistan, highlighted by the significant increase in the number of servicemembers deployed to Afghanistan, continue to focus interest on the military pay raise. Title 37 U.S.C. §1009 provides a permanent formula for an automatic annual military pay raise that indexes the raise to the annual increase in the Employment Cost Index (ECI). The FY2011 President's Budget request for a 1.4%% military pay raise was consistent with this formula. However, Congress, in FYs 2004, 2005, 2006, 2008, 2009 and 2010 approved the pay raise as the ECI increase plus 0.5%. The FY2007 pay raise was equal to the ECI. Discussion: A military pay raise larger than the permanent formula is not uncommon. In addition to "across-the-board" pay raises for all military personnel, mid-year and "targeted" pay raises (targeted at specific grades and longevity) have also been authorized over the past several years. While the House-passed version of the NDAA recommended a 1.9% across the board pay raise, both the Senate-reported bill and H.R. 6523 were silent on the pay raise issue. As a result , the Title 37 provision (37 U.S.C. 1009) became operative with an automatic January 1, 2011 across-the-board raise of 1.4% (equal to the ECI). Reference : Previously discussed in CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], page 6 and CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. See also CRS Report RL33446, Military Pay and Benefits: Key Questions and Answers , by [author name scrubbed]. CRS Point of Contact: Charles Henning, x[phone number scrubbed]. Background: Hostile Fire or Imminent Danger Pay (HP/IDP) is a special pay that is paid to servicemembers who are exposed to hostile fire or the explosion of hostile mines (such as Improvised Explosive Devices or IEDs); serve in an area where other servicemembers were subject to such hazards or are: killed, wounded, or injured by any hostile action; or are on duty in a foreign area where the servicemember is in imminent danger due to insurrection, civil war, terrorism, or war. This pay was temporarily increased from $100 to $225/month by the FY2004 National Defense Authorization Act (NDAA) and this increase was then made permanent by the FY2005 NDAA. The Family Separation Allowance (FSA) is paid to servicemembers with dependents when the servicemember is deployed to a dependent-restricted area, serves on board ship for more than 30 days or when the member is on temporary duty (TDY) for more than 30 days. This allowance was temporarily increased from $100 to $250/month by the FY2004 NDAA and then made permanent by the FY2005 NDAA. Discussion: Increasing these two types of pay is intended to compensate for the erosion in compensation due to inflation since the last increase. The Congressional Budget Office (CBO) estimates that the House-approved increase to the Family Separation Allowance would cost $288 million over the 2011-2015 period and the increase to the Hostile Fire Pay would cost $188 million over the same period. Reference : Previously discussed in CRS Report RL31334, Operations Noble Eagle, Enduring Freedom, and Iraqi Freedom: Questions and Answers About U.S. Military Personnel, Compensation, and Force Structure , by [author name scrubbed] and [author name scrubbed]. CRS Point of Contact: Charles Henning, x[phone number scrubbed]. Background: The 109 th Congress enacted a provision, codified at 37 U.S.C. §910, that provides a special payment of up to $3,000 to reservists who experience income loss due to frequent or extended involuntary mobilizations. Subsequently, the first session of the111 th Congress enacted a provision, codified at 5 U.S.C. §5538, to minimize the income loss of civilian employees of the federal government who are involuntarily ordered to active duty or involuntarily retained on active duty. It does so by providing "differential pay" – a payment equal to the amount by which a reservist's military pay and allowances are lower than his or her civilian basic pay. This latter provision only applies to federal government employees, but it is not limited to cases of extended or frequent activations like the earlier provision. Discussion: Section 601 would prevent civilian employees of the federal government from claiming benefits under 37 U.S.C. §910 if they are eligible for "pay differential" benefits under 5 U.S.C. 5538 or a similar program. Reference(s): 37 U.S.C. §910, "Replacement of lost income: involuntarily mobilized reserve component members subject to extended and frequent active duty service." 5 U.S.C. 5538, "Nonreduction in pay while serving in the uniformed services or National Guard." Office of Personnel Management, Reservist Differential Agency Implementation Guidance, available at http://www.opm.gov/ reservist/ ReservistDiffImplementationGuidance.pdf . CRS Point of Contact: [author name scrubbed], x[phone number scrubbed] Background: The National Defense Authorization Act for Fiscal Year 2008 ( P.L. 110-181 ) established the Yellow Ribbon Reintegration Program, "a national combat veteran reintegration program to provide National Guard and Reserve members and their families with sufficient information, services, referral, and proactive outreach opportunities throughout the entire deployment cycle." Yellow Ribbon events may include information, services, referral and outreach related to marriage counseling, suicide prevention, mental health awareness and treatment, post-traumatic stress disorder, financial counseling, veterans' benefits, employment workshops, and other topics. Discussion: The adopted provision makes several changes to the Yellow Ribbon program in an effort to broaden access to the program, enhance its effectiveness, and refine its scope. Reference(s): The Yellow Ribbon Reintegration Program website is http://www.yellowribbon.mil/ index.html . Directive Type Memorandum 08-029 "Implementation of the Yellow Ribbon Reintegration Program" is available at http://www.dtic.mil/ whs/ directives/ corres/ pdf/ DTM-08-029.pdf . CRS Point of Contact: [author name scrubbed], x[phone number scrubbed] or Don Jansen at x[phone number scrubbed]. Background : The law authorizing the TRICARE program includes provisions requiring program beneficiaries to share in the cost of their health care. However, legislative measures to prevent increases in some of these cost-share provisions have regularly been enacted. Section 1086(b)(3) of title 10, United States Code, requires a copayment rate of 25% of the cost of inpatient care for retirees, "except that in no case may the charges for inpatient care for a patient exceed $535 per day during the period beginning on April 1, 2006, and ending on September 30, 2010." Section 1074g(a) of title 10, United States Code, authorizes charges for retirees and certain other beneficiaries in TRICARE Prime for pharmaceutical agents available through retail. In the absence of legislation prohibiting increases, DOD can increase these cost shares. For example, when the previous prohibition on inpatient copayments under TRICARE Standard expired on September 30, 2009, DOD announced that the per diem rate would increase to a rate equal to 25% of the cost of inpatient care. This would have increased the inpatient cost share for retirees younger than 65 and their family members to $645 a day, or 25% of total hospital charges, whichever was less. However, subsequent enactment of section 709 of the National Defense Authorization Act for Fiscal Year 2010 ( P.L. 111-84 ), which extended the prohibition until September 30, 2010, prevented the announced inpatient care copayment increase under TRICARE Standard from taking place. Discussion: Sections 701 and 705 of the enacted bill prohibit DOD from increasing any fees or copayments under the TRICARE Standard, Extra, and Prime plans during FY2011. Reference(s) : None. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: Under the military health system's current structure, the Assistant Secretary of Defense (Health Affairs) is responsible for executing the overall military health care mission. The military health system delivers care through military hospitals and clinics, commonly referred to as military treatment facilities (MTFs) as well as civilian providers. MTFs comprise DOD's direct care system for providing health care to beneficiaries. Each military service, under its surgeon general, is responsible for managing its MTFs. Each service, other than the Marine Corps, also programs and deploys its own medical personnel. The service surgeons general report upward through the service chain of command to their respective service secretaries. The TRICARE Management Activity, under the Assistant Secretary of Defense (Health Affairs), is responsible for awarding, administering, and overseeing contracts for civilian managed care support contractors to develop networks of civilian primary and specialty care providers to augment the MTFs. Some observers believe that this command structure is fragmented and would be improved by unifying the command elements of the military health system in a "Unified Medical Command." There is a long history of debate and analysis of the concept of a Unified Medical Command (UMC). This debate is summarized in chapter 12 of the December 2007 Final Report of the Task Force on the Future of Military Health Care. Typically, plans for a unified medical command would have each service's medical component report to a departmental medical command outside of the service rather than to the service secretary, and the medical command would report directly to the Secretary of Defense. According to the Task Force report, proponents of a unified medical command say potential benefits include elimination of command fragmentation, a single point of accountability, increased integration for all elements of the medical command and control, better integrated health care delivery, enhanced peacetime effectiveness and ability to quickly transition to a rapidly deployable and flexible medical capability in a war scenario. Opponents say that the "unified" objectives are unclear; that execution of service specific doctrine and inculcation of service culture among medical personnel might be weakened under a "unified" command; and that service accountability for the health and welfare of forces would be better maintained through direct control. Congress has previously tasked DOD with examining various unified medical command options in the past. The Government Accountability Office, however, reviewed DOD's most recent efforts and found that DOD did not perform a comprehensive cost-benefit analysis of all potential options and did not provide any evidence of analysis to justify its decisions. Discussion: Section 903 would authorize the Secretary of Defense to establish a unified medical command to provide medical services to the armed forces and other DOD health care beneficiaries. This section also would require the Secretary to develop a comprehensive plan to establish a unified medical command. The Obama Administration's statement of administration policy on H.R. 5136 strongly opposes section 903: The Administration strongly objects to the provision in the bill to authorize the President to create a new military medical command. The proposed delegation of responsibilities to a unified medical command would render hollow the role of the Assistant Secretary of Defense for Health Affairs (ASD(HA)) to serve as the principal Departmental official for health and medical matters. The imposition of additional organizational structure with the attendant personnel and operational costs it would require could directly conflict with the effort by the Administration to eliminate unnecessary bureaucratic layers, headquarters and defense organizations. Reference(s) : None. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background : In general, eligibility for TRICARE is lost when either a dependent child turns 23 (if enrolled in an accredited school as a full-time student) or 21 if not enrolled. Section 1001 of the Patient Protection and Affordable Care Act ( P.L. 111-148 , PPACA) amends Part A of Title XXVII of the Public Health Service Act (PHSA) to add a new Section 2714 specifying that a group health plan and a health insurance issuer offering group or individual health insurance coverage that provides dependent coverage of children shall continue to make such coverage available until the dependent child turns 26 years of age. However, the provisions of title XXVII of the PHSA do not appear to apply to TRICARE. Discussion: Section 702 of the enacted bill amends chapter 55 of title 10, United States Code, to insert a new section (1110b) establishing a new TRICARE program offering premium-based dependent coverage until age 26. The premium feature makes the TRICARE program dissimilar from the coverage mandated by PPACA which prohibits separate premiums. The PPACA provision provides that A group health plan and a health insurance issuer offering group or individual health insurance coverage that provides dependent coverage of children shall continue to make such coverage available for an adult child (who is not married) until the child turns 26 years of age. Department of Health and Human Services regulations have interpreted PPACA to extend dependent coverage, not create a new policy for which a separate premium would be charged. Organizations representing military constituencies have expressed concern about the potential amount of the premiums that might be charged under the new TRICARE program. Reference(s) : CRS Report R41198, TRICARE and VA Health Care: Impact of the Patient Protection and Affordable Care Act (PPACA) , by [author name scrubbed] and [author name scrubbed]. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background : Under current law, reserve component members who have retired with 20 or more years of qualifying service but have not yet reached the age of 60 (so called "grey-area" retirees), are not eligible for space-available care at military treatment facilities. This has traditionally been the policy because the individuals in this category were "working-age" and were assumed to be able to obtain health from other providers. Last year, however, TRICARE Standard coverage was made available to gray area reservists by section 705 of the National Defense Authorization Act for Fiscal Year 2010 ( P.L. 111-84 ). Grey-area retirees are now able to purchase TRICARE Standard coverage under a new program known as TRICARE Retired Reserve for an unsubsidized premium, which enables the individual to access private sector care. Discussion: Section 643 would amend 10 U.S.C. §1074 to eliminate the restriction on space- available care at military treatment facilities for retired reservists. The section does not require the purchase of the pending TRICARE Standard insurance for grey-area retirees to receive the space available-care. The Congressional Budget Office estimates that section 643 would require appropriations of $125 million over the FY2011–FY2015 period. Reference(s) : Reserve retirement is discussed in CRS Report RL30802, Reserve Component Personnel Issues: Questions and Answers , by [author name scrubbed]. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: On November 30, 1993, Congress enacted P.L. 103-160 , the National Defense Authorization Act for Fiscal Year 1994. Section 571 of the law, codified at 10 United States Code 654, describes homosexuality in the ranks as an "unacceptable risk ... to morale, good order, and discipline." The law stated the grounds for discharge as follows: (1) the member has engaged in, attempted to engage in, or solicited another to engage in a homosexual act or acts; (2) the member states that he or she is a homosexual or bisexual; or (3) the member has married or attempted to marry someone of the same sex. The law also stated that DOD would brief new entrants (accessions) and members about the law and policy on a regular basis. Finally, legislative language instructed that asking questions of new recruits concerning sexuality could be resumed—having been halted in January, 1993—on a discretionary basis. As such, this law represented a discretionary "don't ask, definitely don't tell" policy. Notably, the law contained no mention of "orientation." In many ways, this law contained a reiteration of the basic thrust of the pre-1993 policy. As implemented by the Clinton Administration, new recruits would not be asked about their sexuality. The policy became known as "Don't Ask, Don't Tell" (DADT). Discussion: Following the release of the Working Group's Review, the Senate held two hearings. After certification by the Chairman of the Joint Chiefs of Staff, the Secretary of Defense and the President, there remains a 60-day waiting period before repealing the current DADT policy and the law it is based upon. Until that time, DADT is still in effect. The 112 th Congress may be interested in several issues related to repeal of the ban and its implementation. The Comprehensive Review Working Group (CRWG) that studied implementing the repeal proposed changes to articles of the Uniformed Code of Military Justice dealing with sodomy, rape and carnal knowledge. Issues pertaining to the "Defense of Marriage Act" may also be raised, particularly as they affect certain military family and other benefits. Contentious issues regarding morality and religious practices may surface—particularly as they affect military chaplains and religious practices among service members—as might issues related to personal privacy. Congress may also exercise its oversight role to review the certifications submitted as part of the repeal process, to examine the modifications which the military makes to its regulations, and to assess the Services' plans for training their forces on the integration of openly gay and lesbian servicemembers. Reference(s) : See CRS Report R40782, "Don't Ask, Don't Tell": Military Policy and the Law on Same-Sex Behavior , by [author name scrubbed], and CRS Report R40795, "Don't Ask, Don't Tell": A Legal Analysis , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: There are no laws concerning the recruitment, training and deployment of women in the Armed Forces. The last law barring women from serving on board combat ships was repealed in 1993. Under then-DOD policy (labeled the "risk rule"), women were excluded from all combat units, non-combat units and missions if the risk of exposure to direct combat, hostile fire, or capture was equal to or greater than the combat units they supported. In 1994, the risk rule was replaced by a new policy which excludes women if the following three criteria are all met. Women may not serve in units that (1) engage an enemy on the ground with weapons, (2) are exposed to hostile fire, and (3) have a high probability of direct physical contact with personnel of a hostile force. In Operation Iraqi Freedom and Operation Enduring Freedom, female troops have been deployed at check points searching other females for weapons and bombs, and have been forward deployed in support of combat units and patrols. Women have been attacked, taken prisoner, and, in some cases, killed by the enemy. The non-linear battlefield and insurgent nature of these operations makes it extremely difficult to determine safe or hostile areas. Discussion: Although most observers believe that the service of women in the armed forces has been commendable, there have been complaints that DOD is violating the spirit of its existing rules by collocating women with forward units or deploying them in situations that put them in direct contact with the enemy. Some have argued that women have proven themselves and that such restrictions should be removed. Although women can serve in nearly every military occupational specialty, the combat arms (such as infantry), special forces and submarines remain off limits. However, the Army is studying whether to open combat arms unit to women and the Navy has already announced plans in integrate women into submarine crews in the next year or so. Reference(s) : None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Since the end of the draft in the early 1970s, the number of women in the military, the number of military families, the number of divorces, and the number of overseas deployments to combat theaters, have increased. What has also increased is the number of single military parents with custody of a child or children. Some observers believe that custody issues should be held in abeyance while servicemembers are deployed, except in instances where the best interests of the child requires a court order. Discussion: The objective of Section 544 of the House bill is to protect the best interest of the child while assuring the military personnel who face the possibility of or actual deployment are not subjected to adverse or prejudicial court orders concerning child custody during the time they are deployed. This provision was not enacted. Reference : None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: As part of the National Defense Authorization Act of FY2000, Congress required DOD to "(1) establish a central database of information on domestic violence incidents involving members of the armed forces and (2) establish the Department of Defense Task Force on Domestic Violence. The law charged the task force with establishing a strategic plan that would allow DOD to more effectively address domestic violence matters within the military." The task force submitted three reports with over 200 recommendations during the 2001 to 2003 timeframe. In 2003, DOD created the Family Violence Policy Office to oversee the services in implementing the recommendations. In 2006, GAO reviewed DOD progress in this area and determined that DOD had taken action on most of the task force's recommendations but did not have accurate or complete data from all law enforcement and clinical records. GAO made a number of recommendations, among them to get better data, to develop an oversight framework and to develop a plan to ensure adequate personnel are available. In 2010, GAO stated "DOD has addressed one of the recommendations in our 2006 report to improve its domestic violence program and taken steps toward implementing two more, but has not taken any actions on four of the recommendations." Discussion: According to GAO, the services are not providing accurate and complete data. GAO notes in its 2010 report that DOD does not have a plan to ensure that adequate personnel are available to implement the recommendations of the task force. In one instance, DOD did not concur with GAO's recommendation of collecting chaplain training data, taking issue, in part, based on the principle of privileged communication. In addition, GAO recommends that DOD develop an oversight framework for implementation of the recommendations made by the task force. Reference(s) : See language on "Protective Orders," CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: On May 12, 1975, in the aftermath of the Vietnam War (approximately two weeks after the fall of Saigon), a U.S. merchant ship, S.S. Mayaguez, was seized by the Khmer Rouge Navy. Thirty-nine sailors were captured and taken to the island of Koh Tang. The U.S. mounted a rescue operation on May 15. By most accounts, the result was deemed a failure with four U.S. helicopters shot down or disabled, and 41 Marines killed. The number killed outnumbered the number of sailors captured by the Khmer Rouge. Shortly after the rescue attempt, all 39 U.S. sailors were released. Discussion: The House-passed language would authorize the Vietnam Service Medal for participants in the Mayaguez rescue. It is not clear what other benefits, if any, would accrue from recognizing these individuals in this manner. Reference(s) : See CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Military families are relocated quite frequently during a military career. Non-military spouses seeking employment at a new duty location are often frustrated because many of the skills they have may not be transferable to a new location. Often, new work skills must be learned. It has been reported that local employers prefer a more stable workforce with less turnover and less training needed. In 2008, Congress expanded training opportunities (10 USC 1784a) for military spouses by enacting "Education and Training Opportunities for Military Spouses to Expand Employment and Portable Career Opportunities," a program that assists spouses to receive training and/or educational opportunities, including possible tuition assistance. Discussion: The proposed pilot program in the House passed bill would have further expanded the existing program (10 U.S.C. §1784a) by assisting and encouraging a limited number of military spouses to receive education and training in portable counseling skills particularly in the areas of social services. Instead, the enacted law seeks a review of available programs. Reference(s) : See CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The Junior Reserve Officers' Training Corps or JROTC was established by the National Defense Act of 1916. According to Title 10 U.S.C. §2031, the purpose of JROTC is "to instill in students in United States secondary educational institutions the value of citizenship, service to the United States, and personal responsibility and a sense of accomplishment." Under current law, JROTC is offered only to those above the eighth grade level. Discussion: Currently, hundreds of thousands of high school students participate in JROTC. Allowing those in 7 th and 8 th grades to participate could lead to a significant expansion of the program. Schools that have JROTC units are generally supportive of the program but it does have detractors because some parents object to the perceived "militarization" of youth. Reference(s) : None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. | Military personnel issues typically generate significant interest from many Members of Congress and their staffs. Ongoing military operations in Iraq and Afghanistan, along with the emerging operational role of the Reserve Components, further heighten interest in a wide range of military personnel policies and issues. The Congressional Research Service (CRS) has selected a number of the military personnel issues considered in deliberations on the House-passed and Senate versions of the National Defense Authorization Act for FY2011. This report provides a brief synopsis of sections that pertain to personnel policy. The House version of the National Defense Authorization Act for Fiscal Year 2011, H.R. 5136, was introduced in the House on April 26, 2010, reported by the House Committee on Armed Services on May 21, 2010 (H.Rept. 111-491), and passed by the House on May 28, 2010. The Senate version of the NDAA, S. 3454, was introduced in the Senate on June 4, 2010 and reported by the Senate Committee on Armed Services on June 4, 2010 (S.Rept. 111-201). However, S. 3454 was never passed by the Senate. Instead of a Conference Committee to resolve differences, a new bill (H.R. 6523) was introduced in the House of Representatives on December 15, 2010. It was passed by the House on December 17, 2010 and passed by the Senate on December 22, 2010. The bill, the Ike Skelton National Defense Authorization Act for Fiscal Year 2011, was signed by the President on January 7, 2010 and became P.L. 111-383. Where appropriate, related CRS products are identified to provide more detailed background information and analysis of the issue. For each issue, a CRS analyst is identified and contact information is provided. Some issues were addressed in the FY2010 National Defense Authorization Act and discussed in CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed]. Those issues that were previously considered in CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues are designated with a "*" in the relevant section titles of this report. This report focuses exclusively on the annual defense authorization process. It does not include appropriations, veterans' affairs, tax implications of policy choices or any discussion of separately introduced legislation. |
On March 23, 2010, the President signed into law H.R. 3590 , the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148 ), as passed by the Senate on December 24, 2009, and the House on March 21, 2010. PPACA, among other changes, modified Medicaid and the Children's Health Insurance Program (CHIP) statutes. On March 21, 2010, the House passed an amendment in the nature of a substitute to H.R. 4872 , the Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152 ). After being passed by the House, HCERA was subsequently amended and passed by the Senate before being approved again by the House on March 25, 2010. HCERA was signed by the President on March 30, 2010. HCERA, which amends PPACA, combined with PPACA to form the health care reform law. HCERA includes the following two titles: (1) Coverage, Medicare, Medicaid, and Revenues, and (2) Education and Health. Title I contains provisions related to health care and revenues, including modifications made to PPACA. Title II includes amendments to the Higher Education Act of 1965, which authorizes most of the federal programs involving postsecondary education, and other health amendments, which include other changes to PPACA. The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JTC) issued a revised cost estimate on March 20, 2010, for enacting both H.R. 3590 (now PPACA) and HCERA with a manager's amendment. CBO estimated that PPACA and HCERA together will reduce federal budgets deficits by $143 billion over the 2010-2019 period as a result of changes in direct spending and revenue. CBO's $143 billion estimate is composed of $124 billion in expenditure reductions and revenue from health care provisions and $19 billion in spending reductions from education. CBO previously had issued a preliminary cost estimate for PPACA and HCERA. In CBO's preliminary estimate, PPACA and HCERA would have reduced federal deficits by $138 billion (for health care and education) over the 2010-2019 period. CBO and JTC previously estimated that H.R. 3590 by itself would yield a net reduction in federal deficits of $118 billion over the 2010-2019 period. This report provides a brief summary of PPACA followed by a discussion of the modifications made by HCERA to the Medicaid and CHIP provisions in PPACA. PPACA consists of 10 titles that cover a variety of topics. In general, this law extends health insurance coverage to many currently uninsured Americans. It also has provisions to reduce expenditures, increase care coordination, encourage more use of health prevention, and improve quality of care. PPACA will reform the private health insurance market, impose a mandate for most legal U.S. residents to obtain health insurance, establish health insurance "Exchanges" that will subsidize health insurance coverage for eligible individuals; expand Medicaid eligibility; address healthcare workforce issues; and implement a number of other Medicaid and Medicare program and federal tax code changes. Key Medicaid and CHIP provisions in PPACA are summarized below. E ligibility-related reforms. PPACA will require states to expand Medicaid to certain individuals who are under age 65 with income up to 133% of the federal poverty level (FPL). This reform not only expands eligibility to a group who is not currently eligible for Medicaid (low income childless adults), but also raises Medicaid's mandatory income eligibility level for certain existing groups from 100% to 133% of the FPL. M aintenance of effort provisions . PPACA will require states to maintain current Medicaid and CHIP coverage levels—through 2013 for adults and 2019 for children. O utreach and enrollment provisions. PPACA includes provisions to encourage states to improve outreach, streamline enrollment, and coordinate with the proposed American Health Benefit Exchanges (Exchange). B enefit reforms . PPACA will add new mandatory and optional benefits to Medicaid. Such mandatory benefits include premium assistance for employer-sponsored health insurance, coverage of free-standing birth clinics, and tobacco cessation services for pregnant woman. The law also authorizes states to offer new optional benefits such as preventive services for adults, health homes for persons with chronic conditions, and additional options for states to expand home- and community-based services as an alternative to institutional care. F inancing reforms . PPACA introduces measures to reduce the growth of Medicaid expenditures and increases federal matching payments for the eligibility expansions. C ost control reforms . Some of the PPACA's cost control measures include (1) proposed reductions in Medicaid disproportionate share hospital (DSH) payments, (2) expenditure reductions for prescription drugs, and (3) payment reforms to reduce inappropriate hospital expenditures for health care-acquired conditions. P rogram integrity reforms. PPACA creates enforcement and monitoring tools and imposes new data reporting and oversight requirements on states and providers. States will also be required to implement initiatives used by the Medicare program, such as a national correct coding initiative and a recovery audit contract program for their Medicaid programs. N ursing home accountability . PPACA adds a number of requirements to improve the transparency of information within facilities and chains, as well as provides long-term care (LTC) consumers with information on the quality and performance of nursing homes. D emonstrations, pilot programs, and grants. PPACA will provide the Secretary of the Department of Health and Human Services (the Secretary) and state Medicaid and CHIP programs with opportunities to test models for improving the delivery, quality, and payment of services. CHI P - related provisions . PPACA requires states to maintain the current CHIP structure through FY2019, but does not provide federal CHIP appropriations beyond FY2013. M iscellaneous Medicaid and CHIP reforms. PPACA adds several offices within the Centers for Medicare and Medicaid Services (CMS) to better coordinate care across the Medicare and Medicaid/CHIP programs. One of these offices will be dedicated to improving coordination for beneficiaries eligible for both Medicare and Medicaid (dual eligibles). Another will add a Medicare and Medicaid Innovation Center to develop and test new payment and service delivery models to reduce Medicare, Medicaid, and CHIP expenditures, while preserving and enhancing quality of care for beneficiaries. The health care-related provisions in Title I of the HCERA modifies selected provisions in PPACA. What follows is a brief discussion of these Medicaid and CHIP-related changes. Each section contains a brief description of existing Medicaid law and related background, an explanation of the provision in PPACA, and a discussion of the changes enacted under HCERA. To qualify for Medicaid, an individual must meet both categorical (i.e., must be a member of a covered group such as children, pregnant women, families with dependent children, the elderly, or the disabled) and financial eligibility requirements. Generally, Medicaid's financial requirements place limits on the maximum amount of income, and also sometimes, assets, that individuals may possess to participate. Additional guidelines specify how states should calculate these amounts. The specific income and asset limitations that apply to each eligibility group are set through a combination of federal parameters and state definitions. Consequently, these standards vary across states, and different standards apply to different population groups within states. Of the approximately 50 different eligibility "pathways" into Medicaid, some are mandatory while others may be covered at state option. The federal government's share of Medicaid costs is determined by a formula in statute. This formula, referred to as the federal medical assistance percentage (FMAP), provides higher reimbursement to states with lower per capita income relative to the national average (and vice versa). FMAPs have a statutory minimum of 50% and a maximum of 83%, although some Medicaid services receive a higher federal match rate. In February 2009, with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ), states received temporary enhanced FMAP rates for nine fiscal quarters beginning with the first quarter of FY2009 and running through the first quarter of FY2011 (December 31, 2010). Subject to specified requirements, PPACA requires states to make eligible for Medicaid qualifying individuals with income up to 133% of the FPL beginning in 2014, among other mandatory expansions. Under this law, "newly eligible" individuals will be defined as non-elderly, non-pregnant individuals (e.g., childless adults, and certain parents), who are otherwise ineligible for Medicaid under prior law. As a conforming measure, PPACA also will change the mandatory Medicaid income eligibility level for children age 6 to 19 from 100% FPL to 133% FPL (as previously applied to children under age 6). Income eligibility for individuals in the "newly eligible" population, other non-elderly individuals eligible under prior law (subject to certain exceptions), and certain CHIP eligible individuals will be based on modified gross income (MGI), or in the case of families, the household income. "Newly eligible" individuals will receive either benchmark or benchmark-equivalent coverage consistent with the requirements of Section 1937 of the Social Security Act (SSA)—excluding the "newly eligible" who meet the definition of exempted populations under this section, such as blind or disabled persons, and hospice patients, for example. Under PPACA, states will receive 100% FMAP for the cost of care provided to "newly eligible" populations, from 2014 through 2016. Beginning in 2017, all states except Nebraska will have an FMAP lower than 100% for "newly eligibles'' and will be grouped in the following two categories: (1) expansion states (those that, as of December 1, 2009, had statewide Medicaid coverage for parents and childless adults up to 100% FPL); and (2) non-expansion states. Subject to a ceiling of 95%, for "newly eligible beneficiaries," expansion states will receive a 30.3 percentage point increase over their regular FMAP for 2017, a 31.3 percentage point increase over their regular FMAP for 2018, and a 32.3 percentage point increase for 2019, and thereafter. (See Table 1 for a summary of these annual federal financial participation rates for new eligibles under PPACA and HCERA.) Expansion states that do not get any additional FMAP (because no individuals qualified as "newly eligible" due to the states' prior Medicaid expansions), and that had not been granted a Secretary-approved diversion of DSH payments toward Medicaid coverage (effective in July 2009) will receive a 2.2 percentage point increase to their regular FMAP for existing Medicaid eligibility groups, between January 1, 2014, and September 30, 2019. Finally, under PPACA, between January 1, 2014, and December 31, 2016, a state can receive a 0.5 percentage point increase to its regular FMAP rate for existing Medicaid eligibility groups if the following two conditions are met: (1) it is a state that did not get any additional FMAP (because no individuals qualify as "newly eligible" due to the state's prior Medicaid expansions); and (2) it ranked as the state with the highest percentage of insured individuals in 2008 based on the Current Population Survey (CPS) (i.e., Massachusetts). HCERA (Sec. 1201-1202) makes the following modifications to the financing portion of the eligibility provisions in PPACA: FMAP rates for the cost of care provided to "newly eligible" populations for all states (i.e., expansion and non-expansion states) would be equal to 100% in 2014-2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% in 2020 and beyond (see Table 1 ). The provision in PPACA that provides the state of Nebraska with a permanent FMAP rate of 100% for "newly eligibles'' was repealed. The length of time that specified expansion states would receive a 2.2 percentage point increase to their regular FMAP for existing Medicaid eligibility groups, was shortened from January 1, 2014, through September 30, 2019, to January 1, 2014, through December 31, 2015. The Massachusetts-specific 0.5 percentage point increase in FMAP for the period between January 1, 2014, and December 31, 2016, was repealed. Expansion states will receive an increase above their regular FMAP rate for the cost of care provided to currently eligible childless adults. The amount of the increase will be a certain percentage (i.e., a transition percentage) of the difference between the state's regular FMAP and the FMAP it received for "newly eligibles" (see Table 1 ). Generally, Medicaid's financial requirements place limits on the maximum amount of income, and also sometimes, assets, that individuals may possess to participate. Additional guidelines specify how states should calculate these amounts. The specific income and asset limitations that apply to each eligibility group are set through a combination of federal parameters and state definitions. Consequently, these standards vary across states, and different standards apply to different population groups within states. Under PPACA, certain income disregards (i.e., expenses such as child care costs or block of income disregards where a specified portion of family income is not counted), and assets or resource tests will no longer apply when assessing an individual's income to determine financial eligibility for Medicaid. Instead, income eligibility for newly eligible individuals, non-elderly individuals eligible under prior law (subject to certain exceptions), as well as certain CHIP eligible individuals will be based on Modified Gross Income (MGI), or in the case of an individual in a family greater than one, the household income of such family. MGI and household income will also be used to determine applicable premium and cost-sharing amounts under the state plan or waiver. MGI is defined as gross income decreased by trade and business deductions, losses from sale of property, and alimony payments, but including tax-exempt interest and income earned in the territories and by U.S. citizens or residents living abroad. Medicaid enrollees who otherwise would lose coverage because of the change in income-counting will be able to maintain eligibility. Under HCERA (Sec. 1004), income eligibility for newly eligible individuals, non-elderly individuals eligible under prior law (subject to certain exceptions), as well as certain CHIP eligible individuals will be based on modified adjusted gross income (MAGI), or in the case of an individual in a family greater than one, the household income of such family. MAGI and household income will also be used to determine applicable premium and cost-sharing amounts under the state plan or waiver. MAGI is defined as the Internal Revenue Code's (IRC's) Adjusted Gross Income (AGI), which reflects a number of deductions, including trade and business deductions, losses from sale of property, and alimony payments, increased by tax-exempt interest and income earned by U.S. citizens or residents living abroad. Although PPACA prohibits any continued use of income disregards under Medicaid once the new income definitions are in place, the reconciliation bill (Sec. 1004(e)) will require states determining individuals' Medicaid eligibility under MAGI to reduce their countable income by a certain amount. That amount will be 5% of the upper income limit for that Medicaid eligibility pathway. State Medicaid plans must provide methods and procedures to assure that payments are consistent with efficiency, economy, and quality of care, and are sufficient to enlist enough providers so that care and services are available at least to the extent that such care is available to the general population in the geographic area. Additional requirements regarding payment rates under Medicaid apply to inpatient hospital and long-term care facility services. However, within these guidelines, states have considerable flexibility to set provider reimbursement rates independent of any national baseline or reference. PPACA did not have a provision addressing payments to primary care providers. However, there was a provision in the Affordable Health Care for America Act ( H.R. 3962 ), the health reform bill passed by the House. HCERA (Sec. 1202) will add similar language to PPACA. States will be required to set Medicaid payments for primary care services (i.e., evaluation and management or E&M services defined by Medicare as of December 31, 2009, and as subsequently modified by the Secretary, and services related to immunization administration for vaccines and toxoids) relative to Medicare payment rates. Primary care services furnished in 2013 and 2014 by a physician with a primary specialty designation of family medicine, general internal medicine, or pediatric medicine will be paid at the Medicare rate for these services or higher (or if greater, the Medicare 2009 payment rate that will be applicable). With respect to Medicaid managed care, the bill also will require that, in the case of E&M services, these new payment rates will apply, regardless of the manner in which such payments are made, including in the form of capitation or partial capitation (e.g., payments made on a "per member per month" basis, rather than for each specific unit of service delivered). For services furnished in 2013 and 2014, the federal government will fully finance the portion of primary care service payments by which the new minimum payment rates exceed the state's existing payment rates as of July 1, 2009. That is the federal FMAP percentage for the additional costs born by a state will equal 100%. Under Medicaid, states are required to make disproportionate share hospital (DSH) adjustments to the payment rates of hospitals treating large numbers of low-income and Medicaid patients. The DSH provision is intended to recognize the disadvantaged situation of those hospitals. In claiming federal matching dollars, states cannot exceed their state-specific allotment amounts, calculated for each state based on a statutory formula. States must define, in their state Medicaid plans, hospitals that qualify as DSH hospitals and their DSH payment formulas. DSH hospitals must include at least all hospitals meeting minimum criteria and may not include hospitals that have a Medicaid utilization rate below 1%. The DSH payment formula also must meet minimum criteria, and DSH payments for any specific hospital cannot exceed a hospital-specific cap based on the unreimbursed costs of providing hospital services to Medicaid and uninsured patients. In determining federal DSH allotments for states, special rules apply to "low DSH states" (those in which total DSH payments for FY2000 were less than 3% of the state's total Medicaid spending on benefits). For low DSH states for FY2004 through FY2008, the allotment for each of these years was equal to 16% more than the prior year's amount. For years beginning in FY2009, DSH allotments for all states are equal to the prior year amount increased by the change in the consumer price index for all urban consumers (CPI-U). For FY2009, federal DSH allotments across states and the District of Columbia totaled to nearly $10.6 billion. Provisions under ARRA provided additional temporary DSH funding for states that increases total federal DSH allotments to nearly $10.9 billion. PPACA reduces federal DSH allotments to states based on changes (reductions) in state-specific uninsurance rates over time. State DSH allotments will remain intact as under current law until a state uninsurance level is reached. This level will be initially reached the first fiscal year after FY2012 for which a state's uninsured rate, as measured by the Census Bureau's American Community Survey, decreases by at least 45%, compared to an initial baseline uninsured rate for FY2009. Once this level is reached, reductions in DSH allotments will depend on a state's status as a low DSH state and spending patterns in comparison to a benchmark (over or under 99.90% of the state's average DSH allotments) during a base five-year period (FY2004 through FY2008). These reductions will be 17.5% (over the spending benchmark) or 25% (under the spending benchmark) for low DSH states versus 35% (over the spending benchmark) or 50% (under the spending benchmark) for all other states. For subsequent years, if a state's uninsurance rate decreases further, the state's DSH allotment will be further reduced, again depending on a state's status as a low DSH state and its spending patterns during the base five-year period. In general, these reductions will be equal to the product of the percentage reduction in uncovered individuals and 20% (over the spending benchmark) or 27.5% (under the spending benchmark) for low DSH states versus 40% (over the spending benchmark) or 55% (under the spending benchmark) for all other states. For FY2013 forward, in no case will a state's DSH allotment be less than 50% of the state's FY2012 allotment, increased by the percentage change in the CPI-U for each previous year occurring before the fiscal year. Table 2 summarizes the DSH provisions in PPACA. Under HCERA, the provision (Sec. 1203) strikes the language in PPACA and requires the Secretary to make aggregate reductions in Medicaid DSH allotments that would equal $500 million in FY2014, $600 million in FY2015, $600 million in FY2016, $1.8 billion in FY2017, $5.0 billion in FY2018, $5.6 billion in FY2019, and $4.0 billion in FY2020. To achieve these aggregate reductions, the Secretary will be required to: (1) impose the largest percentage reduction on states that have the lowest percentage of uninsured individuals (determined on the basis of data from the Bureau of the Census, audited hospital cost reports, and other information likely to yield accurate data) during the most recent fiscal year with available data, or do not target their DSH payments to hospitals with high volumes of Medicaid patients, and hospitals that have high levels of uncompensated care (excluding bad debt); (2) impose a smaller percentage reduction on low DSH states; and (3) take into account the extent to which the DSH allotment for a State was included in the budget neutrality calculation for a coverage expansion approved under Section 1115 as of July 31, 2009. For each fiscal year, these reductions in DSH allotments will be applied on a quarterly basis. For a state with a DSH allotment of $0 in the second, third and fourth quarters of FY2012, the provision will set that state's DSH allotments at $47.2 million, and for a state with a DSH allotment of $0 in FY2013, the provision will set that state's DSH allotment at $53.1 million. The federal share for most Medicaid service costs is determined by the FMAP, which is based on a formula that provides higher reimbursement to states with lower per capita income relative to the national average (and vice versa). FMAPs have a statutory minimum of 50% and maximum of 83%. In the territories, the FMAP is typically set at 50%. Medicaid programs in the five territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands) are subject to annual federal spending caps that are set in statute. The Congress has increased the levels of federal Medicaid funding in the territories in recent years. For FY2008 and subsequent fiscal years, the total annual cap on federal funding for the Medicaid programs in the territories is calculated by increasing the FY2007 ceiling for inflation. The territories also benefited from a temporary 30% increase in their Medicaid spending caps as a result of the FMAP assistance provided under ARRA. The territories also have access to other sources of federal matching funds; for example, they may be eligible for enhanced federal match (90% or 75%) that is available under Medicaid for improvements in data reporting systems. Beginning with FY2009, funds spent on specified administrative activities will not count against the Medicaid caps. PPACA increases the spending caps for the territories by 30% for the second, third, and fourth quarters of FY2011, and for each full fiscal year thereafter. The law also increases the applicable FMAP by five percentage points—to 55%—beginning January 1, 2011, and for each full fiscal year thereafter. Beginning in fiscal year 2014, payments made to the territories for medical assistance for "newly eligible" individuals will not count towards territories' applicable Medicaid spending caps. In the case of the territories, the provision defines "newly eligible" individuals as non-pregnant childless adults who are eligible under the new Medicaid mandatory eligibility group and whose modified gross income or household income does not exceed the income eligibility level in effect for parents under each such commonwealth or territory's state plan or waiver as of the date of enactment of the bill. HCERA (Sec. 1204) strikes the Medicaid provisions related to payment of the territories in PPACA, and permits territories to establish an Exchange (in accordance with the Exchange-related provisions also included in PPACA), not later than October 13, 2013. Out of funds not otherwise appropriated, $1.0 billion is appropriated for the period between 2014 and 2019 for the purpose of providing premium and cost-sharing assistance to residents of the territory to obtain health insurance coverage through the Exchange. Of this amount, the Secretary is to allocate $925 million for Puerto Rico, and a portion (as specified by the Secretary) of the remaining $75 million for any other territory that chooses establish an Exchange. Under this provision, territories are to be treated as states and required to structure their Exchanges in a manner so there is no gap in assistance between individuals eligible for Medicaid and those eligible for premium and cost-sharing assistance. Also under HCERA, territories that do not elect to establish an Exchange as of the specified date are entitled to an increase in their existing Medicaid funding caps. For the period between July 1, 2011, and September 30, 2019, $6.3 billion dollars in total additional payments are available for distribution among each territory across each such year in an amount that is proportional to the capped amounts available to the territories under current law. Current law rules regarding funds spent on specified administrative activities will apply, and the provision is effective July 1, 2011. A personal care attendant provides assistance with activities of daily living (ADLs) and instrumental activities of daily living (IADLs) to persons with a significant disability. ADLs and IADLs include activities such as eating, bathing and showering, using the toilet, preparing meals, managing money, and shopping for groceries, among others. States have the option to cover personal care services, including personal care attendant services, under a variety of optional state plan benefits. Under PPACA, states can offer home and community-based attendant services as an optional state plan benefit to Medicaid beneficiaries whose income does not exceed 150% of poverty, or if greater, the income level applicable for an individual who has been determined to require the level-of-care offered in an institution. This provision would be effective beginning October 1, 2010. However, under HCERA (Sec. 1205), this provision becomes effective on October 1, 2011. Outpatient prescription drugs are an optional Medicaid benefit, but all states cover prescription drugs for most beneficiary groups. Medicaid law requires prescription drug manufacturers who wish to sell their products to Medicaid agencies to agree to pay rebates to states for outpatient drugs purchased on behalf of Medicaid beneficiaries. Medicaid differentiates between the following two types of drugs when determining rebates: 1. single source innovator drugs (generally, those still under patent) and innovator multiple source drugs (originally marketed under a patent or an original new drug application, but for which there now are therapeutically or pharmaceutically equivalent products); and 2. all other, non-innovator, multiple source drugs. Rebates for drugs still under patent or those once covered by patents have two components: a basic rebate and an additional rebate. Medicaid's basic rebate is determined by the larger of a drug's quarterly Average Manufacturer Price (AMP) compared to the best price for the same period, or a percentage (15.1%) of the drug's quarterly AMP. Drug manufacturers owe an additional rebate on single source innovator drugs (the first drug category mentioned above) when their unit prices for individual products increase faster than inflation. PPACA requires manufacturers to pay additional rebates to Medicaid for certain new formulations of existing single source or innovator multiple source drugs. For these new drug formulations, referred to as line extensions, drug manufacturers will pay the additional rebate based on a new formula. Similar to the House health reform bill, H.R. 3962 , HCERA (Sec. 1206) will limit the definition of line extension drugs to oral solid dosage forms of single source or innovator multiple source drugs. PPACA also modifies the definition of Average Manufacturer Price (AMP). Among other changes to AMP, this law specifically excludes a wide range of rebates, discounts, price concessions, and service fees extended by manufacturers to wholesalers, retail community pharmacies, and other large volume purchasers. Under the reconciliation bill, the definition of AMP will be further modified to exclude discounts paid by manufacturers to Medicare Part D plans. The effect of excluding the Medicare Part D discounts, as well as other price concessions will be make the calculation of AMP more closely reflect the actual real average cost of outpatient prescription drugs. HCERA did not amend the Medicaid prescription drug provisions. Program integrity (PI) initiatives are designed to combat waste, fraud, and abuse. This includes processes directed at reducing improper payments, as well as activities to prevent, detect, investigate, and ultimately prosecute health care fraud and abuse. More specifically, PI ensures that correct payments are made to legitimate providers for appropriate and reasonable services for eligible beneficiaries. Congress provided additional dedicated funding for Medicaid program integrity activities in the Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ). Under DRA, among many other changes, Congress established a Medicaid Integrity Program (MIP) that included annual appropriations reaching $75 million. This MIP funding was to support and enhance state PI efforts by expanding and sustaining national PI activities in the areas of provider audits, overpayment identification, and payment integrity and quality of care education. PPACA increased funding to the Health Care Fraud and Abuse Control (HCFAC) account. HCFAC funds are used for a number of health care fraud and abuse activities, but the majority of the funding goes to Medicare activities. HCERA (Sec. 1304) further increases those HCFAC account funds, bringing them up to the levels proposed in the House health care reform bill ( H.R. 3962 ). In addition, HCERA increases Medicaid Program Integrity funds by indexing MIP funds to annual changes in the consumer price index, beginning with fiscal year 2010. | On March 23, 2010, the President signed into law H.R. 3590, the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), as passed by the Senate on December 24, 2009, and the House on March 21, 2010. PPACA will, among other changes, modify Medicaid and the Children's Health Insurance Program (CHIP) statutes. In addition, on March 21, 2010, the House passed an amendment in the nature of a substitute to H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152). After being passed by the House, HCERA was subsequently amended and passed by the Senate before being approved again by the House on March 25, 2010. HCERA was signed by the President on March 30, 2010. HCERA, which amends PPACA, combined with PPACA form the health care reform law. HCERA includes the following two titles: (1) Coverage, Medicare, Medicaid, and Revenues, and (2) Education and Health. Title I contains provisions related to health care and revenues, including modifications made by HCERA to PPACA. Title II includes amendments to the Higher Education Act of 1965, which authorizes most of the federal programs involving postsecondary education, and other health amendments, which include other changes to PPACA. This report provides a brief summary of PPACA followed by a discussion of the modifications made to the Medicaid and CHIP provisions by HCERA. This report reflects legislative language in HCERA as passed by the House on March 25, 2010. Selected highlights of the Medicaid and CHIP amendments made by HCERA to PPACA include the following: primary care physician payment rates for selected patient treatments were increased; the definition of the average manufacturer price (AMP) was revised to help make AMP more closely reflect manufacturers' average prices; the effective date of the Community First Choice Option was delayed; state FMAP rates for newly eligible populations were changed, as were income counting rules for certain populations; the territories' spending rate caps were increased beginning with the second quarter of FY2011; additional program integrity funding was provided through indexing of the Medicaid Integrity Program for fiscal years beginning with FY2010; and Medicaid Disproportionate Share Hospital (DSH) payment reductions were modified. |
International medical graduates (IMGs) are foreign nationals or U.S. citizens who graduate froma medical school outside of the United States. In 2002, the most recent year for which data areavailable, there were 853,187 practicing physicians in the United States. IMGs accounted for 24.7%(210,355) of these, and 27.4% (26,588) of physicians in residency and fellowship programs. (1) Theuse of foreign IMGs in many rural communities of the United States areas has allowed states toensure the availability of medical care to their residents. This report focuses on those IMGs who are foreign nationals, hereafter referred to as foreign medical graduates (FMGs). Many FMGs first entered the United States to receive graduate medicaleducation and training as cultural exchange visitors through the J-1 cultural exchange program. Other ways for FMGs to enter the United States include other temporary visa programs as well aspermanent immigration avenues such as family- or employment-based immigration, the diversitylottery, and humanitarian relief provisions. (2) Thisreport focuses on FMGs entering through the J-1program. Many FMGs enter the United States under the current Educational and Cultural ExchangeVisitor Program on a J-1 nonimmigrant visa. (3) Nonimmigrants are admitted for a specific purposeand a temporary period of time. Most nonimmigrant visa categories are defined in �101(a)(15) ofthe Immigration and Nationality Act (INA). These visa categories are commonly referred to by theletter and numeral that denotes their subsection in �101(a)(15), e.g., B-2 tourists, E-2 treatyinvestors, F-1 foreign students, H-1B temporary professional workers, or J-1 cultural exchangeparticipants. (4) The J-1 visa includes nonimmigrantssuch as professors, students, au pairs, researchscholars, camp counselors, and foreign medical graduates. Table 1 provides data on the number of physicians in residency programs as of August 2003. As the table indicates, J visa holders make up 15.8% of IMGs in residency programs. Table 1. Citizenship/Visa Status of Physicians and International Medical Graduates in Residency Programs, August 1, 2003 Source: CRS presentation of data presented in S. Brotherton, P. Rockey, and S. Etzel, "U.S. Graduate Medical Education, 2003-2004," JAMA , vol. 292, no. 9, Sept. 1, 2004. a. A J-2 nonimmigrant is the spouse or child of a J-1 nonimmigrant. As exchange visitors, FMGs can remain in the United States on a J visa until the completion of their training, typically for a maximum of seven years. After that time, they are required to returnhome for at least two years before they can apply to change to another nonimmigrant status or legalpermanent resident (LPR) status. Under current law, a J-1 physician can receive a waiver of thetwo-year home residency requirement in several ways: the waiver is requested by an interested government agency (IGA); the FMG's return would cause extreme hardship to a U.S. citizen or LPRspouse or child; or the FMG fears persecution in the home country based on race, religion, orpolitical opinion. Most J-1 waiver requests are submitted by an IGA and forwarded to the Department of State for a recommendation. If the Department of State recommends the waiver, it is forwarded to U.S.Citizenship and Immigration Service (USCIS) in the Department of Homeland Security (DHS)forfinal approval. (5) Upon final approval by USCIS, thephysician's status is converted to that of anH-1B professional specialty worker, and the individual is counted against the annual H-1B cap of65,000. In instances where the H-1B cap has been met, the physician's J visa status may beextended, and the physician would be granted H-1B status in the following year. An IGA may request a waiver of the two-year foreign residency requirement for an FMG by showing that his or her departure would be detrimental to a program or activity of official interestto the agency. In return for sponsorship, the FMG must submit a statement of "no objection" fromhis or her home country, have an offer of full-time employment, and agree to work in a healthprofessional shortage area or medically underserved area for at least three years. According toUSCIS regulations, the FMG must be in H-1B status while completing the three-year term and mustagree to begin work within 90 days of receipt of the waiver. If an FMG fails to fulfill the three-yearcommitment, he or she becomes subject to the two-year home residency requirement and may notapply for a change to another nonimmigrant, or LPR status until meeting that requirement. Althoughany federal government agency can act as an IGA, the main federal agencies that have been involvedin sponsoring FMGs are the Department of Veterans Affairs (VA), the Department of Health andHuman Services (HHS), the Appalachian Regional Commission (ARC), and the United StatesDepartment of Agriculture (USDA). (6) State healthdepartments may also act as IGAs. Department of Veterans Affairs (VA). The Department of Veterans Affairs allows facility directors to request J-1 waivers in instances whereit is in the interest of the Department and its programs, and efforts to recruit a qualified U.S. citizenor LPR have failed. The facility director must supply documentation of recruitment efforts anddetailed information on applicants who did not qualify for the position. In order for the VA toconsider a waiver application, the applicant must submit copies of his or her medical license, visa,test results, proposed and current clinical privileges, references, curriculum vitae, and current addressand phone numbers. Once a waiver has been approved, the physician must serve for at least threeyears in a VA facility. The facility does not have to be in a designated shortage area. Department of Health and Human Services (HHS). Historically, the Department of Health and Human Services had been veryrestrictive in its sponsorship of J-1 waiver requests. HHS emphasized that the exchange visitorprogram was a way to pass advanced medical knowledge to foreign countries, and that it should notbe used to address medical underservice in the United States. (7) HHS' position was that medicalunderservice should be addressed by programs such as the National Health Service Corps. Prior toDecember 2002, HHS only sponsored waivers for physicians or scientists involved in biomedicalresearch of national or international significance. In December 2002, HHS announced that it wouldbegin sponsoring J-1 waiver requests for primary care physicians and psychiatrists in order toincrease access to healthcare services for those in underserved areas. (8) HHS began accepting waiverapplications on June 12, 2003, but suspended its program shortly after for reevaluation. OnDecember 10, 2003, HHS released new program guidelines, which many maintain are morerestrictive and have limited the states' access to physicians. Appalachian Regional Commission (ARC). Established by Congress in 1965, ARC is a joint federal and state entity charged with, among otherthings, ensuring that all residents of Appalachia have access to quality, affordable health care. Theregion covered by ARC consists of all of West Virginia and parts of Alabama, Georgia, Kentucky,Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee,and Virginia. ARC submits a request for a waiver at the request of a state in its jurisdiction. The waiver must be recommended by the governor of the sponsoring state. In return, the FMG must agree to provideprimary care for at least 40 hours a week for three years at a health professional shortage area facility. The facility must be a Medicare or Medicaid-certified hospital or clinic that also accepts medicallyindigent patients. The facility must prove that it has made a good faith effort to recruit a U.S.physician in the six months preceding the waiver application, and the J-1 physician may not havebeen out of status for more than six months after receiving the J-1 visa. In addition, the physicianmust be licensed by the state in which he or she will be practicing, and must have completed aresidency in family medicine, general pediatrics, obstetrics, general internal medicine, generalsurgery, or psychiatry. The physician must sign an agreement stating that he or she will comply withthe terms and conditions of the waiver, and will pay the employer $250,000 if he or she does notpractice in the designated facility for three years. United States Department of Agriculture (USDA). To help medically underserved rural areas, USDA became a participant in the J-1 waiver programin 1994. It ceased its participation in 2002. While participating in the J-1 waiver program, USDAsponsored over 3,000 waivers for J-1 physicians. As a participant it required that all applicationssubmitted be initiated by a health care facility or state department of health. To qualify for aUSDA-sponsored waiver, the physician was required to have an employment offer of no less thanthree years from a health care facility in a designated medically underserved rural area, and wasrequired to work at least 40 hours a week as a primary care physician. Following the September 11, 2001 terrorist attacks, the USDA Office of the Inspector General recommended that USDA review its participation in the J-1 waiver program. On September 26,2001, the processing of waiver applications was suspended pending the outcome of the review. Asa part of this review, USDA forwarded seven pending applications to the Department of State forscreening. Three of the applicants turned up on government watch lists. On February 28, 2002, USDA officially announced it would no longer participate in the J-1 visa waiver program citingsecurity concerns and the inability to conduct adequate background and site checks. (9) In March 2002, the USDA returned 86 waiver applications to 25 states. (10) On April 16, 2002,USDA announced it would act as a temporary IGA to process the 86 pending waiver applicationsit had returned and ceased its participation in the program. "Conrad 20" Program for States. In 1994, Congress established a J-1 visa waiver provision commonly referred to as the "Conrad 20" programafter its sponsor Senator Kent Conrad. Under this program, participating states were allowed tosponsor up to 20 waiver applications annually. In 2001, 45 states and the District of Columbia participated in "Conrad 20" programs. Of the states participating in "Conrad 20" programs at the time, 22 sponsored specialists in addition toprimary care physicians. (11) Administration of theprogram varied by state, with three states chargingapplication fees and one state requiring a commitment of at least four years. In addition to meetingthe general requirements for medical licensing in the United States, participants were also requiredto meet state-specified licensing criteria before beginning work. HHS Policy Change. On December 17, 2002,HHS announced it would be broadening its J-1 waiver program. HHS would assume the former roleof USDA by acting as an IGA sponsor for waivers for primary care physicians and psychiatrists. These physicians would be required to practice in designated shortage areas for a minimum of threeyears in return for HHS sponsorship. Eligibility to apply for HHS wavier requests is limited toprimary care physicians and general psychiatrists who have completed their primary care orpsychiatric residency training programs no more than 12 months prior to the commencement ofemployment. (12) This eligibility limitation wasinstituted to ensure that the physicians' training iscurrent and that they are not engaged in sub-specialty care. Under the new program, HHS also allows physicians who have departed from the United States to apply for waivers while abroad. This must be done within the 12-month period following thecompletion of their residency training program. Other requirements include the following: astatement from the applicant that he or she does not have pending and will not submit other IGArequests while HHS processes the waiver request; the head of the petitioning facility must confirmthat the facility is located in a designated shortage area; and the employment contract must requirethe physician to practice a specific primary care discipline for a minimum of three years for 40 hoursa week. (13) On June 12, 2003, HHS began accepting applications for J-1 waivers, for primary care physicians to practice in Health Professional Shortage Areas (HPSA) or Medically UnderservedAreas (MUA). (14) However, on December 10,2003, HHS issued more restrictive guidelines, requiringphysicians to work in either Federally Qualified Health Centers, Rural Health Clinics or IndianHealth Service Clinics. In addition to these requirements, the clinics had to be in areas with HPSAscores of 14 or above. According to many states, this new policy drastically reduced the number of communities that qualified for J-1 physicians. Texas reported that under these new guidelines, the number of wholeor partial counties that once qualified for J-1 physicians was reduced from 225 to 30. Other statesthat were adversely impacted include Iowa, which dropped from 82 previously eligible counties to2, Wyoming, which dropped from 21 to 4, Kansas, which dropped from 97 to 15, and Florida, whichdropped from 63 to 30. (15) Bills introduced in the108th Congress have focused on this issue and haveincluded language that would allow states to place up to five physicians in facilities that may not bein HHS-designated shortage areas if they are serving patients from designated shortage areas. Thesebills also allow states to recruit speciality care physicians if they can demonstrate a shortage ofhealthcare professionals to provide services in the requested medical specialty. Delta Regional Authority. On May 17, 2004, the Delta Regional Authority (DRA) officially began accepting applications for its new J-1 visa waiverprogram. The DRA includes 240 county or parish areas in Alabama, Arkansas, Illinois, Kentucky,Louisiana, Mississippi, Missouri and Tennessee. The goal of the Authority is to stimulate economicdevelopment and foster partnerships that will have a positive impact on the economy of the eightstates that make up the Authority. Under the DRA's waiver program, physicians must submit anapplication processing fee; agree to practice in designated shortage areas for a period of at least threeyears; and sign an agreement agreeing to pay $250,000 to the sponsoring facility if they do not fulfillany portion of their commitment, or $6,945 per month for each month they fail to fulfill theirrequirement. Expiration of "Conrad 30" Program. On May 31,2004, the "Conrad 30" provisions in the INA expired. The expiration of this program means thatstate-sponsored waivers can only be granted to J-1 physicians who were admitted to the UnitedStates, or who had acquired J-1 status, prior to June 1, 2004. (16) The expiration of these J-1 waiverprovisions, along with the changes in HHS's program have many in rural medical communitiesconcerned. Many states continue to argue that the J-1 waiver program is the only way theircommunities can recruit physicians, because many U.S. medical graduates uninterested in workingin these areas. (17) As discussed below, several billshave been introduced in the 108th Congress toaddress the concerns of medically underserved areas that rely on J-1 physicians. State Surveys. In May 2001, the Texas Primary Care Office of the Department of Health conducted a nationwide survey of state health departmentsutilizing J-1 waiver programs. (18) The survey posedspecific questions regarding the administrationof the programs in the states and asked for recommendations on the programs. The responsesindicated that many of the states with "Conrad 20" programs also requested waivers through USDAand ARC, and that those without "Conrad 20" programs utilized the USDA waiver program. Recommendations from the states for the J-1 visa waiver program included the following: allow states to determine the appropriate use of the program; allow states to determine the number of waivers needed based on the needs ofthe states; allow fees to support the program; have HHS coordinate ongoing support and technical assistance;and have the Department of State and USCIS provide information and technicalassistance to the states. Other suggestions included allowing states to share unused waivers, having more interaction with USDA, and having an annual conference involving both federal and state agencies. When USDA announced it would no longer participate in the J-1 waiver program in February 2002, the Texas Primary Care Office conducted a second survey, on the impact of the agency'swithdrawal on states and their use of "Conrad 20." The survey also solicited furtherrecommendations for the program. (19) Of the 49states that responded, 26 indicated that their stateswould be impacted by USDA's decision. Of the 23 states reporting no impact, 17 placed less than20 physicians annually through "Conrad 20," or had no involvement with USDA. In the survey 25states indicated they could place more than 20 physicians, with seven implying they could placemore than 51 physicians. (20) Several statesindicated that they may have to use all 20 availablepositions, but that termination of the USDA program would not change their programs. In July 2003, the Texas Department of Health conducted a review of the "Conrad" programs from 2000-2003 (21) as well as a survey on theeffects of HHS's policy change on the states. (22) Thereview showed that 49 states and the District of Columbia had some sort of "Conrad" program in2003. Idaho was the only state without a program, but was in process of developing one. Thereview also showed that over the four-year period, the "Conrad" programs had requested a total of2,949 waivers, with 758 of those being for sub-specialists. Recommendations for sub-specialistsincreased from 14% of all waiver requests in 2000 to 33.5% in 2003. It should be noted that the"Conrad" programs are the only J-1 vias waiver programs, other than the VA that recommendnon-primary care physicians. Currently, only six states with "Conrad" programs limit theirrecommendations to primary care physicians. The 2003 survey found that of the 45 states that were participating in the program in 2001 and 2002, 22 states had filled all of their 20 slots, and 21 states had requested the additional 10 slotsmade available in early 2003. These additional slots were counted as part of the 2002 totals. In2003, 18 states filled all of their slots, and 15 of the states responded that they could fill anywherefrom 5 to 50 additional slots. (23) When asked to suggest changes to the program, states continued to express an interest in: the re-distribution of unused slots; possibly increasing the number of waivers available to states to 40;making the program permanent; and allowing the state departments of health or programadministrators decide where the physicians would be placed. Several bills have been introduced to address the May 2004 expiration of the "Conrad 30"program. The companion bills H.R. 4156 / S. 2302 , introduced byRepresentative Jerry Moran and Senator Kent Conrad would extend the "Conrad 30" program until2009; allow state public health departments to identify shortage areas; and make physicians whoobtain waivers from the states exempt from the H-1B numerical limit. Both bills were referred totheir respective Judiciary committees in April 2004. On October 11, 2004, the amended version of S. 2302 passed the Senate. The amended bill extends the program until June 1, 2006;exempts waiver recipients from the H-1B cap; allows recruiting of primary and speciality carephysicians; and allows placement of up to five physicians in shortage areas designated by the states. H.R. 4453 was introduced by Representative Jerry Moran on May 4, 2004. The bill as originally introduced would have extended the program for one year and exempted waiverrecipients from the H-1B cap. It passed the House Judiciary Subcommittee on Immigration, BorderSecurity, and Claims on June 3, 2004, and was referred to the full Judiciary committee. On September 30, 2004, Representatives Sheila Jackson-Lee and John Hostettler offered an amendment in the nature of a substitute to H.R. 4453 . The new bill would extend theprogram until June 1, 2006; allow states to recruit specialist as well as primary care physicians;exempt waiver recipients from the H-1B cap; and allow the placement of five physicians instate-designated shortage areas. Historically, some have argued that the J-1 visa waiver program should be made permanent or extended for a number of years to allow an investigation into the use of foreign physicians to meethealthcare shortages and their impact on American physicians. During the committee markup ofH.R. 4453, it was expressed that the purpose of the two-year extension was to allow thesubcommittee time to look into this matter, as well as receive input from HHS regarding theplacement of physicians outside of HHS-designated physician shortage areas. (24) The compromise onthis issue was to allow each state to place 5 of their 30 physicians allowed under the Conrad programin shortage areas determined by the state before making it a permanent provision of the program. On October 6, 2004, H.R. 4453 was debated on the House floor. Several members, including Representatives Sensenbrenner and Moran, urged passage of the bill, citing the program'ssuccess in serving underserved populations in their states. The bill passed the House and wasreferred to the Senate on October 6, 2004. No further action has taken place. On November 17, 2004, S. 2302 was debated and passed by the House. When originally introduced by Senator Kent Conrad on April 7, 2004, the bill would have extended the"Conrad 30" program through June 1, 2009; exempted waiver recipients from the H-1B numericallimit; allowed states to recruit primary and specialty care physicians; and place up to five physiciansin shortage areas determined by the states. In a bipartisan compromise, the Senate-passed versionof S. 2302 would extend the program expiration date to June 1, 2006; exempt recipientsfrom the H-1B numerical limit; allow states to recruit primary as well as specialty care physicians;and allow the placement of up to five physicians in areas that serve populations from HHSdesignated shortage areas without regard to the facility's location. S. 2302 was presentedto the White House on November 22, 2004; and signed into law on December 3, 2004. (25) During the life of the J-1 program, there have been several changes to the home residencyrequirement and the rules regarding the adjustment of status of J-1 participants. When the culturalexchange program was originally established in 1948 by the Smith-Mundt Act, exchange visitorsentered the country as "B" nonimmigrant visitors for business. The program required theparticipants to return to their home country or country of last residence upon completing theireducation and training, did not allow participants to apply for a change of status, and did not providefor waivers. (26) To get around these restrictions,many participants would leave the country only toquickly return to the United States under another nonimmigrant visa or as an immigrant. To addressthese concerns, Congress amended the Smith-Mundt Act in 1956. (27) The 1956 amendments prohibited participants from applying for H nonimmigrant or immigrant status until it had been established that the alien had been present in a cooperating country orcountries for at least two years. The amendments also added a provision for waiving the residencyrequirement when an interested government agency (IGA) and the Secretary of State requested it inthe public interest. In 1961, the Mutual Education and Cultural Exchange Act established the J-1 exchange program as we now know it and further amended the foreign residency requirement of the program. (28) It prevented participants from applying for legal permanent resident (LPR) or H nonimmigrant statusuntil they had resided and been physically present in their home country, their country of lastresidence, or another foreign country for at least two years. The act also added the provision forwaivers to be granted in cases of extreme hardship to a U.S. citizen or LPR spouse or child. In 1970, Congress amended the INA and limited the two-year residency requirement to those J-1 visitors whose participation was financed by their home country, the United States, or aninternational organization of which the United States was a member, or whose skills weredetermined to be lacking in their home country. (29) The 1970 Act further amended the INA to allowwaivers for those J-1s who feared persecution in their home countries based on race, religion, orpolitical opinion, or in cases where it was found to be in the public interest that the alien remain inthe United States. In 1976 Congress imposed restrictions on FMGs in the J-1 program, stating that there was no longer a shortage of physicians in the United States and that there was no longer any need to affordadmission preference under the INA. (30) FMGswere made subject to the two-year home residencyrequirement regardless of who financed their program, their initial J-1 length of stay in the UnitedStates was limited to a maximum of three years, and they were ineligible to receive waivers basedsolely on "no objection" statements from their home country. They were required to make acommitment to return home upon completing training, and the home country was required to providewritten assurance that FMGs would return after completing training and would be put in positionsto fully use the skills acquired during their training. (31) In an effort to encourage physicians to study in the United States instead of Communist countries, the Department of State requested that Congress extend the three-year limit to seven yearsfor FMGs. (32) Congress responded to the StateDepartment request in the Immigration and NationalityAct Amendments of 1981. (33) While extendingthe stay for FMGs, this law also required FMGs toprovide affidavits annually to INS attesting that they would return home upon completing theirprograms, and required U.S. officials to submit annual reports on the status of FMGs who submittedaffidavits. In 1994, Congress passed the Immigration and Nationality Technical Corrections Act, which established a new program that allowed interested states to act as IGAs on behalf of J-1 physicians. (34) This program allowed each state to request waivers for up to 20 physicians annually. Commonlyreferred to as the "Conrad 20" program after its sponsor Senator Kent Conrad, it was originally slatedto end on June 1, 1996. The Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA)extended the "Conrad 20" program until June 1, 2002. (35) On May 31, 2002, the "Conrad 20" program authorization expired. In an effort to assure continued services to medically underserved areas, the program was once again extended by the 21stCentury Department of Justice Appropriations Authorization Act. (36) This law not only extended thedate of the program to May 31, 2004, it also expanded the program to allow each state 30 waiversand enacted the law retroactively to May 31, 2002. This latest extension of the program expired onMay 31, 2004. On December 3, 2004, the "Conrad 30" program was once again extended. The new law extends the program until June 1, 2006 and includes provisions allowing states to recruit primary andspecialty care physicians; exempting waiver recipients from the H-1B numerical limits; and allowingstates to place up to five physicians in areas that serve populations from HHS-designated shortageareas without regard to the facility's location. During the program's two-year extension, Congressplans to investigate the physician shortage and the use of the "Conrad" program. | The Educational and Cultural Exchange Visitor program has become a gateway for foreign medical graduates (FMGs) to gain admission to the United States as nonimmigrants for the purposeof graduate medical education and training. The visa most of these physicians enter under is the J-1nonimmigrant visa. Under the J-1 visa program, participants must return to their home country aftercompleting their education or training for a period of at least two years before they can apply foranother nonimmigrant visa or legal permanent resident (LPR) status, unless they are granted a waiverof the requirement. The J-1 visa waiver program has recently undergone significant change. In February 2002, the United States Department of Agriculture (USDA), which had historically been the largest sponsorof waivers, decided to end its participation as an interested government agency (IGA). Thisdevelopment and the pending expiration of the "Conrad 20" program, which allowed 20 waivers perstate, threatened the continued availability of waivers. These developments raised concerns amongmany in medically underserved areas because it is often difficult for them to find U.S. medicalgraduates willing to practice in these areas. Bills introduced in the 107th Congress proposed changesto the "Conrad 20" program, including expanding the program and making it permanent. In an effort to ensure the continued availability of medical care in underserved areas, the Department of Health and Human Services (HHS) announced it would assume USDA's role as asponsor of J-1 primary care physicians. This was a policy change for HHS which has historicallybeen very restrictive in its sponsorship of waivers. Prior to this announcement, HHS had limitedsponsorship to research physicians and scientists involved in research of international or nationalsignificance. On November 2, 2002, the "Conrad 20" program was extended until 2004 and the number of waivers available to states was increased to 30. This program, which is now referred to as the"Conrad 30"or "State 30" program, expired on June 1, 2004. Several measures, to address the expiration of the "Conrad 30" program were introduced in the108th Congress. On December 3, 2004, S. 2302 became P.L. 108-441 . The new lawextends the program until June 1, 2006; exempts physicians granted waivers from the H-1Bnumerical limits; allows states to hire primary and speciality care physicians; and place up to fivephysicians in shortage areas designated by the state. |
As its name might suggest, t he S upplemental Poverty Measure (SPM) was developed to supplement , but not replace , the official poverty measure by addre ssin g some of its met hodological limitations . T he official measure provides a consistent historical view of poverty in the United States , but t he SPM may be better suited to help ing c ongress ional policymakers and other experts understand how taxes and government programs affect the poor . Also, it may better illustrate how medical expenses and work-related expenses such as child care can affect a family's economic well-being . This report describes the SPM , how it was developed, how it differ s from the official poverty measure , and the insights it can offer . This report will not dis cuss potential consequences of changes to anti-poverty programs, nor will it provide an analys is of poverty trends . The official measure of poverty was developed in the 1960s by Mollie Orshansky, an analyst at the Social Security Administration. It was based on food costs in that decade as well as the share of a family's total budget that was devoted to food according to family budgets in the mid-1950s. The food cost it used was the U.S. Department of Agriculture's (USDA's) Economy Food Plan. A 1955 survey of family consumption determined that about one-third of a family's spending was on food. Thus, the poverty thresholds were developed as three times the cost of the Economy Food Plan, with some adjustments for two-person families and single individuals to account for their higher fixed costs. In the current official measure of poverty, the thresholds developed in the 1960s have been adjusted only for price inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U). Under the official poverty measure, an individual is counted as poor if his or her family's pre-tax money income falls below the poverty threshold. Pre-tax money income excludes the value of government noncash benefits provided either privately or publicly, such as health insurance, Supplemental Nutrition Assistance Program (SNAP) benefits, or housing assistance. It also does not consider taxes paid to federal, state, or local governments, or tax benefits (such as the Earned Income Tax Credit, EITC) that might be received by families. The official poverty measure is computed for the non-institutionalized population. The SPM was designed to address limitations of the official poverty measure. Like the official poverty measure, it is a measure of economic deprivation. It defines poverty status for families and individuals by comparing resources against a measure of need . Measures of need are used to establish poverty thresholds that are valued in dollars. The SPM poverty thresholds measure a standard of living based on expenditures for food, clothing, shelter, and utilities (FCSU), and "a little more" for other expenses. The resources measured against those thresholds represent disposable income (after taxes and certain other expenses), including the value of noncash benefits, that are available to families to meet those needs. The SPM is considered a research measure, because it is designed to be updated as techniques to quantify poverty and data sources improve over time, and because it was not intended to replace either official poverty statistics or eligibility criteria for anti-poverty assistance programs. Both the SPM and the official measure determine the poverty status of people and families by comparing their financial resources against poverty thresholds. For both measures, poverty thresholds vary by family size and composition, and families whose resources are lower than the thresholds are considered to be poor. The differences between the SPM and the official measure reflect changes in household composition in the more than 50 years since the official measure was developed. The differences also partly spring from attempts to more accurately assess the needs and resources of families. Some of the innovations surrounding the calculation of needs and resources embodied in the SPM are based on data that were not yet available when the official measure was developed. The measures differ in their definitions of the following: N eed , as it is used in the thresholds (the dollar amounts used to determine poverty status). Unlike the official measure, the SPM's measure of need is geographically adjusted based on housing costs by metropolitan area or by state for nonmetropolitan areas. Furthermore, three sets of SPM thresholds are computed by the housing status of a family—as homeowners with a mortgage, homeowners without a mortgage, or renters—to reflect differences in housing costs. Thus, while the official poverty measure uses 48 poverty thresholds to represent families' needs, the SPM uses thousands. F inancial resources that are considered relevant for comparing against the measure of need as specified in the thresholds. Financial resources to meet needs, whether in the SPM or the official measure, are based on the sum of income of all family members. While the official measure uses money income before taxes, the SPM makes additional adjustments and considers a wider range of resources. F amily , for the purpose of assigning thresholds and counting resources. The SPM uses an updated approach to more explicitly take account of how household members share resources based on their relationships, which the Census Bureau's definition of "family" (used in the official measure) does not capture completely. One of the most important differences between the two measures, however, is that the SPM is intended to be revised periodically, using improved data sources and measurement techniques as they become available, while the official poverty measure is intended to remain consistent over time. A summary of the differences is provided in Table 1 . The SPM was developed after decades of research focused on overcoming the limitations of the official poverty measure. These limitations are not easy to surmount, as evidenced by dozens of alternative poverty measures developed over the years by the Census Bureau and by academia, and the working papers and reports written about those measures. Over time, the official poverty measure has faced criticism, including the following: The official poverty thresholds are not adjusted to reflect geographic variations in costs. Owing to the limitations of the source data available at the time the official measure was developed, it is based on money income before taxes; however, most individuals pay for their basic necessities using after-tax income. This represents a disconnection between the way needs were specified in the thresholds (which represent a level of need) and the definition of resources available for meeting those needs. The official measure captures the effects of some but not all government programs intended to provide relief for the poor because the income used in the official measure is money income before taxes. The programs that are captured are those that provide money income benefits before taxes: Social Security, Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), and any state or local relief programs based on money income. The programs that are not captured are the EITC and the Child Tax Credit, which, despite their large effects for low-income workers with children, are not considered because they are tax credits and only reflected in after-tax income; and a host of noncash benefits such as the Supplemental Nutrition Assistance Program (SNAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), housing subsidies, and subsidized medical care. Many of these programs did not exist when the official measure was developed in the 1960s. The official measure captures neither the needs incurred nor the resources brought in by household members who are not related by birth, marriage, or adoption. These include unmarried partners and their children (if any are present) and foster children not legally adopted. While the official measure is adjusted for overall inflation, it does not consider the extent to which the prices of basic necessities have shifted in relation to all goods and services. Therefore, it can be argued that the inflation adjustment used in the official measure does not accurately reflect the purchasing power needed, in a practical sense, to remain at the poverty line compared to previous decades. While there has been broad agreement among poverty scholars that these issues are drawbacks to the official poverty measure, overcoming them has proven to be difficult. Scholars in the federal government, universities, and private research institutions have spent decades developing approaches to address these shortcomings and evaluating the effectiveness of those approaches. For example, adjusting the poverty thresholds by g eographic variations in costs i s difficult , because price levels within a state can vary greatly among its different metropolitan areas , as we ll as between metropolitan and nonmetropolitan areas . Numerous approach es were developed over the years to adjust thresholds geographically, and because of a lack of comprehensive small-area geographic detail on prices, earlier approaches were more limited in their ability to accurately reflect cost variations within states . Research inquiries into the other issues listed above— particularly the valuation of noncash benefits s uch as subsidized health care— proved to be just as thorny. In attempting to address the shortcomings of the official poverty measure, dozens of alternative poverty measures were developed over multiple decades. For instance, in the 1980s the Census Bureau began providing alternative definitions of income that subtracted taxes from income and estimated the monetary value of noncash benefits, and showed the effects of these definitions on estimated poverty rates, in an "R&D" series of reports. The approaches used in these reports for estimating the value of noncash benefits were discussed in a conference attended by analysts from the federal government, universities, and other research institutions. Eventually, as variations of the Consumer Price Index (CPI) were developed by the Bureau of Labor Statistics, the Census Bureau began to include poverty estimates based on those indices in the R&D series as well. Between 1992 and 1995, a panel from the National Academy of Sciences (NAS) met to develop recommendations for an improved poverty measure, in response to a congressional request from the Joint Economic Committee and funded through the Bureau of Labor Statistics, the Department of Health and Human Services, and the Food and Nutrition Service of the U.S. Department of Agriculture. The NAS report was published in 1995. Since the report's publication, the Census Bureau has been publishing data on alternative poverty measures based on both the older R&D series and the newer NAS-based methodologies. Unlike the R&D series, which focused on alternative definitions of income and applying a different index to adjust thresholds for inflation, the NAS-based experimental measures made adjustments both to the thresholds and the income definition, and estimated work-related expenses and medical out-of-pocket expenses. Research continued, both at the Census Bureau and elsewhere, to refine the measurement methods and use the most current data sources available. In 2009, the Office of Management and Budget (OMB) organized an Interagency Technical Working Group (ITWG) for establishing a Supplemental Poverty Measure. At that point, dozens of experimental poverty measures focusing on the various aspects of poverty measurement discussed above had been developed. The ITWG put forth a single measure (the SPM) to consolidate the research and emphasize not only sound concepts and methodology in the measure's development, but also practicality in the measure's maintenance, computation, and usage. The ITWG did not intend to replace the official measure, and it was expected that refinement of both the SPM's methodology and its data sources would continue. As mentioned above, the SPM differs from the official poverty measure in three broad ways. First, the measure of need is defined differently in the SPM's poverty thresholds. Second, the economic resources measured in the SPM differ from those counted in the official poverty measure. Third, the definition for "family" units used in the SPM is not the same. In determining an individual's poverty status, the poverty thresholds are compared with his or her family's economic resources. Information on relationships within the household determines which threshold is appropriate to use and whose resources are to be compared with that threshold. This information on family relationship and resources is measured using household surveys, and the way it is measured is affected and limited by what is asked in the surveys. Through 2016, the Census Bureau has produced estimates of individuals living in poverty as measured by the SPM using the Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS) as the source of the family relationship and income information used to compute poverty status. The CPS ASEC is also the survey used to produce the official poverty estimates at the national level. Thus, the SPM poverty estimates are based on the detail available in, and the limitations of, the CPS ASEC. If other surveys were to be used to estimate SPM poverty, their limitations and advantages would affect what information could be produced. In drawing the "poverty line," neither the SPM nor the official poverty measure attempted to parse out exactly how much of every type of good or service, with corresponding prices, is needed by a family to form an overall budget. Instead, both the SPM and the official measure used data on families' spending. In the case of the official measure, this was the spending related to food. The official measure's thresholds were based on food costs in the 1960s and food spending patterns of families in 1955. According to a 1955 USDA food consumption survey, families spent approximately one-third of their income on food, on average; therefore, the costs of the food plans were multiplied by three to produce family income amounts. The SPM uses the costs of food, clothing, shelter, and utilities (FCSU) as measured in the Consumer Expenditure Survey (CE). These items were selected because the panel considered them to be broadly accepted as universal needs and relatively noncontroversial. The panel did not specify exact amounts for items within these broad categories, but rather focused on overall spending patterns within the categories using CE data. Furthermore, the panel acknowledged that other items would be needed by families, such as non-work related transportation, personal care products, cleaning supplies, and the like; but rather than attempt to specify exact amounts for these items, the panel instead allowed for "a little more"—20% of the cost of FCSU—for miscellaneous items (that is, the threshold represents the cost of FCSU multiplied by 1.2). To obtain the dollar amount used as a starting point for computing the complete set of thresholds, an average is taken among consumer units whose out-of-pocket expenditures on FCSU rank in the 30 th to the 36 th percentiles, among units with exactly two children, according to the Consumer Expenditure Survey. Determining the average is the first step in computing the thresholds; the next step is adjusting that average by homeownership or rental status. Three sets of poverty thresholds are used in the SPM: one for homeowners with a mortgage, another for homeowners without a mortgage, and a third for renters. These differing sets of thresholds based on tenure (ownership or rental status) reflect that housing costs can differ greatly among these three groups. Housing costs make up roughly 40% to 50% of the expenditures represented in the SPM thresholds; for homeowners without mortgages the housing-related expenditures are at the lower end of that range, while renters and homeowners with mortgages tend toward the upper end of the range. Moreover, these groups tend to differ demographically as well. Homeowners without mortgages tend to be older but also have lower incomes on average than homeowners with mortgages. Homeowners with mortgages are younger, have greater income, and are more likely to be raising children. Renters have lower income than the homeowner groups but also tend to be younger and are more likely to be raising children than homeowners without mortgages. Like the other costs used in the SPM thresholds, the housing costs are obtained using data from the Consumer Expenditure Survey. It provides information on housing costs by tenure for the United States as a whole, but it does not provide the level of geographic detail needed to perform geographic adjustment. The SPM adjusts for geographic differences in housing costs. It uses the American Community Survey's information on median rental costs in a geographic area and compares it to the national median rent. To obtain comparable rent costs, a standard rental unit—two bedrooms with complete kitchen and plumbing facilities—is used. The median gross rent (including utility costs), based on ACS five-year data, is used in the comparison. Indices are computed by state: one index for each metropolitan area within the state, and an index representing all nonmetropolitan areas within the state. Once the indices are computed, a portion of the reference threshold (the part representing housing costs) is multiplied by them to produce SPM thresholds geographically adjusted for housing costs. The thresholds are adjusted for family size and composition to allow that costs increase as family size increases, but also that there are economies of scale—efficiencies can be obtained by sharing resources. The mathematical relationship that describes how the thresholds are adjusted by family size and composition is called the equivalence scale . In the official measure, the equivalence scale is not computed explicitly, but rather driven by the food plan costs upon which the official thresholds were based. In contrast, the SPM uses mathematical formulas to adjust the thresholds by family size. The formulas are used to compute scale factors. A scale factor is a number that is multiplied by a standard dollar amount, representing the equivalent of one adult's needs, in order to increase the threshold proportionately to reflect the costs incurred by the increase in family size. The scale factors are computed using the number of adults and children in the family as inputs, along with important parameters. The SPM uses a different approach from the official measure in adjusting the threshold amounts over time. The official thresholds are adjusted annually for inflation using the CPI-U; no other adjustments are made. The SPM thresholds, in contrast, are recomputed based on the most recent five years of data on families' expenditures on FCSU, obtained from the Consumer Expenditure Survey. This approach differs conceptually from the official measure's inflation adjustment in three ways: 1. Instead of directly factoring in a measure of overall inflation, the SPM includes the effects of inflation through the amounts that families spent on FCSU (as reported in the Consumer Expenditure Survey). 2. Price changes on goods and services other than FCSU are not considered directly—only families' spending on FCSU. Families' FCSU spending, moreover, is not held to be any fixed percentage of families' overall income (unlike the official measure, where the thresholds were fixed at three times the cost of food in the 1960s and updated for overall inflation since then). That means if FCSU spending grows as a portion of family income, the SPM thresholds will rise to reflect that spending, even if family income does not rise. Conversely, if family income rises, and a greater portion of family income was spent on goods other than FCSU, the SPM thresholds would reflect only the changes in FCSU spending. 3. The SPM thresholds are set at approximately the 33 rd percentile of FCSU spending, by ranking the FCSU spending across all two-child families in the Consumer Expenditure Survey sample. This is different from setting a fixed dollar amount in a single time period and adjusting for inflation thereafter. The SPM thresholds are computed so that even if the distribution of family expenditures changes over time, two-thirds of families will have reported spending more on FCSU than is allotted in the SPM thresholds. Additionally, the ITWG intended for the SPM methodology to be updated periodically, as poverty measurement research identifies ways to improve the measure and as new data sources become available. The official thresholds, on the other hand, are updated for inflation but no methodological changes to them have been planned: in keeping the methodology consistent, the Census Bureau continues to follow OMB's Statistical Policy Directive 14. The SPM takes account of a wider array of resources than the official measure, and it also takes account of taxes and expenses in a way the official measure does not. The official poverty measure uses money income before taxes as its definition of resources. While this definition was based on the best data available when the official measure was developed in the 1960s, it is inconsistent with the poverty thresholds as they were conceptually defined. The thresholds were constructed to represent the total amount of money families had available to spend; the food costs as identified by the USDA food plans and as consolidated by Orshansky into families of different sizes and compositions were meant to reflect the fraction of a family's money that was available to be spent on food. The degree of privation represented by the official thresholds was characterized by the food plans' effectiveness at providing a "fair or better" diet, but not necessarily a good diet, while keeping the food costs low. The SPM was designed to define the resources available to a family consistently with the needs specified in the thresholds (FCSU plus a bit extra for miscellaneous expenses, such as non-work related transportation and personal care). The items used to construct the income measure are presented below, and are discussed more fully in the Census Bureau's report on the SPM. The CPS ASEC, which is the data source used by the SPM to identify most resources, asks about 18 types of income. These include government cash benefits—such as Social Security, Unemployment Insurance, Workers' Compensation, Supplemental Security Income, public assistance received in the form of cash (such as Temporary Assistance for Needy Families)—or child support received. Not all income sources included in the CPS ASEC are taxable income. Unlike the official measure, the SPM includes estimates of the monetary value of in-kind benefits, such as for food and subsidized housing, in the measure of income. These benefits are relevant because they are used to provide the items specified in the poverty thresholds. The SPM incorporates estimated values for several in-kind benefits: Supplemental Nutrition Assistance Program ( SNAP ) . The SPM includes SNAP in its resource definition because families use it to help meet their food needs—and food costs are included in the SPM thresholds. CPS ASEC asks respondents whether anyone in the household received SNAP, and if so, what the face value of the benefits was. Amounts for the entire household are prorated to the family units as defined for the SPM when the two types of units are not identical. Special Supplemental Nutrition Program for Women, Infants, and Children ( WIC ) . The SPM includes WIC in its resource definition. However, the CPS ASEC does not ask respondents how much in WIC benefits they received, only whether they received benefits at all. For the purposes of estimating benefits, the Census Bureau assumes 12 months of participation when the respondent reports having received them. This assumption may overestimate the value of benefits received. To compute the benefit amounts received, the Census Bureau refers to WIC program information from the USDA, and uses age information reported in the CPS ASEC to determine which household members receive benefits. School Lunch . Subsidized school lunches are included in the SPM resource definition. The CPS ASEC asks whether children "usually" ate lunch at school, and whether it was free or reduced price. No further information on benefit amounts is available from the CPS ASEC. For the purpose of computing the SPM, the children are assumed to have received lunches every day. The costs of school lunches are obtained from USDA's Food and Nutrition Service (information on the school breakfast costs are not available). This approach likely overestimates the value of school lunch benefits received. Subsidized housing . Because the SPM includes shelter costs in the thresholds, the SPM includes subsidized housing in its resource definition. The Census Bureau estimates the "market rent" value for the housing unit and subtracts from that an estimated amount paid by the tenant. The difference is the estimated housing subsidy. Market rent is estimated using administrative data from the Department of Housing and Urban Development (HUD), and the amounts paid are estimated using HUD program rules and income information on the CPS ASEC. For computing poverty status under the SPM, the estimated subsidies are capped at the housing portion of the threshold minus the estimated amount paid by the tenant—housing subsidies can free up resources for a family to purchase other goods, but housing benefits cannot be used to purchase other goods and services once the family's housing needs have been met. Home energy assistance . Utility costs are included in the SPM thresholds; therefore, home energy assistance is included in the SPM resource definition. The CPS ASEC asks about energy assistance received for the entire year, and the SPM uses this data. However, respondents may have difficulty reporting exact amounts of energy assistance when Low Income Home Energy Assistance Program (LIHEAP) payments are made directly to landlords or energy providers. The manner by which the assistance is provided can vary by state. Families typically pay for their needs using after-tax income; for that reason, the SPM uses after-tax income in its definition of resources. However, the CPS ASEC does not ask respondents about taxes paid. In order to compute after-tax income, the Census Bureau estimates taxes using a model. The CPS ASEC income and demographic data are used to estimate the probability of families' filing statuses (such as married filing jointly or married filing separately), having itemized deductions, and having capital gains, using the distribution of those variables as found in IRS data (Statistics of Income, or SOI). Money that families spend as part of going to work is not available for meeting the needs specified in the SPM thresholds. Therefore, those expenses must be subtracted from income in order for the SPM's resource definition to be consistent with the thresholds. A flat amount, representing weekly work-related expenses other than child care, is multiplied by the number of weeks worked for every working family member. The flat amount is based on 85% of median weekly work expenses as reported in the Survey of Income and Program Participation. Apart from child care, most work expenses are linked to transportation to and from one's job. Work expenses—particularly commuting costs—can vary a great deal between geographic areas and across families in the same area. The NAS panel that developed recommendations for an improved poverty measure (mentioned above) observed that when making choices about residence and employment, families weigh the advantages of more expensive housing close to work (with lower commuting costs) versus less expensive housing further from work (with higher commuting costs). The panel was therefore unable to recommend a method that accurately reflected the variations in work expenses across families and geographic areas that was substantially more precise than assigning a flat amount across families based on number of weeks worked. However, research into improving the measure of these work-related expenses is ongoing. If child care is needed in order for a family member to work, then the additional resources brought in by that worker do not represent the full amount earned—child care costs must be subtracted to reflect the available money for purchasing the needs identified in the SPM thresholds. Respondents to the CPS ASEC are asked whether child care expenses are incurred while the parents are working, and if so, how much they are. When computing resources for the SPM, the sum of child care expenses and other work-related expenses are capped at the income of the lower-earning parent (so that for determining poverty status, expenses cannot exceed the amount brought in by working). As part of the section of the CPS ASEC questionnaire that asks about health insurance coverage, respondents are asked to report the amount of their health insurance premiums and other medical care costs that they paid out-of-pocket. These costs, called MOOP, are subtracted from income when computing available resources relevant for meeting needs defined in the SPM. Poverty measurement scholars debated for decades about the approach to use when taking account of medical costs in relation to poverty. On one hand, poor health can affect people's quality of life, affect their ability to earn more income, and change their spending habits. Thus, it affects people's economic behavior, which, it can be argued, is relevant for measuring poverty. On the other hand, the causes of poor health are not always linked to monetary factors. Health issues are often caused by physical phenomena unrelated to economics, which can lead to the argument that health care should not be included in a poverty measure but rather considered as a separate indicator of well-being. Moreover, the choices about whether to be insured and what kind of insurance to purchase heavily influence levels of spending on health care, both for the healthy and the sick. At the same time, it seems incongruous to consider a person who is healthy (and who therefore does not need expensive health care) as poorer than a sick person who receives expensive health care but otherwise has the same resources as the healthy person. To resolve this conundrum, the SPM does not include health expenses as part of the threshold—as medical needs vary greatly and not always predictably. Instead, it subtracts MOOP from the resource definition, as those resources are considered to be necessary expenditures (if and when they are incurred) and are not available to be spent on the needs defined in the thresholds. This approach, moreover, does not include the value of health care dispensed by insurance providers or by public coverage. It only considers the portion spent out-of-pocket by patients and their families. Because child support received is a form of money income and is counted as a resource in the SPM, any child support paid to another household would be double-counted if it were not subtracted from income. The person paying child support, moreover, cannot use the amounts paid to meet the needs specified in the SPM thresholds. The CPS ASEC includes child support received in its measure of money income, and because of a series of questions added in 2010 it now asks respondents whether child support is paid to other households and the amounts thereof. The SPM resource measure therefore includes child support received (if any) and subtracts child support paid (if any). The SPM captures how some nonrelatives share needs and resources in a way the official poverty measure does not. The official measure defines a family as all persons related by birth, marriage, or adoption who reside in the same housing unit. That definition treats each partner in unmarried cohabiting couples as separate units. It also excludes unrelated individuals under age 15, such as foster children. Because the surveys on which poverty estimates are based do not ask income questions of persons under age 15, any children under that age who cannot be matched with an older person's income have an indeterminate poverty status and are excluded from tabulation totals. The SPM defines family units—termed "SPM resource units"—differently from the official measure, using the detailed information on relationships among household members gathered by the CPS ASEC. This relationship detail includes the ability to identify foster children and, because of survey improvements in the 1990s and 2000s, cohabiting couples. The SPM treats cohabiting unmarried couples and any children they may have as part of the same unit and assigns thresholds and computes family income accordingly. This is done to more accurately reflect the way that people within households incur expenses and share resources to meet them. Similarly, all foster children under age 22 are included in the SPM resource units. Not only do these changes reflect recent demographic trends, but they also coordinate broadly with the "consumer unit" concept in the Consumer Expenditure Survey (CE). Still excluded from SPM tabulations, however, are members of the Armed Forces living in barracks, the incarcerated population, residents of nursing homes, other institutionalized persons, and the homeless population. These individuals are not eligible for interview in the CPS, as its primary purpose is to measure employment among the civilian noninstitutional population. As mentioned earlier, the ITWG never intended for the SPM to replace the official poverty measure or to fulfill administrative purposes. It supplements the official measure by allowing for analyses of the low-income population that would not otherwise be possible. Particularly visible and of possible relevance to Congress are the effects that taxes and tax credits, noncash transfer programs, and work-related and medical expenses have on poverty. The SPM also highlights differences in the demographic profile of those identified as poor. Even with improved visibility into those areas, however, the SPM has important limitations to be considered. The official poverty measure captures only those government benefits that are paid in cash. This includes the largest government transfer program, Social Security, though it excludes Medicare. However, in terms of programs targeted to lower income people and families, the official measure excludes noncash medical, food, and housing benefits as well as benefits paid through the tax code. Over time, means-tested benefits paid in noncash forms or through the tax code have grown to account for most of what the federal government spends on low-income assistance. For example, in FY2015 the federal government spent $5.5 billion on veterans' pensions, $6.4 billion on TANF cash assistance, and $62.1 billion on Supplemental Security Income (SSI). These cash benefits are included in both the official poverty measure and the SPM. However, the federal government also spent a total of $80.6 billion on refundable tax credits, $103.1 billion on food assistance, and $44.6 billion on housing, much of which are benefits that are captured only in the SPM. Figure 1 illustrates the impact of various resource components on the number of people identified as poor using the SPM. Bars pointing left (negative) indicate the number of people kept out of the population identified as poor by the SPM's treatment of that resource component. The bars pointing right (positive) indicate the number of people added to the estimated poor population by the SPM's treatment of the component. These data show how the population estimated to be poor would change if the SPM omitted a particular component (either by subtracting resources, or failing to subtract taxes and expenses) but do not take into account any behavioral changes people would make in the absence of any one program, tax, credit, or expense. Furthermore, the data illustrate changes to the poverty population estimate with each component considered in isolation. People are often affected by multiple resource components; therefore, the numbers represented by separate bars should not be added together. Social Security, along with SSI, TANF, and other cash welfare assistance; Unemployment Insurance; child support received; and Workers' Compensation, are money income sources that are included in both the official poverty measure and the SPM. Of these income sources, Social Security has the biggest impact on the number of persons kept out of poverty according to the SPM (26.1 million persons in 2016). While it was designed to be a universal program and not targeted specifically to the poor, it has a large antipoverty effect nevertheless. While most of those kept above poverty by Social Security were ages 65 and older (17.1 million), a substantial minority were younger: 7.5 million were age 18 to 64, and 1.5 million were children under age 18. Some of those in the younger age groups are Social Security recipients themselves because of a disability, but others were kept out of poverty because an older family member received it. The remaining resource components shown in Figure 1 are not included in the official poverty measure but are included in the SPM. Of these, none individually have as large an impact on the estimated poor population as Social Security. After it, the components with the most impact are MOOP (with 10.5 million persons added to the poverty population once those expenses are taken into account); refundable tax credits (with 8.1 million kept out of the estimated poor population because they or a family member received the credits), work expenses, including child care (6.0 million added to the poverty population, on the margin); FICA (4.7 million added to the poverty population, on the margin); and SNAP (3.6 million kept out of the poor population, on the margin). As seen above, people can be affected by multiple resource components considered in the SPM. As a result, the profile of the poor population as identified by the SPM is different from that identified by the official poverty measure. Fewer children are identified as poor in the SPM because many government assistance programs, such as WIC, TANF, and the Additional Child Tax Credit (ACTC), are targeted toward families with children. Conversely, more working-age adults are in poverty in the SPM because they are more likely to have work expenses (including child care expenses). These expenses are partially offset by EITC, but only working families receive it. Working families with children could get ACTC, but they have to have qualifying children. Slightly more of the aged are below poverty under the SPM than under the official measure because they are more likely to incur MOOP, which are subtracted from income. While MOOP can be high for the aged, their effect on poverty rates is mitigated by the fact that homeowners without a mortgage (such as aged persons who have paid off their mortgages and still live in that house) have lower housing expenses—and in turn lower poverty thresholds—than do mortgage-paying homeowners and renters. Further details are given in the Census Bureau's report, T he Supplemental Poverty Measure: 201 6 . As shown in Table A-1 in the Appendix , poverty thresholds in the SPM vary geographically and are typically different from their corresponding official poverty threshold. The SPM thresholds for New York illustrate within-state variation. SPM thresholds for the Binghamton metro area are lower than their corresponding official poverty threshold, while for New York City they are considerably higher (between $2,000 and $8,000 higher in 2016 than their corresponding official threshold). Nevertheless, regional patterns emerge. Poverty rates in the Northeast and West tend to be higher under the SPM than under the official measure, in part because of the relatively higher thresholds in those regions, compared with the Midwest and the South. The SPM thresholds in 2016 for California (a western state) and Alabama (a southern state) illustrate the most extreme examples: the highest poverty threshold (for homeowners with mortgages in the San Jose-Sunnyvale-Santa Clara metro area, California) and the lowest poverty threshold (for homeowners without mortgages in nonmetropolitan Alabama) were found to apply in these states. As a caveat, while the SPM thresholds tend to increase poverty rates in the Northeast and Midwest and decrease poverty rates in the South and West compared with the official measure, the thresholds are not the only driver of SPM poverty rates. Regional differences in income, noncash benefits, and items subtracted from SPM resources (such as MOOP or work expenses) also drive differences in regional poverty rates. Because it is based mainly on survey data, the SPM warrants the same caveats as do any estimates based on surveys (including the official poverty measure): the data are estimates based on a sample of the population and, as a result, have margins of error. Additionally, means-tested transfers and certain types of non-transfer income are underreported in the CPS ASEC. Portions of SPM resources—notably the values of taxes and some noncash benefits—are not asked of respondents in the CPS ASEC and need to be estimated using models. The models take care to use administrative data where appropriate to ensure that the estimated amounts reflect external totals and distributions; nevertheless, the estimated amounts are not perfect. For example, the estimated total benefits from both the EITC and the child tax credit are substantially lower than those found when examining federal income tax returns. Thus, the estimates understate the impact these two tax provisions have on poverty as measured by the SPM. The SPM includes the values of in-kind food and housing benefits in measuring resources. While resources such as these are used to meet the needs (FCSU) specified in the thresholds, and thus it is consistent to include them as resources in the SPM, in-kind benefits, unlike money income, are not fungible . That is, barring illegal trading, they cannot be used to meet any expense that arises, but only the needs for which they are specified. While the FCSU amounts in the thresholds are based empirically on spending patterns, it should not be assumed that every family's needs are the same. Because a family could use money income to meet its specific levels of need, but does not have the same flexibility with in-kind benefits, the in-kind benefits are worth somewhat less than their face value to families whose needs are met in one area but not another. In measuring resources, the SPM method caps housing benefits because a large housing subsidy can only fill housing needs. Housing benefits are capped at the housing portion of the SPM poverty threshold minus the amount of rent paid by a tenant. On the other hand, SNAP benefits are counted at their full face value, even though their "value" to the recipient might be less than that amount. The SPM accounts for expenses for health care and insurance by subtracting MOOP from family resources. That is, it does not count the "value" of health insurance as a resource, and subtracts from resources health insurance premium payments, deductibles, copayments, and other out-of-pocket health expenses made by the family. Medical needs are not included in the SPM poverty thresholds. This treatment of medical expenses does not take account of all the economic effects of subsidized medical care generally. Two families with different health insurance arrangements, and different health care needs, but the same amounts of MOOP would be treated identically by the SPM: their (identical) MOOP would be subtracted from their income. However, those same families may not be equally as well off if one of the families kept its out-of-pocket costs down by purchasing a less comprehensive insurance plan than the other family and decided to forego certain types of health care. The SPM thresholds were defined to include the recurring needs of food, clothing, shelter, utilities, and a little more for miscellaneous expenses; MOOP are subtracted from family income because they cannot be used to meet the needs identified in the threshold. This treatment of medical expenses also means that some of the largest noncash benefits programs—Medicare, Medicaid, and premium assistance under the Patient Protection and Affordable Care Act—are not explicitly taken into account in determining SPM poverty status. There has been some research into methods and measures that would incorporate medical risk, and how it is affected by health insurance, into measures of economic well-being to complement the current SPM. Tax credits, when they are provided to filers, are given as a lump sum based on income in the previous year. The SPM imputes taxes in the year they are earned, but in reality the credit will not appear in the family's income until the following year. Furthermore, tax credits are given as a lump sum, but poverty is a spell phenomenon. Both the SPM and the official poverty measure examine resources in a full calendar year compared with a threshold based on the calendar year. The economic status of families, however, can change throughout the year. A family may experience poverty because one or more workers in the family lost a job and months passed before the worker was able to find another one, putting the family in a poverty spell for that duration. The tax credit, therefore, may or may not provide relief during the poverty spell, depending on the spell's timing in the year and the severity of expenses faced by the family throughout the year. Longitudinal datasets like the Survey of Income and Program Participation can unmask the length of time people and families spend in poverty. However, they typically have smaller sample sizes than the CPS ASEC, which limits their ability to provide detailed geographic analyses. There has been some debate about whether the SPM is closer to a relative or an absolute poverty measure. A relative poverty measure is one in which poverty is defined with respect to some percentile of the income distribution (e.g., half of median income), while an absolute measure uses a fixed dollar cutoff updated for inflation over time. Relative poverty measures keep pace with changes in the income distribution over time and identify the economically worst-off portion of the population, but they may not necessarily be tied to a particular level of well-being. Because relative poverty measures are based on the income distribution, it is possible for poverty to increase even when incomes throughout the distribution rise if the distribution of income becomes wider. This potential disconnection between the poverty rate and levels of well-being is considered to be a weakness of relative measures. Absolute poverty measures are set to a fixed income amount representing a level of economic well-being at a point in time, adjusted periodically for inflation. They are consistent over time in representing the number of people below a resource level, and are more sensitive over time than relative measures to detecting the shares of the population unable to obtain this level, and presumably, economic well-being. The SPM includes aspects of both relative and absolute measures in its computation, and gauging whether the SPM is closer to one or the other is an unresolved question. The SPM thresholds are based on roughly the 33 rd percentile of expenditures on FCSU, using the five most recent years of CE data. In this sense, the SPM can be thought of as relative because the thresholds are computed based on a percentile within the distribution of expenditures. On the other hand, the thresholds are not computed using overall income, but rather expenditures, and only for a limited set of basic goods (FCSU, plus 20% extra for miscellaneous expenses). It is theoretically possible for incomes to rise at a different rate than expenditures on basic goods, which if true would imply that the SPM is not a relative measure. Moreover, expenditures on FCSU are driven not only by income but also by prices, which can be affected by factors other than the income distribution. The question of whether the SPM is relative or absolute has meaning for those trying to evaluate whether the SPM accurately describes the poor population both in a single year and over time. It also highlights the value judgments involved in determining what is meant by "poverty" and in expressing that determination using a concrete metric. In the case of the official poverty measure, the level of well-being is characterized by the likely nutritional impact of the Economy Food Plan, with fewer than 1 in 10 families on that plan meeting their recommended nutritional requirements, and about half of families on that plan failing to get two-thirds of them (see footnote 27 ). The description of the SPM in this report, and the tables provided in the Appendix , are intended to help readers better gauge for themselves the levels of well-being on which the SPM is based. Unlike the official poverty measure, which uses 48 poverty thresholds that are updated annually for inflation and applied nationwide, the SPM thresholds are computed using additional variables, resulting in thousands of thresholds once they are geographically adjusted. The SPM thresholds are based on Consumer Expenditure Survey (CE) data for food, clothing, shelter, and utilities (FCSU), and adjustments are made thereafter by housing tenure (that is, for homeowners with mortgages, homeowners without mortgages, and renters), by geographic variations in housing costs for each housing tenure group, and by family composition. Three tables are shown below, to illustrate the dollar amounts used to determine poverty status in both the SPM and the official measure. Table A-1 focuses only on SPM poverty thresholds for a two-adult two-child family, by housing tenure, and illustrates the range of geographic cost variation. In contrast, Table A-2 illustrates how the SPM thresholds vary by family composition, but without geographic adjustment. Table A-3 presents the official poverty thresholds, for comparison. | The Supplemental Poverty Measure (SPM) is a measure of economic deprivation—having insufficient financial resources to achieve a specified standard of living. The SPM addresses some of the limitations of the official poverty measure, without supplanting it outright. Both the SPM and the official measure determine the poverty status of people and families by comparing their financial resources against poverty thresholds that are valued in dollars. For both measures, poverty thresholds vary by family size and composition, and families whose resources are lower than the thresholds are considered to be poor. The measures differ in their definitions of need, as it is used in the thresholds (the dollar amounts used to determine poverty status), financial resources that are considered relevant for comparing against the measure of need as specified in the thresholds, and family, for the purpose of assigning thresholds and counting resources. Need The official poverty thresholds measure needs derived from the cost of an austere food budget. The food budget was multiplied by three, based on the finding that food accounted for about one-third of total family expenditures in 1955. Since their original computation, these thresholds have been adjusted annually for price inflation. In contrast, the SPM's thresholds are based on consumer expenditures for food, clothing, shelter, and utilities, and it uses five years of data from the Consumer Expenditure Survey in calculating needs and thresholds. Developing the SPM thresholds starts with spending data for families with exactly two children. These data are refined by using approximately the 33rd percentile of families' expenditures on food, clothing, shelter, and utilities. Next, an extra 20% is figured into the thresholds for miscellaneous expenses such as cleaning supplies and personal care items. The thresholds then undergo further adjustment to reflect that housing costs differ between homeowners with mortgages, homeowners without mortgages, and renters; housing costs differ geographically; and costs differ by family size and composition. Financial Resources Financial resources to meet needs, whether in the SPM or the official measure, are based on the sum of income of all family members. While the official measure uses money income before taxes, the SPM makes additional adjustments and considers a wider range of resources. The SPM includes the value of certain in-kind benefits (such as food and housing subsidies), uses income after estimated federal and state taxes, and subtracts some expenses from income. These expenses include medical out-of-pocket costs, such as health insurance premiums, physician co-pays, and over-the-counter medications; child support paid outside of the household; and work expenses, such as child care and the cost of commuting, tools, uniforms, or licensing fees related to a person's employment. Work expenses, including child care, are capped at the amount of earnings from work of the lowest-earning family member. These expenses are subtracted from family income because they cannot be used to obtain the needs defined in the SPM thresholds. Unlike the official poverty measure, the range of financial resources included in the SPM is defined to be consistent with the types of needs used to compute the SPM poverty thresholds. Family Like the official measure, the SPM family unit definition includes people related by birth, marriage, or adoption living in the same housing unit. However, the SPM additionally includes cohabiting couples and their children, and foster children below age 22. How Does Poverty Look through the Lens of the SPM? The demographic profile of the poverty population is different under the SPM than under the official measure. Children have a comparatively lower poverty rate (percentage in poverty) under the SPM, and the aged (65 and older) and working-age persons (18 to 64) have comparatively higher poverty rates. These differences can be explained by the SPM's resource definition. The SPM includes tax credits and in-kind benefits that help families with children (in effect, boosting the measure of family income). It subtracts medical out-of-pocket expenses, which disproportionately affects the aged (lowering their measure of income), and subtracts work-related expenses, which disproportionately affects the working-age population (lowering their measure of income). Uses and Limits The SPM can give policymakers the tools to understand how taxes and government programs, including the noncash programs, affect the poor. It also illustrates how medical expenses and work-related expenses such as child care can affect a family's economic well-being. However, the SPM poverty estimates are derived from household survey data, and hence are affected by issues such as underreporting of income from government benefit programs, limitations on how tax liabilities and tax benefits can be estimated based on survey data, and differences in how noncash benefits and lump-sum tax refunds are "valued" by program recipients versus how they are valued for the purposes of poverty measurement. Additionally, the SPM does not directly value health insurance provided publicly or privately. Further, poverty has historically been measured in the United States as an "absolute" measure, based on how many people fall below a set standard of living. Questions have been raised about whether the SPM continues to measure poverty in that way, or represents a "relative" measure of poverty, based on how the population ranks in terms of well-being relative to each other. |
The Individuals with Disabilities Education Act is both a grants statute and a civil rights statute. It provides federal funding for the education of children with disabilities and requires, as a condition for the receipt of such funds, the provision of a free appropriate public education (FAPE). Originally enacted in 1975, the act responded to increased awareness of the need to educate children with disabilities, and to judicial decisions requiring that states provide an education for children with disabilities if they provided an education for children without disabilities. The statute contains detailed due process provisions, including the right to bring suit in order to ensure the provision of FAPE. IDEA states in part "[a]ny party aggrieved by the findings and decision ... made under this subsection, shall have the right to bring a civil action with respect to the complaint presented pursuant to this section ...." The judicial decisions concerning the rights of non attorney parents of children with disabilities to bring suit without an attorney have raised issues concerning whether the parents of a child with a disability are "part[ies] aggrieved" under IDEA. Whether the parents are parties aggrieved turns in large part on whether the rights guaranteed under IDEA are guaranteed for the child with a disability, for the parent of such a child, or both. Courts have varied in their views on this issue and therefore on the issue of whether non-attorney parents have the ability to pursue an IDEA case pro se. Jacob Winkelman has autistic spectrum disorder and, in accordance with an individualized education program (IEP), was placed in a preschool with the concurrence of both his parents and the Parma City school district. When he was old enough for kindergarten, his parents and school officials disagreed on his proper placement with his parents alleging that the school's proposed placement at Pleasant Valley elementary school was not appropriate to Jacob's needs. After rulings supporting the school district's determination by the hearing officer and a state level review officer, the Winkelmans appealed pro se to U.S. district court. The district court agreed with the administrative rulings and the Winkelmans appealed, again without a lawyer, to the sixth circuit court of appeals. The court of appeals issued an order dismissing the appeal unless an attorney was obtained within thirty days. The Winkelmans then sought and received a stay of this order from the Supreme Court pending a decision by the Supreme Court. The Supreme Court granted certiorari on October 27, 2006. The sixth circuit decision in Winkelman found that the recent sixth circuit decision in Cavanaugh ex rel. Cavanaugh v. Cardinal Local School District was dispositive of the question of whether non-attorney parents of a child with a disability could represent their child in court. Cavanaugh held that parents could not represent their child in an IDEA action and that the right of a child with a disability to FAPE did not grant such a right to the child's parents. The sixth circuit in Cavanaugh first noted that federal law allows an individual to act as their own counsel but that generally parents "cannot appear pro se on behalf of their minor children because a minor's personal cause of action is her own and does not belong to her parent or representative." Finding that this general principle was not abrogated by IDEA, the sixth circuit observed that IDEA explicitly grants parents the right to a due process hearing but "in stark contrast, the provision of the IDEA granting '[a]ny party aggrieved' access to the federal courts ... makes no mention of parents whatsoever." In addition, the court observed that the intended beneficiary of IDEA is the child with a disability, not the parents, and that although IDEA does grant parents some procedural rights, these only serve to ensure the child's substantive right and do not provide the parents with substantive rights. The circuit courts are not all in accord with the sixth circuit in finding that parents may not proceed pro se in an IDEA case. Currently, there is a three way split in their determinations of this issue with some circuits finding that non-attorney parents may not proceed pro se , another circuit holding that non-attorney parents have no limitations on their ability to proceed, and other courts of appeals holding that parents can proceed on procedural claims but must use a lawyer for substantive claims. In Maroni v. Pemi-Baker Regional School District the first circuit held that parents have a right to proceed pro se on both procedural and substantive grounds. The IDEA language stating that "[a]ny party aggrieved by the findings and decision ... made under this subsection, shall have the right to bring a civil action with respect to the complaint presented pursuant to this section ..." was seen as including parents of children with disabilities. This provision was described as not making a distinction between procedural and substantive claims and the procedural and substantive rights under IDEA were described as "inextricably intertwined." The first circuit noted that there are some "practical concerns" about recognizing parents as aggrieved parties: parents may not be the best advocates for their child as they may be emotionally involved and not able to "exercise rational and independent judgment." In addition, pro se litigants were seen as imposing burdens on the courts and schools districts due to poorly drafted or vexatious claims. However, the Maroni court rejected these practical concerns finding that, since there is no constitutional right to appointed counsel in a civil case, having a parent represent them was better for children with disabilities than having no advocate. In addition to the court of appeals decisions in Winkelman v. Parma City School District and Cavanaugh ex rel. Cavanaugh v. Cardinal Local School District which were discussed previously, other circuits have also denied parents the right to proceed pro se. For example, in Devine v. Indian River County School Board, the parents of a child with autism brought suit alleging that the child's IEP was inadequate. Although the parents were represented by an attorney at the beginning of the suit, they informed the court that they wished to discharge the attorney and proceed pro se. The court noted that IDEA does allow parents to present evidence and examine witnesses in due process hearings but found "no indication that Congress intended to carry this requirement over to federal court proceedings. In the absence of such intent, we are compelled to follow the usual ruleâthat parents who are not attorneys may not bring a pro se action on their child's behalfâbecause it helps to ensure that children rightfully entitled to legal relief are not deprived of their day in court by unskilled, if caring, parents." In Collinsgru v. Palmyra Board of Education, the parents sought special education services for their son whom they contended had a learning disability. The parents pursued the administrative remedies under IDEA without an attorney although they did retain a non-attorney expert. The administrative law judge found that the child's difficulties were not severe enough to qualify for special education and rejected the parents' complaint. The parents then filed a civil action in district court. The district court held that the parents could not proceed pro se to represent their child and rejected the parents assertion that the parents were pursuing their own rights. The court of appeals in Collinsgru first found that, under general legal theories regarding pro se representation, IDEA did not allow parents to proceed pro se to represent their child stating: "Congress expressly provided that parents were entitled to represent their child in administrative proceedings. That it did not also carve out an exception to permit parents to represent their child in federal proceedings suggests that Congress only intended to let parents represent their children in administrative proceedings." The third circuit noted that the requirement of representation by counsel was based on two policy considerations. First, the court found, there is a strong state interest in regulating the practice of law. Requiring a minimum level of competence was described as protecting not only the represented party but also his or her adversaries as well as the court from poor drafted or vexatious claims. Second, the court emphasized the importance of the rights at issue and the final nature of the adjudication. A licensed attorney would be subject to ethical obligations and may be sued for malpractice while an individual not represented by an attorney would not have these protections. The parents in Collinsgru argued that since, as parents, they were responsible for their son's education, they had joint substantive rights with their child under IDEA. They noted that parents are often the only available advocates for their child and that attorneys are often unwilling to take IDEA cases due to their specialized and complicated nature and since the cases often lack significant retainers. The court expressed some sympathy for these arguments but noted that Congress had provided for attorneys' fees in IDEA, and concluded that IDEA's statutory provisions indicated that "the rights at issue here are divisible, and not concurrent." The parents and the child were thus found to possess different IDEA rights: the parents "possess explicit rights in the form of procedural safeguards" while the child possesses both procedural and substantive rights. Other courts have also found that parents have procedural rights under IDEA which they can bring suit pro se to enforce. In Mosely v. Board of Education of the City of Chicago, the seventh circuit observed that IDEA "provides both children and their parents with an elaborate set of procedural safeguards that must be observed in the course of providing the child a free, appropriate public education." Citing Collinsgru for the proposition that IDEA confers different rights on parents and children, the court found that the parent's procedural rights were enough of an interest to allow a pro se suit to enforce these parental rights to proceed. Similarly, in Wenger v. Canastota Central School District the second circuit denied a parent's attempt to bring a suit pro se on behalf of his child but stated that the parent "... is, of course, entitled to represent himself on his claims that his own rights as a parent under the IDEA were violated...." | The Supreme Court granted certiorari in Winkelman v. Parma City School District (05-983) to determine whether, and if so, under what circumstances non-attorney parents of a child with a disability may bring suit without using an attorney under the Individuals with Disabilities Education Act. The circuit courts are split in their determinations of this issue with some circuits finding that non-attorney parents may not proceed pro se , another circuit holding that non-attorney parents have no limitations on their ability to proceed, and other courts of appeals holding that parents can proceed on procedural claims but must use a lawyer for substantive claims. This report will not be updated. |
For nearly a decade, Congress and successive Administrations have worked to improve emergency communications across the nation. Although the issue of interoperable communications for first responders has drawn the most attention, there have also been several initiatives, including legislation, to upgrade the functionality of 911 call centers. Activities marking the 10 th anniversary of September 11, 2001, increased pressure on Congress to provide a comprehensive solution for better emergency communications to meet both local public safety needs and national goals. The 112 th Congress has examined—and is expected to continue to examine—assuring nationwide availability of state-of-the art communications capability for emergency response and recovery. If there is common agreement among most public safety and government officials, industry leaders, and policy makers for the need to act, a plan for action has not been agreed upon. The White House has supported allocating additional radio frequency spectrum and funding in support of a new, wireless public safety communications network. This position has received widespread support among the public safety community and some commercial stakeholders, such as the Public Safety Alliance. Proposed federal funding for this solution, however, has raised concerns about the cost to the government. The Federal Communications Commission (FCC) has proposed a public-private partnership that would use radio frequency spectrum to attract a commercial partner willing to share network infrastructure with public safety entities, reducing costs but also limiting the amount of spectrum capacity under the direct control of public safety agencies. The FCC's plans have received support from the commercial sector and stakeholders and policy makers who believe that it will increase competition and lower costs to all users of wireless networks. The number and variety of conflicting interests have made it difficult for Congress to reach agreement. Of the bills introduced in the 112 th Congress, as of the date of this report, S. 911 , as amended, and the amended Discussion Draft of the Jumpstarting Opportunity with Broadband Spectrum (JOBS) Act of 2011, which has been incorporated in H.R. 3630 , have been reported favorably by committee. This report identifies areas where changes in existing policies and practices may facilitate achievement of the important goals for emergency communications that Congress and others have identified. Why these goals have become important, and recent planning efforts to achieve these goals, is discussed first. Next, possible barriers to achieving these goals are identified and described. The conclusion revisits key options presently under consideration by Congress. Prior to September 11, 2001, planning for emergency communications rested largely with states and communities, with an emphasis on effective response by different types of service (police, fire, ambulance) at the local level. As radio technologies evolved, there was a growing awareness among first responders—long before 9/11—of the need for better coordination and communications interoperability. Their concerns crystallized after a commercial aircraft crashed into a bridge crossing the Potomac River between Washington, DC, and Arlington County, Virginia, in January 1982. As a result, new planning efforts for multi-jurisdictional and multi-disciplinary responses were put in place across the United States, with federal agencies often providing assistance through technical expertise and funding. In 1996, a report was published by the Public Safety Wireless Advisory Committee (PSWAC), which the Federal Communications Commission and the National Telecommunications and Information Administration (NTIA) had created to provide Congress with recommendations on meeting the communications needs of first responders. The committee's Final Report was considered a landmark in planning and goal setting for public safety communications. Post-9/11, the concerns raised by PSWAC received new attention. In 2003, a National Task Force on Interoperability, with the support of the Department of Justice, revisited the PSWAC report findings, reiterating needs such as investment in infrastructure, more funding, better planning, more coordination and cooperation among agencies, and allocation of additional radio frequency spectrum. In 2007, Congress created the Office of Emergency Communications (OEC) within the Department of Homeland Security (DHS) and tasked it with the preparation of a National Emergency Communications Plan (NECP), which was published in 2008. Separately, Congress, also in 2008, required the National E9-1-1 Implementation Coordination Office (ICO) to prepare a national plan for migration to Next Generation 911 (NG9-1-1) and to identify possible actions for Congress to take in advancing goals identified through the planning process. The FCC's 2010 National Broadband Plan included goals for advancing "robust and secure public safety communications networks." All of these planning efforts included a broad base of stakeholders in the process. The plans, separately compiled and administered, have provided much of the basis for current federal policy and technology strategies. The common thread is the stakeholders who have participated in the various planning committees; for example, key public safety associations are consistently represented on these committees. The FCC's broadband plan advocated deploying IP-enabled technologies for NG9-1-1 and for wireless broadband networks for public safety radios. Planning efforts for both of these emergency communications have since been initiated by the FCC. Although many of the plans developed by federal agencies over the last decade have encouraged statewide and regional planning, the evolutionary path for providing emergency communications has favored local planning over federal, regional, and even state authority. In general, the larger cities and more prosperous counties have taken the lead in deploying new communications systems. Cities and towns with populations of less than 100,000 and rural counties apparently may struggle with implementing modern communications systems. Lack of funds to build infrastructure may not be the only difficulty; often these communities do not have the needed personnel, such as grants administrators or information technology managers, and therefore rely on sharing resources with neighboring counties. The Department of Homeland Security has advocated emergency communications planning from the bottom up, encouraging stakeholders to find their own solutions within frameworks established within DHS, evolving along a development continuum provided by the agency. Although localism offers many benefits for communities, the relative autonomy in choosing technology has led to incompatible equipment and small-scale, inefficient markets for equipment and infrastructure. Emergency communications technology choices have tended to be proprietary, tailored to specific needs of micro-markets, and closed to commercial, mass-market solutions. As a consequence, there is a notable gap between the level of technology available to the typical first responder or 911 call center operator and that used every day by the average American consumer. Today, emergency communications systems are typically local in reach and limited in applications. According to most experts, the emergency communications grid of the not-too-distant future is likely to be local, national, and international in reach, with flexible and accessible applications that can be instantaneously tailored to meet the needs of any emergency situation. The emergency communications technologies of the future are expected to be developed for common IP-enabled platforms that can operate on any IP-enabled network. IP-enabled wireless devices using technologies such as Long Term Evolution (LTE) will deliver advanced services anywhere, any time. Implementation of the next generation of emergency communications technology may alter the patterns of the past 30 years of technology development and adoption for public safety radios and systems. The transition might be facilitated by changes in the management of public safety resources, addressing questions such as the following: Who will be responsible for governance? Where will decision making and planning reside? How will reliable cost estimates be established? What sources of revenue are available? How will radio frequency spectrum assets be managed? How will technology be developed and applied? Current management of public safety resources—along with some comments about how these may be changed in the future—is discussed below in six sections: governance, decision making, cost estimates, sources of revenue, spectrum management, and technology. Current policies in these areas may be inadequate to achieve the desired levels of emergency capabilities for response and recovery in all regions of the country. Congress may therefore choose to consider these and other areas where policy recommendations or legislative actions may expedite improvements to emergency communications. Governance is a broad term that can include a number of factors. At the federal level, governance is closely associated with evaluation of existing programs and the management of federal expenditures, including grants. A number of federal agencies have roles in guiding and monitoring some decisions of states and localities through grant administration. Currently, over 40 active programs, administered by nine different departments and multiple agencies within those departments, are providing grants for funding emergency communications, and guidance and governance for those grants. Within DHS, the Office of Emergency Communications, the SAFECOM Program, and the Federal Emergency Management Administration (FEMA) are among the agencies that formulate policies, plan exercises, provide guidelines, and establish requirements. Two major grants programs within the Department of Justice provide funds for emergency communications; these are the Community Oriented Policing Services (COPS) program and the Edward Byrne Memorial Justice Assistance Grant (JAG) program. The NTIA administers grants made through the Broadband Technologies Opportunity Program (BTOP), some of which benefit public safety communications and 911 services. The NTIA shared responsibility with the Department of Transportation, National Highway Traffic Safety Administration, for a 911 grant program established by the ENHANCE 911 Act of 2004. The only federal grant program exclusively for improving 911, its sole appropriations was less than $50 million provided through the Digital Transition and Public Safety Fund, created by the Deficit Reduction Act of 2005. It is estimated that as much as $13 billion in federal funding, possibly more, was spent on emergency communications from FY2001 through FY2010. This total does not take full account of earmarks and other forms of assistance not reported as grants. Little information about how this money was spent is readily available. Grant programs provide a mechanism for governance by affecting performance and behavior; financial audits and other reviews of expenditures provide oversight. For investments in public safety communications systems and equipment, oversight seems to be mostly within the communities whose first responders use the systems that have been purchased. Federal audits usually are not performed at a level of detail that identifies the specific uses of federal grants by the ultimate recipients of the funds. Because new technologies that might benefit public safety communications are being developed and deployed almost exclusively within the commercial sector, one of the considerations for improving governance of emergency communications deployments might be how to manage partnerships between the commercial sector and state and local agencies. In a publicly traded corporation, governance is provided by the board of directors and senior management, who must satisfy the expectations of shareholders and financial markets as well as assure compliance with rules and regulations. A public-private partnership might therefore meld public and private methods of governance. This in turn might lead to a closer examination of the federal role in providing governance and funding. For example, to capture the full advantages from innovation and cost-saving economies of scale, some say transfers of new commercial technologies to public safety agencies should occur on an on-going basis, not as episodic one-time transactions. Federal grants, however, tend to provide for single projects, within a limited timeframe, and may lose some of this efficiency. Other sources of funding in addition to federal grants are available for the building and operation of communications systems. Given the many potential sources of funds available to states and communities, it is debatable whether rules attached to federal grants can be used to drive a process that would coordinate the construction and operation of a seamless, nationwide network to serve first responders and other emergency personnel. As with federal grant programs for emergency communications, multiple federal agencies are involved in planning and decision-making guidance for state, local, tribal, and regional agencies. Although a number of federal programs provide support for state and local activities, there appears to be little coordination among these agencies in carrying out their separate programs. Congress has separately and specifically given authority to DHS and to the FCC to act on behalf of public safety. In the case of DHS, authority includes planning and implementing public safety communications solutions and setting requirements to coordinate and support specific goals, such as interoperability and a national communications capability. Within DHS, the Office of Emergency Communications manages statewide planning and coordination for interoperable communications and administers compliance with the National Emergency Communications Plan. FEMA participates in emergency communications planning as part of its state and regional efforts for hazard mitigation and response and recovery. The FCC has several pertinent mandates from Congress, such as an obligation to "promote safety of life and property through the use of wire and radio communication," and requirements regarding the assignment of radio frequencies for public safety use. The FCC created a Public Safety and Homeland Security Bureau in 2006 to consolidate its many programs oriented toward public safety. This bureau and the Wireless Telecommunications Bureau jointly administer the Public Safety Broadband Licensee, the chosen license-holder for the public safety broadband frequencies at 700 MHz. The FCC also oversees the activities of 55 Regional Planning Committees that administer spectrum assignments for mission-critical voice networks in the 700 MHz band. Other federal agencies with decision-making responsibilities for public safety planning and investments include the NTIA and the National Institute of Standards and Technology (NIST). For example, the Public Safety Communications Research program is a joint effort between NIST's Office of Law Enforcement Standards and the NTIA. Every state has one or more agencies that plan for public safety, homeland security, and emergency communications. Most states have a Statewide Interoperability Coordinator (SWIC) to administer its Statewide Communication Interoperability Plan (SCIP). SCIPs are written to conform with federal guidelines and requirements, such as the NECP, and provide guidelines and goals. DHS describes SCIPs as "locally-driven, multi-jurisdictional, and multi-disciplinary statewide plans to enhance emergency communications." State coordinators are encouraged to promote a "coordinated practitioner-driven approach" through a "collaborative statewide governance structure." Not all grants are coordinated through the SCIP, however. Many earmarks and some grants have been awarded directly to an agency within a town, city, or county for a specific purpose identified by the recipient. A review of federal, state, and local grants programs seems to indicate that most purchasing decisions for emergency communications equipment occur at the county level, often based on an approved equipment list provided by the state or by a regional buyers cooperative. Planning and decision making for emergency communications at the local and county level is often separated by function. Some actions may be coordinated through a planning board, or one office, such as the sheriff's office, will be designated for emergency planning. Federal and state programs may provide specific goals and a framework for coordination. It appears, however, that funds are disbursed and authority is typically dispersed according to the administrative structure of the county, city, or town. There is a great deal of variation across the country but, generally, state officials manage communications for statewide systems, such as the state highway patrol, and local officials manage local public safety services. In its National Broadband Plan and other documents, the FCC has advocated some form of public-private partnership between public safety agencies and wireless carriers that would include sharing responsibility for planning and decision making. The decision by the FCC to advocate a shared network for wireless communications was centered on two conclusions: (1) that a network with national coverage would best meet public safety needs for robust communications capabilities, information, and interoperability; and (2) that sharing spectrum and network facilities with commercial users would benefit public safety through economies of scale in building, equipping, and operating the network, by providing access to additional spectrum in times of large-scale emergencies, and by offering new sources of funding, among other benefits. Arguments in favor of building a network exclusively for public safety revolve around the shortcomings of current commercial wireless services such as poor availability, inadequate coverage in rural areas, lack of security features, and absence of priority access. Also, public safety representatives have frequently expressed concerns in testimony before Congress about sharing authority with a commercial partner. Final decisions by policy makers about the number, location, and type of network (local, state, regional, national) are likely to have a significant impact on commercial participation in a public safety broadband network or networks. Although most public safety representatives object to any sharing arrangement that would allow commercial partners to dictate access to capacity, in general they have advocated leveraging public safety spectrum resources through agreements with commercial partners. The scope of these agreements is undecided. Some agencies envision a national network governed primarily by the Public Safety Broadband Licensee; some prefer linking state and regional networks, with regional boards taking the lead; others assume the solution will be a system of multiple local, county, and state systems similar to what is in place for existing public safety radio systems. To maximize the benefits of commercial involvement, the National Emergency Number Association (NENA) in 2009 proposed consolidating the Public Safety Broadband License with the D Block, to be auctioned to commercial operators who would be required to develop public safety enterprises to provide the needed network. As part of its initial planning for a Public Safety Broadband Network (PSBN), to facilitate interaction between the public and private sectors, the FCC required the creation of a not-for-profit corporation, the Public Safety Broadband Licensee (PSBL) to hold the license for spectrum assigned for public safety broadband. This corporation is presently governed by its board, the composition of which is largely determined by the FCC, with the participation and oversight of two FCC bureaus. As originally envisioned by the FCC, the PSBL would be contractually bound to work with one or more commercial partners to develop a broadband network for public safety use. The FCC awarded the administration of the PSBL to the Public Safety Spectrum Trust (PSST). To work with the PSBL, the commercial sector, and other stakeholders, the FCC created the Emergency Response Interoperability Center (ERIC) within the FCC Public Safety and Homeland Security Bureau in April 2010. ERIC was tasked with implementing standards for national interoperability and developing technical and operational procedures for the public safety wireless broadband network in the 700 MHz band. The national license currently assigned to the PSST for a broadband network is for 10 MHz within the 700 MHz band. Until plans are finalized for the PSBN, the FCC has provided conditional waivers for some agencies that wish to move forward with broadband network deployment. Agencies in eight states, five counties or regions, and eight cities received waivers, which required them to meet network requirements as specified by the FCC. The FCC then approved agreements for 20 of the waiver recipients to lease spectrum from the PSST to cover their planned areas of operation. Transferring spectrum management rights to these jurisdictions effectively assigned much of the decision-making authority and funding responsibility to them as well. Based on FCC plans, however, ERIC and the PSST will do most of the planning for the PSBN; future grants intended for the PSBN would have to be used in accordance with the network plans developed by the FCC through ERIC. The FCC, therefore, would be the lead agency for grants guidance, governance, planning, and some decision making for the PSBN. The level of decision-making power that the FCC will be able to wield depends largely on the outcome of its negotiations with the PSST and other public safety stakeholders, possibly bolstered or constrained by congressional action. Given the apparent expectations of many stakeholders that there will be commercial participation in building and operating a nationwide network for public safety broadband communications, it might be useful to develop specific guidelines for these partnerships at the beginning of the network planning process. For example, it is not clear whether the PSBL will take the lead in negotiations and contractual agreements with commercial partners or whether decisions regarding these agreements will be left largely to states, or localities, as has been the case in the past. Although the FCC would appear to have authority over the process of planning and decision making for the PSBN, it may come under pressure from stakeholders, including Congress, to share responsibilities. Collaborative decision making among a large number of stakeholders may dilute efforts for an efficient, cost-effective, interoperable network, some say, without necessarily representing the interests—or meeting the needs—of its users. Building the network requires capital expenditures for infrastructure and operations centers, wireless towers, radios, and other communications equipment. Covering on-going expenses requires additional funding for software upgrades, maintenance, network operations, training to use new equipment, and other recurring costs. For wireless communications, an important infrastructure component is the network that links radio towers to communications backbones. These networks, which usually operate over fiber-optic cable or microwave connections, are typically referred to as backhaul. In 1996, the Public Safety Wireless Advisory Committee reported that the estimated value of the installed base of nonfederal public safety communications networks was $25 billion, with a useful life of 15 years. Most of the networks in place at the time operated on analog frequencies. In recent years, the National Emergency Management Association (NEMA) has reported on interoperable communications expenditures in at least two of its biennial reports. These reports provide summaries of responses to questionnaires sent to NEMA's members. In 2006, NEMA reported that states estimated that it would cost a total of $7 billion to achieve state-wide interoperability for national coverage or to reach levels required by each state's homeland security strategy. The average expenditure, per state, for states providing estimates of their projected costs, was reported to be $160 million. In 2008, NEMA reported that the states' estimates of the cost of providing interoperable communications nationwide had risen to a total of $12 billion since the 2006 report. Obstacles to achieving interoperability that were cited in the report include rapidly changing technologies that require repeated and costly investments; lack of cooperation among jurisdictions; and a lack of expertise and resources for proper planning. The 2010 Biennial Report carried no information about interoperable communications. In 2008, when the FCC proposed a public-private partnership to build a public safety broadband network, the cost was estimated in public comments filed with the FCC at from $18 billion to as much as $40 billion. These projected costs did not include radios. The network would have been largely built by the purchaser of a commercial spectrum license, known as the D Block, allocated for that purpose. The planned auction of the D Block failed. In 2010, the FCC again proposed to auction the D Block, under new rules that would include sharing infrastructure with a separately funded and managed Public Safety Broadband Network. Although the FCC did not provide details of how the D Block would be auctioned, it did prepare estimates of the cost to public safety if infrastructure was shared. These estimates were based on assumptions that include (1) 95% of the towers used in the PSBN would be shared with commercial operators; (2) backhaul would be shared and paid for separately; (3) the new network would be data and video only; and (4) LTE would be the wireless technology used. The FCC concluded that the "total present value of the capital expenses and ongoing costs for the network over the next ten years is approximately $12-16 billion." Of this, $6.5 billion would be for capital expenditures. The cost of radios is not included. The FCC also provided an estimate for building a stand-alone public safety network. Instead of $6.3 billion in capital expenditures for building and equipping tower sites, a stand-alone network would cost $12.6 billion. Additional investments of $3.1 billion would be required for backhaul and operations centers, bringing the total estimated investment to $15.7 billion. The total present value for both capital expenses and operating costs over 10 years for a stand-alone network might be $34.4 billion to $47.5 billion. Both the incentive-based and stand-alone network cost estimates are based on 44,800 cell sites. Costs might be reduced if pre-existing public safety sites for cellular network connections can be used and might be increased if networks are operated by multiple jurisdictions, leading to inefficient redundancies. Communications capabilities generally available for the emergency response community tend to be more costly than commercial solutions. Although some of the added cost can be attributed to unique requirements such as operability in extreme weather conditions, much of the higher cost comes from limited production runs in an industry otherwise characterized by aggressive policies to achieve economies of scale. To take advantage of economies of scale and provide efficiency in investment, operating costs, and spectrum use, among other benefits, the Governing Board of the National Public Safety Telecommunications Council (NPSTC) has recommended the adoption of a national network with a small number of core networks for public safety broadband. In its conceptual model, NPSTC has placed seven distributed core networks within the continental United States to provide national coverage and necessary system redundancy. NPSTC has stated that this national network architecture approach would be less costly than any of the "network of networks" architectures that have been proposed by numerous public safety officials. According to NPSTC, the cost of the extra capital needed to build a network of networks would be "unnecessarily expensive." One nationwide network "will cost the least amount to manage, maintain, and upgrade." NPSTC also observed that "recurring costs to manage and refresh a network, over the long term, will be the largest cost component regardless of configuration." According to NPSTC, coordinating the funding and installation of system upgrades across multiple networks would be difficult and inconsistencies could lead to operability and interoperability problems. A cost analysis based on research done at Carnegie Mellon University provides alternative scenarios using different assumptions about the type of public safety communications network to be built. For example, three scenarios are considered for a public-safety-only network built on 10 MHz of spectrum and for a public-private-partnership network using 20 MHz of spectrum. The three operational scenarios are (1) voice only; (2) data only; and (3) voice and data. The estimates are derived from assumptions about network traffic, capacity, and technical parameters that lead to an estimate of the number of cell sites needed for each type of network. Costs are estimated based on the cost of building and operating the expected number of cell sites needed for each scenario. Deployment costs are those associated with the installation and operation of cell sites and do not include other network components such as mobile switching centers. The estimates use values of $500,000 per cell site for deployment and $75,000 per cell site, annually, for operating costs. The cost of buying, maintaining, or upgrading radios is not included. Also, the estimates for a public-safety-only network are based on 10 MHz of available spectrum; no analysis was done for a public-safety-only network using 20 MHz. The cost analysis yielded an estimated investment of $11.1 billion to deploy a voice and data network on 10 MHz of public safety spectrum. The comparable estimate for a public-private network on 20 MHz is $9.7 billion. The White House has, in some documents, assumed an investment of $10 billion is needed to deploy a wireless broadband network for public safety using 20 MHz of dedicated spectrum. Wireless communications over the airwaves come to earth through towers and switches that link them to telecommunications and Internet networks. As telecommunications technology evolves from voice traffic over the Public Switched Telephone Network (PSTN) to data traffic over the Internet and Internet-like networks, the nature of network support for wireless traffic is also changing. To take advantage of IP-enabled technology, some states and communities have built their own links to backbone networks to supplement or replace network access through commercial carriers. Other communities have built their own networks because commercial carriers were not providing service to their area. Where these networks are in place or are being developed, IP-enabled public safety technologies are often making the transition to these networks. The networks can be designed to support NG9-1-1, emergency alerts, and wireless network backhaul, as well as the broadband communications needs of government agencies and the general public. Studies published by the Department of Transportation in 2008 estimated the cost of providing 911 services for several scenarios over a life cycle extending from 2009 through 2028. One group of assumptions would maintain the existing 911 infrastructure. Cost estimates for two different scenarios supporting that assumption set cumulative investments in "acquisition and implementation" at $9.3 billion and $13.1 billion, depending on the assumptions and the weight given to them. Similarly, cumulative "operations and maintenance" costs were estimated at $46.4 billion and $65.8 billion. Another set of assumptions was developed to estimate costs for building a new NG9-1-1 network as a stand-alone network. The estimates were $8.7 billion and $9.1 billion in cumulative investment, and $51.1 billion and $49.2 billion in operating costs. The estimates for new, NG9-1-1 systems do not take into account how much those costs might be reduced by sharing infrastructure. Most states, however, do plan on sharing network infrastructure among multiple users. A number of BTOP grants, for example, have been made for the construction of multi-purpose broadband networks that include 911 services and backhaul for first responder radios. In addition to cooperation for sharing network resources, the FCC has anticipated that commercial partners would lead, and fund, the development costs of the radio technologies that will operate within the frequencies assigned to the Public Safety Broadband License and the D Block. The participation of commercial carriers in developing and deploying crucial radio components is expected to put the cost of public safety radios in the same price range as commercial high-end mobile devices ($500). By contrast, interoperable radios for the narrowband networks at 700 MHz cost $3,000 and up, each. The latest radios developed for public safety by DHS, designed to operate on multiple bands, are estimated to cost between $4,000 to $6,000. Among the many unresolved debates surrounding the development of a broadband wireless network for public safety use is the feasibility of expecting the new network to carry both data and voice traffic. Commercial LTE networks will in the immediate future use existing voice-data networks (primarily third-generation networks, 3G) to provide the voice component for LTE (4G) devices. This is not considered a viable option by most public safety officials, as the 3G networks do not support a number of features considered essential for public safety voice communications. Many of these features are dependent on radio-to-radio (off-network) communications that today require assigning channels for exclusive use. Some radio communications experts argue that LTE-based solutions for public safety's needs can be developed and adapted rapidly. Others believe that the process of integrating voice and data will be difficult and slow, taking perhaps decades. Some public safety officials believe it is not possible for all their needs to be met by a single, unified network and that separate radios and networks for separate functions are the solution. The FCC has concluded that proprietary technologies have hampered the effective development of public safety radios and curtailed interoperability, based on findings provided to Congress in response to an inquiry from the House Committee on Energy and Commerce in 2010. In April 2011, the committee wrote to the FCC with a list of questions about the selection of equipment vendors by those agencies that have received waivers to begin building parts of the PSBN. Questions related to policy issues raised in this report include the possible impact of proprietary broadband technologies on network and device equipment costs borne by public safety relative to commercial costs; the ability for public safety to benefit from innovation in wireless technologies; the likelihood of terminated product lines or new mandatory releases that result in unique costs to public safety relative to commercial technologies; public safety interoperability at the application, devices, and network levels among networks provisioned by different vendors; the ability of public safety users to enter into partnerships with commercial wireless providers; competition in the public safety communications equipment market; and the FCC's National Broadband Plan finding that encouraged incentive-based partnerships with a variety of commercial operators. The FCC responded to this letter in mostly general terms, citing, for example that the waiver process is in its early stages. The FCC response noted that issues similar to those raised by the committee letter are being examined in the Interoperability Further Notice of Proposed Rulemaking . The FCC's primary focus has been to develop rules to ensure technical interoperability nationwide for the public safety broadband network, even if proprietary technologies are used. The FCC reply noted that, of the 20 waiver recipients, only two had selected a vendor, and another eight were in the process of identifying and selecting a vendor. The FCC does not require waiver recipients to use competitive bidding because it does not oversee the procurement practices of state and local governments. The FCC has based its planning and cost projections on the assumption that there will be a nationwide network administered by a single license-holder. Meanwhile, states and localities have continued to apply to the FCC for waivers that would permit them to obtain sub-licenses from the PSST and commence building their own networks. Any IP-enabled network, however, can support virtual private networks in wired or wireless infrastructure. The most important consideration for assured access, therefore, is not network ownership but network availability, permitting the uninterrupted transfer of communications to an operational link when part of a network fails. Sharing infrastructure between public safety and commercial license-holders, as proposed by the FCC, would lower costs and increase national availability by providing access to commercial networks. A nationwide public safety network, with a small number of operational cores operated by and for public safety agencies, as proposed by NPSTC, would increase network availability and facilitate cost-saving measures for participating public safety agencies. Turning over network construction and operations to the commercial sector, as NENA has proposed, might lower costs even further but might also limit public safety access, unless strict rules for meeting capacity needs are in place. If multiple jurisdictions build their own public safety broadband networks, not only might the total cost of providing capacity increase significantly but also available capacity might be diminished because of the added complexity of coordinating interoperable access. The choice of design for the network, therefore, may have an impact on the amount of funding and the length of time needed to construct an interoperable network that can be accessed nationwide. Once governance and decision-making authority can be conclusively decided, it may be possible to provide the nation not just with a plan, but with a network design that provides a more solid basis for cost estimates and for plans for funding. States and localities, for example, might benefit from a better sense of their future financial obligations in the construction and operation of a broadband network that is to provide access to public safety agencies across the country. Public safety agencies have multiple obligations to build or upgrade, and equip, other networks. The costs of building and maintaining a new data network, therefore, are some fraction of total obligations to assure emergency communications capabilities. Based on information about the cost of existing systems and estimates of future costs, the construction of this new network represents a significant investment for all participants. Although there are many ways that the federal government might encourage improvements in emergency communications, such as tax incentives or cash awards in technology contests, most federal financial support has come from grants and congressionally directed funding. Other sources of funding for emergency communications include appropriations from state and local budgets, financing from government bonds, grants from private foundations, lease-purchase agreements with equipment suppliers, and sources of recurring revenue such as fines, user fees, surcharges, and state and local sales and property taxes. At the local level, funds are often collected through bake sales, fish fries, fund-raising drives, and other community-supported efforts. Testimony at congressional hearings and other public statements by public safety officials indicate that many public safety agencies envisage setting up a partnership with commercial network operators that would provide some form of revenue. How this would be accomplished has been left vague. Possible models to generate revenue from public safety spectrum assets include issuing secondary licenses to commercial partners, and network management techniques that use advanced technologies to share spectrum. The final decision as to how spectrum access might be divided up across an estimated 65,000 public safety agencies has not yet been made by the stakeholders. Some municipalities and states may seek commercial partnerships that will provide access to public safety spectrum in return for financial consideration. Resources provided by the commercial sector might include access to their infrastructure and cash payments for spectrum leases. The value to commercial operators of spectrum access would likely depend on the geographical coverage being offered by the public safety licensee. Paradoxically, the areas where the spectrum is likely to have the most value, such as urban areas, are also the areas where public safety agencies are most likely to need spectrum capacity for their own use. Leased or shared spectrum in small or isolated communities may have little commercial value. The monetary value of spectrum licenses might also be captured for public safety communications expenses by using the proceeds from commercial license auctions. Several proposals, including proposed legislation, would designate all or part of the proceeds of some auctions to funding public safety communications investments and operating costs. These proceeds would be deposited in a special fund; grants administrators would be allowed to borrow against anticipated future revenue so that grants could be provided immediately. Congress has twice in the past acted to create special funds to receive and distribute revenue from spectrum auctions for specific purposes. These funds represent a departure from existing law, which requires that auction proceeds be credited directly to the Treasury as income. The Deficit Reduction Act of 2005 ( P.L. 109-171 , Title III) required the auctioning of licenses for spectrum used by television broadcasters for analog transmissions. It established the Digital Television Transition and Public Safety Fund to receive this auction revenue and use some of the proceeds for the transition to digital television, public safety communications, and other programs. The Commercial Spectrum Enhancement Act ( P.L. 108-494 , Title II) established a Spectrum Relocation Fund to hold the proceeds of certain spectrum auctions for the specific purpose of reimbursing federal entities for the costs of moving to new frequency assignments. Current law prohibits the FCC from considering potential spectrum revenue in planning auctions of spectrum licenses, yet high auction yields may be necessary to sustain the proposed grant programs. Furthermore, although auctions of spectrum licenses are an effective solution for implementing today's wireless technologies, spectrum management policies might change to accommodate the technologies of tomorrow, with less reliance on auctions as a policy tool. It may be that additional congressional oversight is required to assure that the maximum national value is obtained from national spectrum assets. Using revenue generated by the sale of radio frequency spectrum to fund wireless networks might increase the proportion of federal money available for one-time investments in infrastructure and therefore the federal role in decision making. This, however, might require transferring authority from states and communities to federal agencies, leading to a greater level of federal participation than is currently the case. States and localities might be hard pressed to muster the resources needed to participate. Additional funding sources, such as private sector investment, may need to be considered as plans for the proposed network move forward, some say. Decisions about the assignment and management of the spectrum resources available to public safety agencies often provide the boundaries for making other decisions, such as choices for technology, governance, and funding. For example, within the 700 MHz band, 24 MHz has been assigned for public safety use, of which 10 MHz is currently designated for a new broadband network. Networks primarily for mission-critical voice communications are being constructed separately on 12 MHz of public safety's allotment within the 700 MHz band. Construction of these voice networks, referred to as narrowband networks, is being coordinated largely between states and counties, with counties and major cities typically taking responsibility for building on the spectrum assigned to them for that purpose. Figure 1 represents part of the upper 700 MHz band, indicating the frequencies assigned for public safety and adjacent commercial licenses. The accompanying legend provides the key to the type of license and the amount of spectrum associated with that spectrum. For example, reading from the left, the first band represents 11 MHz of the C Block, which is for commercial purposes. The C Block allocation is in two 11-MHz assignments, at 746-757 MHz and at 776-787MHz. The D Block has two assignments of 5 MHz each; these are contiguous with the two assignments for the Public Safety Broadband License. The D Block frequencies have not yet been auctioned or otherwise assigned. Assigning the 10 MHz D Block for the Public Safety Broadband Network would increase the broadband network's coverage to 20 MHz. Not all spectrum blocks in the 700 MHz band are shown in Figure 1 ; other commercial licenses are in Bands A and B in the lower part of the band. Public safety officials, commercial network experts, and the FCC are generally in agreement that LTE technology should be required for the new PSBN. Part of the challenge for network developers will be to coordinate the development of public safety requirements for LTE with commercial LTE standards development. Coordinating development of 700 MHz band standards among network participants provides an opportunity to maximize the benefits inherent in IP-enabled networks for the safety of the general public. For example, it is possible to create smart phone applications that can link personal mobile devices to emergency command centers, integrating information from those devices into an action plan for response and recovery. The first first responders—the people at the site of a disaster—can be enabled to participate proactively in the response. The feasibility of using crowd-sourced communications to provide information to emergency management command centers is being tested by a program undertaken jointly by the Los Angeles County Homeland Security Advisory Council and the Annenberg Innovation Lab: the CrisisConnection Project. The CrisisConnection Project, as described by Professor Gabriel Kahn, a faculty associate at the Innovation Lab who is leading the development team, will encourage businesses and others in the Los Angeles area to download a smart phone app or register a cell phone number. When a disaster strikes, a user can snap a photo of damage, such as a downed power line from a storm or a collapsed building in an earthquake. A geo-location function then pinpoints where and when the photo was taken. That information is uploaded onto a network. A mapping function places the photo on a map accessible from the web. Other information, such as the names of people who were able to exit a building before it collapsed or whether a city street is still receiving its water supply, can also be uploaded. All the information is aggregated onto one map. Fully implemented, the data might help emergency situation managers determine where to most effectively deploy emergency medical service personnel, firefighters, HazMat teams, utility repair crews, or other response and recovery personnel, as appropriate. As a situation stabilizes, evaluations about evacuation routes, shelters, and other post-disaster services could be expedited and information disseminated through emergency alert systems. The site can be used to support local 911 call center operators and link to NG9-1-1 networks for broader coverage. The scope of such life-saving measures would be greatly facilitated by effective network-to-network wireless communications. For example, federal policy regarding access to the LTE networks being built in the 700 MHz band might include requirements to leverage these spectrum assets for a nationwide emergency communications grid that meets the safety needs of the public at large. One the goals of effective spectrum management is to create opportunities for the development of innovative technologies. Wireless technology transforms air into desirable services, providing an engine for economic growth and development. The evolution of public safety communications has lagged behind the commercial sector and the military in receiving the benefits of recent innovations. By providing access to desirable spectrum in the 700 MHz for public safety purposes, Congress has provided an opportunity not only for increased network capacity but also for increased innovation in emergency communications technologies. Separately, public safety agencies across the country are investing in public safety communications infrastructure for other technologies on other frequency assignments. In addition to the proposed LTE data network at 700 MHz, there are other networks operated by public safety agencies on dedicated spectrum: narrowband networks on frequencies below 512 MHz; a separate narrowband network using spectrum at 700-800 MHz; and ultra-wideband, short-range networks at 4.9 GHz. Public safety also uses unlicensed spectrum for local voice and data networks. These networks and other communications solutions have been built separately, use different technologies, and support different radios. The commercial sector, meanwhile, has begun the transition to operating almost exclusively on IP-enabled networks such as LTE. Wireless carriers around the world are installing LTE networks for consumers and planning for the next generation of LTE: LTE Advanced. LTE Advanced technologies will be able to operate across noncontiguous spectrum bands, thereby increasing channel widths for greater capacity and performance. Most experts agree that LTE Advanced will facilitate the transition to new technologies by making it easier and less expensive to phase out older infrastructure. Many experts in advanced communications technology believe that the push to IP-enabled technologies is likely to bring about the convergence of commercial, military, and emergency response (federal and nonfederal) technologies on common, interoperable platforms. In this view, compatible communications devices will be differentiated by applications developed by stakeholders to meet their mission needs. Infrastructure, spectrum, and mobile devices will be sharable, and it is envisaged that sharing will be encouraged. The military is linking many of its communications through IP-enabled networks, similar to plans by the public safety community for investment in first responder LTE devices and NG9-1-1. The Department of Defense (DOD) has used the term internetwork to refer to the IP-enabled networks that drive its Global Information Grid (GIG) for network communications. The internetwork, also known as the Convergence Layer, provides analysis and organization of communications activity to facilitate transport. The communications layer that provides the entry and distribution links to services supported by the internetwork is referred to as the Link and Transport Layer by DOD. An Emergency Communications Grid, similar to the military's GIG, might use a common IP-enabled network structure to connect with any type of IP-enabled system, network, or device to support a wide range of services. (See Figure 2 .) DOD's internetwork is the equivalent of public safety wireless backhaul, NG9-1-1 network connectivity, or any other network connection that serves the public interest. The Emergency Communications Grid shown in Figure 2 can also send out emergency alerts to endangered populations, capture information from sensors, manage the Smart Grid to prevent power outages, and support other response and recovery actions. In nonemergency mode, the shared internetwork serves as the conduit for the daily workload of communications. The Emergency Communications Grid represents a unified approach to assuring access and interoperability among all types of communications devices and applications, but it is not envisioned as a single network. The internetwork would be a convergence of many IP-enabled networks that support all the necessary devices and provide the needed links to the Response and Recovery level. The United States Army is adapting commercial wireless technologies to operate with military networks, expanding the range of available devices and applications. It has initiated a project, Multi-Access Cellular Extension (MACE), to capture innovation in the commercial marketplace because the "commercial marketplace continuously introduces new technologies, replete with greater capabilities and faster data rates, which could prove beneficial to the military." The vision for MACE is intended to unify commercial technologies with military needs. The developers of MACE contend that it will support cellular communications over smart phones as well as links through cellular base stations to tactical systems. In demonstration pilots, mesh networking is to be used to test seamless operation in WiFi/cellular environments even when a cellular base station is not available. One example of a smart phone app being tested in a MACE demonstration is the mapping of Improvised Explosive Device locations. Similar to the CrisisConnection project described in the preceding section, the smart phone camera would take a picture at the site of an explosion and, using location technology, pinpoint it on a map of the area. This information would be used in planning routes to be taken through the area. The MACE strategy, and other Army Research and Technology initiatives that are augmenting commercial solutions to work in the military environment, may also be applied for public safety response and recovery efforts. The developers of MACE have identified a number of parallels between tactical military deployments and first responder deployments. For example, military divisions and public safety personnel both need robust communications technology to provide: situational awareness, chain-of-command and network management functions, authentication and access control, and data security—at a low cost. The military model may not be readily transferable to public safety, however. The approach being taken by the U.S. military is to set up structures that incorporate commercial technologies and innovation into existing tactical systems. Public safety communications do not have a similar system on which to build. The new narrowband and broadband networks for public safety will, according to testimony, be incompatible with each other and with other networks for the foreseeable future. Only a small part of the existing public safety infrastructure is expected to be usable in the development of new networks at 700 MHz. The military is planning to use commercial technologies to expand the capabilities of its existing communications base, public safety agencies, on the other hand, may need to use commercial infrastructure as well as technologies. Using commercial infrastructure to support public safety apps would emulate MACE's plan for melding commercial and military technologies to capture the benefits from innovation and cost-efficiencies. There is a generally recognized need to move to technologies that use Internet protocols in order to improve service and reduce operating costs. Because IP-enabled technologies are radically different from those of most of the emergency communications systems currently in place, the transition provides opportunities to surmount existing barriers to change. Just as access to the Internet has revolutionized business and social cultures worldwide, access to IP-enabled networks is likely to reshape the command-and-control hierarchy of first responders, and the ways they use and pay for communications systems. Public safety communications may be closed off from vital new technologies unless solutions are found to incorporate and foster change. Communications technology for public safety, as for the military, needs to be regularly refreshed by innovations and cost-saving efficiencies developed by a competitive commercial sector, according to some experts. The House of Representatives, on December 13, 2011, approved the Middle Class Tax Relief and Job Creation Act of 2011 ( H.R. 3630 , Representative Camp). H.R. 3630 , Title IV contains provisions from the Discussion Draft of the Jumpstarting Opportunity with Broadband Spectrum (JOBS) Act of 2011, as amended, approved in markup on December 1, 2011, by the Subcommittee on Communications and Technology, House Committee on Energy and Commerce. H.R. 3630 is under consideration by a conference committee for which a major focus of discussion is an extension of payroll tax cuts and how to fund them. In the Senate, the legislative response to H.R. 3630 may include provisions from the American Jobs Act of 2011 ( S. 1549 and others) and from the Public Safety and Wireless Innovation Act ( S. 911 , as amended, Senator Rockefeller). S. 911 received bi-partisan approval by the Committee on Commerce, Science, and Transportation. This section provides an overview of H.R. 3630 , Title IV and what are referred to as the "Administration bills" because they reflect Administration policies on public safety and spectrum policy. These are: S. 911 , as amended; H.R. 2482 ; and Title II, Subtitle H of S. 1549 , and similar bills S. 1660 and H.R. 12 . The House bill references are the pertinent sections of H.R. 3630 . Specific citations for the Administration bills are from H.R. 2482 , the companion bill to S. 911 , as amended, and S. 1549 . There are a number of possible paths forward for federal policy. One approach might be to return to the pre-9/11 era, when the federal government left most planning and purchasing decisions to state and local governments, and federal and nonfederal network managers negotiated reciprocity agreements, separately and independent of each other. Since 9/11, however, the technologies that might provide effective and efficient communications for public safety needs have evolved more quickly than the organizational structures of the agencies that plan for, use, and manage these technologies. The rapid transition to broadband communications, for example, has widened the gap between practice and expectation; how public safety agencies have managed their communications assets in the past may not be a good model for how they should be managed in the future. The Administration bills currently before Congress would provide government support to move public safety agencies away from the incremental development of narrowband voice networks to next-generation IP-enabled networks that carry voice, data, and video transmissions. They would assign the D Block and Public Safety Broadband licenses to a not-for-profit Public Safety Broadband Corporation, and would fund its initial costs to build a single, nationwide network. Additional funding would be from loans and fee income. H.R. 3630 would provide federal leadership to develop a plan that ensured interoperable broadband communications among states. A federally appointed Administrator would ensure compliance with the requirements and manage distribution to states of frequency assignments in the D Block and Public Safety Broadband licenses. States that participated in the plan would assume the primary responsibility for building and operating individual state networks in partnership with the commercial sector. The federal government would provide funds for a matching grant program. States would determine how to fund their own networks but would be required to work with commercial partners and would be allowed to enter into partnerships that would generate fee income from the commercial sector. Planning and implementation of broadband networks for public safety communications are still in the early stages. Among the barriers to moving forward are incomplete development of technology and standards; inadequate planning; insufficient coordination among public safety agencies; lack of governance structure to direct and administer a nationwide, interoperable network; and lack of sufficient funding. The bills would provide mechanisms for planning and governance and would establish grants programs for financial assistance. The Administration bills would create a not-for-profit corporation to undertake the construction and operation of a nationwide broadband network. H.R. 3630 (§4203) would create an Administrator and a Public Safety Communications Planning Board (§4202) to direct the actions of individual states to carry out the construction and operation of state systems. States would not be obliged to build a network, but would be required to adhere to the requirements established through the act if using the spectrum designated for public safety broadband communications. Local networks within states would be allowed, as would regional networks across states, as long as these were compliant with the act. All three bills would require the FCC to assign an additional 10 MHz of radio frequency spectrum in the 700 MHz band for public safety use. These frequencies—at 758-763 MHz and 788-793 MHz—are known as the D Block. The bills would combine the existing Public Safety Broadband License (currently assigned to the Public Safety Spectrum Trust – PSST) and the D Block in a single license. The FCC would be required to take the steps necessary to transfer the license. The Administration bills would assign the combined license to a newly created Public Safety Broadband Corporation. H.R. 3630 (§4201) would assign the license to the Administrator of the National Public Safety Communications Plan, as required by the bill. The Administration bills would specify that the broadband license be administered as a single, national license. H.R. 3630 would require the Administrator to oversee the use of the licensed frequencies by each state, or regional grouping of states, exclusively for broadband networks, as described in the bill. Public safety agencies are also building separate networks within the 700 MHz band that are referred to as narrowband because they support voice communications but do not have sufficient bandwidth to handle complex data or video. These narrowband networks are being built primarily by counties or urban areas although many of the networks are intended to be statewide. The Administration bills would affirm the FCC's right to allow flexible use on these narrowband frequencies, subject to conditions. Both bills would require the FCC to prepare reports on the efficient use of spectrum but with markedly different requirements for the contents of the report. S. 1549 would require the FCC to focus on improving the efficiency of spectrum used by public safety agencies, and in particular to assess the feasibility of relocating from other bands to the Public Safety Broadband Network. Vacated spectrum might be reassigned through auctions, including incentive auctions. H.R. 2482 would require the FCC to provide a detailed inventory of how public safety spectrum is used and to assess opportunities for reallocation. H.R. 3630 (§4102) would provide for the eventual release of the narrowband and guard band frequencies for auction to the commercial sector. This auction would be scheduled five years after the Administrator had determined the availability of standards for "public safety voice" (not defined) over the broadband network. Of these auction proceeds, $1 billion would be made available for a grant program for states to purchase radio equipment. H.R. 3630 would also allow the aggregation of public safety and commercial licenses and the repurposing of commercial spectrum for public safety use. The Administration bills would create a Public Safety Broadband Corporation, which would be charged with the management of the spectrum licenses it would receive, the planning and construction of a national network, and various management and administrative duties, as specified by the bills. Both bills would authorize the establishment of a private, nonprofit corporation established in the District of Columbia. The bills would establish parameters for the membership of the corporation's Board of Directors. Four federal representatives would be designated from the Departments of Commerce, Homeland Security, and Justice, and from the OMB. Eleven nonfederal board members would be appointed by the Secretary of Commerce, in H.R. 2482 , and in S. 1549 by the Secretary in consultation with the Secretary of Homeland Security and the U.S. Attorney General. Of the nonfederal board members, at least three would be chosen to represent the collective interests of state, territorial, tribal, and local authorities. In addition to experience in the field of public safety, at least one member of the board would be appointed because of specific abilities in each of these fields: technical expertise, network expertise, and financial expertise. S. 1549 would include experience in cybersecurity as a qualification for technical expertise and would include clauses regarding security clearance that are not mentioned in H.R. 2482 . H.R. 3630 (§4203) would require the NTIA to select, through the process of requests for proposal, an Administrator to provide corporate governance over the deployment and management of interoperable broadband communications for public safety entities as described in the bill. The bill (§4202) would require the FCC to establish a Public Safety Communications Planning Board. Within one year of formation, the board would provide a Public Safety Communications Plan to be carried out by the Administrator. The FCC would provide staff, facilities, and administrative support to the board in its preparation of a plan, as required in the bill. The four federal members would come from the FCC, the NTIA, the OEC, and NIST. Of the remaining nine members of the board, five would represent state and local interests, including three to represent public safety interests, and four members would be from the commercial sector. At least one nonfederal member would be required to provide technical expertise, network expertise, or financial expertise. The FCC would have authority in the actions of the Administrator except to assure that spectrum is used in accordance with the plan, without harmful interference (§4201). The Administration bills would specify the powers and duties of the corporation and would establish statutory responsibilities regarding the build-out, maintenance, and operation of the new public safety network. The bills would permit the corporation to incur debt, including through the sale of notes or bonds. H.R. 3630 (§4203) would establish the powers of the Administrator, while specifying that those powers are limited to carrying out the requirements of the act and of the Public Safety Communications Plan. The act would establish requirements for state-compliance with the plan regarding the build-out, maintenance, and operation of the new public safety network. The Administrator would be funded solely through the Public Safety Trust Fund. The Administration bills would describe how the Public Safety Broadband Corporation should structure its request for proposals to build out the network. Proposals would be required to include a build-out timetable that included coverage, service levels, and performance criteria. The timetable criteria are similar to what the FCC now requires of commercial network operators through the auction and service rules that are established in advance of any auction of radio frequency spectrum licenses. H.R. 2482 would include additional provisions regarding obligations to seek out commercial partners. S. 1549 would specify construction of "an Evolved Packet Core or Cores," whereas language in H.R. 2482 might be interpreted as specifying the construction of a single core system. The number and placement of operating nodes requiring an Evolved Packet Core is still being debated within the public safety community and its technical advisers. H.R. 3630 (§4221) would require that states wishing to build a public safety network on the broadband spectrum create a State Public Safety Broadband Office. The bill would provide requirements to coordinate the responsibilities of the Administrator, the Public Safety Communications Planning Board, and the states. Under H.R. 3630 , each Public Safety Broadband Office would be required to negotiate contracts with a private-sector entity of commercial wireless services. The offices would use a baseline request for proposals prepared by the Public Safety Communications Plan. The negotiated contract would be approved by the Administrator. The contracts for construction, management, maintenance, and operation of a state public safety broadband communications network are to be in partnership with a commercial provider of mobile services. The contracts would be required to meet the requirements established in the Public Safety Communications Plan. Public-private partnerships would be permitted and would allow the commercial partner access to spectrum and network resources of the public safety broadband network. Network access would be permitted on a secondary basis to users that are not part of a public safety entity, as defined in the bill. The Administrator would be required to ensure that any such agreement would allow public safety users pre-emptive access to their network. Although regional consortia of the State Public Safety Broadband Offices are permitted, H.R. 3630 would not require the construction of, collaboration on, or sharing of evolved packet cores. The provisions for deployment standards might be interpreted to preclude the Public Safety Communications Plan from including requirements for collaboration or sharing in its plan. The plan is to require, and the Administrator is to ensure, that each state public safety broadband communications network be interconnected and interoperable with each other. Provisions for a build-out timetable that would include coverage, service levels, and performance criteria are similar to the Administration bills. The Administration bills would allow the FCC to adopt rules to improve the ability of public safety users to roam onto commercial networks and to gain priority access to commercial networks in an emergency. H.R. 3630 (§4202) would prohibit any public safety network, device, or other requirement that would be generally applicable to commercial providers of wireless services. All three bills would establish a State and Local Implementation Fund and would allow the NTIA to borrow against future deposits to the fund from the General Fund of the U.S. Treasury. The Administration bills would provide matching grants to states and localities for some of the costs of connecting to the planned Public Safety Broadband Network. H.R. 3630 (§4222) would provide matching grants to State Public Safety Broadband Offices to carry out their responsibilities. The Administration bills would authorize NIST, in consultation with other federal agencies, to conduct research and to assist with the development of standards, technologies, and applications to advance wireless public safety communications. H.R. 3630 (§4202) would require states participating in the Public Safety Communications Plan to adhere to the plan's standards for deployment. These would include requirements to use commercial standards and commercial models for network deployment and to be backward-compatible with commercial services. The Administration bills would require NTIA to manage the initial funding for the start-up costs of the Public Safety Broadband Corporation. S. 1549 would appropriate $50 million for "reasonable expenses." H.R. 2482 would authorize the NTIA to make loans to the corporation; the amount is not specified. In order to make the loans, H.R. 2482 would authorize the NTIA to issues notes or other obligations to the Treasury; the Treasury would be authorized to sell the notes, to be treated as public debt transactions of the United States. Both bills would require the corporation to assess and collect: network user fees; lease fees related to network capacity; lease fees for spectrum used as part of long-haul network transmissions; and lease fees related to network equipment and infrastructure. Both bills would require that the total amount of the fees assessed in each fiscal year shall be sufficient to cover that year's expenses for the corporation. H.R. 3630 would require the NTIA to advance up to $40 million to the Administrator, repayable from the Public Safety Trust Fund. Total payments from the fund would be $40 million. The State and Local Implementation Fund would receive $250 million under H.R. 2482 ; $200 million under S. 1549 ; and $100 million under H.R. 3630 . Funds from auction proceeds applied to building the Public Safety Broadband Network would total $11.75 billion under H.R. 2482 and $6.45 billion under S. 1549 . H.R. 3630 would provide $4.96 billion from initial spectrum auction proceeds for grants to states to build their networks; up to $1.5 billion more might be provided if auction revenues exceed expectations. Research and development of new technology for public safety would receive $500 million under H.R. 2482 and $300 million under S. 1549 . There is no comparable provision in H.R. 3630 . Today's 911 system is built on an infrastructure of analog technology that does not support many of the features that most Americans expect to be part of an emergency response. Efforts to splice newer, digital technologies onto this aging infrastructure have created points of failure where a call can be dropped or misdirected, sometimes with tragic consequences. Callers to 911, however, generally assume that the newer technologies they are using to place a call are matched by the same level of technology at the 911 call centers, known as Public Safety Answering Points (PSAPs). To modernize the system to provide the quality of service that approaches the expectations of its users will require investment in new technologies. As envisioned by most stakeholders, these new technologies—collectively referred to as Next Generation 911 or NG9-1-1—should incorporate Internet Protocol (IP) standards. H.R. 2482 would require two studies intended to expedite the transition to NG9-1-1. The National Highway Traffic Safety Administration would be required to provide Congress with a assessment of NG9-1-1 service readiness, deployment needs, and expected costs. The FCC would be required to prepare a report on legal and statutory changes needed to accommodate the deployment of NG9-1-1. H.R. 3630 (§4202) would require that states building out broadband networks in accordance with the act connect to 911 call centers and NG9-1-1 networks. The bill would incorporate the provisions of the Next Generation 9-1-1 Preservation Act of 2011 ( H.R. 2629 , Representative Shimkus). These provisions would re-authorize the 9-1-1 Implementation Coordination Office and its programs as established by P.L. 108-494 and P.L. 110-283 . These provisions would include planning for NG9-1-1 and a grant program that would receive $250 million from the Public Safety Trust Fund. Appendix A. Further Discussion of Legislation in the 112 th Congress to Improve Emergency Communications A number of proposed bills in the 112 th Congress commonly depend on federal grant guidance and rule-making to bring about needed changes. The bills would help to move public safety agencies away from the incremental development of narrowband voice networks to next-generation IP-enabled networks that fully support voice, data, and video transmissions. They all would assign the D Block license to the Public Safety Broadband Licensee for a new broadband network. S. 28 , S. 1040 , and H.R. 607 would give the FCC a central role in decision-making and planning for network construction. S. 1040 and H.R. 607 would include DHS in planning efforts and assign to it the responsibility for program grants. S. 911 , as amended, is one of several bills that would give grant-making authority to the NTIA. Funding for the grants would come from auctioning spectrum licenses; loans to grants programs could be substantial, based on expected auction proceeds. S. 911 , as amended, H.R. 2482 , S. 1549 , and H.R. 12 would create a new not-for-profit corporation that would plan for and develop a nationwide network. These bills include the Public Safety Spectrum and Wireless Innovation Act ( S. 28 , Rockefeller), the Broadband for Public Safety Act of 2011 ( S. 1040 , Lieberman), the Strengthening Public-safety and Enhancing Communications Through Reform, Utilization, and Modernization (SPECTRUM) Act ( S. 911 , Rockefeller, as amended), the Public Safety and Wireless Innovation Act ( H.R. 2482 , Dingell), the Broadband for First Responders Act ( H.R. 607 , King), and the American Jobs Act of 2011, Title II, Subtitle H ( S. 1549 , Reid and H.R. 12 , Larson). Public Safety Spectrum and Wireless Innovation Act, S. 28 Under this proposal, governance of a public safety broadband network would be shared by several agencies. S. 28 would require the formation of an advisory board with which the FCC would consult. Annual appropriations through 2018 would be authorized for the Emergency Response Interoperability Center to carry out its responsibilities as established in the bill. The NTIA would be responsible for administering the grants program for network construction, in consultation with the FCC, which would define project requirements. The FCC would administer a separate maintenance and operation reimbursement fund. It would require annual status reports from license-holders. The Comptroller General would be required to perform audits of the construction fund and the maintenance and operation fund. S. 28 would empower the FCC to take "all actions necessary" to ensure the deployment of the public safety broadband network. It would determine whether spectrum licenses would be national, regional, or statewide, which would influence sharing of decision-making powers, and would authorize partnerships with commercial interest to build a state's public safety broadband network. It would set standards for, authorize, and to some extent supervise requests for proposals to build networks. The bill would establish specific requirements concerning network build-out in rural areas, and requirements for assistance from the General Services Administration. Sources of revenue would come from the proceeds of commercial spectrum auctions, as described in the bill, and from fees or other income from secondary users of public safety spectrum. Auction proceeds up to $11 billion would be divided between a Construction Fund and a Maintenance and Operation Fund, established by the act. Proceeds above $11 billion would go to "growth-enhancing" infrastructure projects. An antidiversion prohibition would require that any funds for public safety programs made available through provisions of the act would be spent in accordance with FCC guidelines. S. 28 would direct the FCC to reallocate the D Block to public safety use and to determine the assignment of licenses. It would set up rules to govern the authorization of secondary access, if any, for those licenses. The FCC would also establish rules for public safety to access commercial spectrum and infrastructure, including roaming and priority access. It would determine whether the public safety licenses now designated for narrowband network use might be used for broadband technologies and set the requirements for this usage. Within five years of the enactment of the act, the FCC would be required to report to Congress on how public safety agencies are using public safety spectrum allocations and whether more spectrum should be made available. The FCC would set technical and operational rules for the network and, with NIST, develop standards necessary to ensure interoperability, security, and functionality. The bill would require a GAO report on incorporating satellite communications into the broadband network. To capture spectrum license auction revenues, S. 28 would extend the auction authority from the end of FY2012 to FY2020. In addition to specifically requiring an auction of at least 25 MHz of spectrum from frequencies between 1675 and 1710 MHz and spectrum between 2155 and 2180 MHz, the bill would give authority to the FCC to organize and conduct voluntary auctions. The FCC has specifically requested this authority primarily so that it may provide financial incentives to television broadcasters as part of a plan to repurpose some of the broadcaster spectrum holdings. SPECTRUM Act, S. 911 as amended, and H.R. 2482 As amended by a substitute amendment and other amendments, S. 911 and its companion bill, H.R. 2482 , would create a private, non-profit Public Safety Broadband Corporation to provide governance for a nationwide interoperable network for public safety communications. The board of directors of the corporation would include the Secretaries of Commerce and Homeland Security, the Attorney General, and the Director of the Office of Management and Budget, or their designees. Eleven nonfederal members would also sit on the board. The corporation would be tasked with deploying and operating the nationwide network according to provisions established in the bills. The bills would create a Public Safety Trust Fund that would receive proceeds of auctions of commercial spectrum licenses, including federal spectrum repurposed for commercial use, as described in the bill. The Public Safety Broadband Corporation would receive grants through the fund. The bills would require a grant to the corporation of $11.75 billion, of which at least $10.5 billion would be available for the radio network and at least $1.25 billion would be available to develop the standards and technology for the network's evolved packet core. A State and Local Implementation Fund of $250 million would be created to distribute grants from the fund for the purpose of connecting to the nationwide network. The Corporation would be required to develop its own revenue streams through assessing and collecting fees for network use by third parties. The bills would direct the FCC to reallocate the D Block to public safety use and to assign it and the existing public safety broadband license to the newly created corporation. The bills would also authorize the FCC to allow narrowband spectrum to be used flexibly, including for public safety broadband communications. The Public Safety Trust Fund would be required to provide grants to NIST for research and development for various purposes as required by the bills, including for public safety needs. The fund would also be used for wireless communications research to be undertaken by the National Science Foundations and the Defense Advanced Research Projects Agency (DARPA). To capture spectrum license auction revenues, the bills would extend the auction authority from the end of FY2012 to FY2021. The bills would also authorize the FCC to conduct incentive auctions. At least 5%, but no more than $1 billion of auction proceeds, would be available for an Incentive Auction Relocation Fund. These funds would be available to facilitate the voluntary relinquishment of spectrum licenses. The bills also identify radio frequencies that are to be made available for auction and would require the NTIA to make available at least 15 MHz of contiguous government-occupied spectrum between the 1675 to 1710 MHz band within one year of enactment of the bill. American Jobs Act of 2011, Subtitle H ( S. 1549 and H.R. 12 ) S. 1549 and its companion bill, H.R. 12 , would create a private, non-profit Public Safety Broadband Corporation to provide governance for a nationwide interoperable network for public safety communications. The board of directors of the corporation would include the Secretaries of Commerce and Homeland Security, the Attorney General, and the Director of the Office of Management and Budget, or their designees. Eleven nonfederal members would also sit on the board. The corporation would be tasked with deploying and operating the nationwide network according to provisions established in the bills. The bills would create a Public Safety Trust Fund that would receive proceeds of auctions of commercial spectrum licenses, including federal spectrum repurposed for commercial use, as described in the bill. The Public Safety Broadband Corporation would receive grants through the fund. The bills would require funding for the corporation of $6.45 billion, after submission of a five-year budget to be approved by the Secretary of Commerce, in consultation with the Secretary of Homeland Security, the Director of the Office of Management and Budget, and the Attorney General of the United States. A State and Local Implementation Fund of $200 million would be created to distribute grants from the fund for the purpose of connecting to the nationwide network. The Corporation would be required to develop its own revenue streams through assessing and collecting fees for network use by third parties. The bills would direct the FCC to reallocate the D Block for use by public safety entities. The bills would also authorize the FCC to allow narrowband spectrum to be used flexibly, including for public safety broadband communications. Up to $300 million would be made available for a Wireless Innovation Fund that might go to NIST for public safety research and development. The Director of the Office of Management and Budget would be required to approve the spend plan. If less that $300 million is provided to NIST, the remainder would go to the Public Safety Broadband Corporation. To capture spectrum license auction revenues, the bills would make the FCC's auction authority permanent. The bills would also authorize the FCC to conduct incentive auctions if consistent with the public interest. No more than $1 billion of auction proceeds would be available for an Incentive Auction Relocation Fund for incentive auctions. The bill would require the NTIA to make available at least 15 MHz of contiguous government-occupied spectrum between the 1675 to 1710 MHz band within one year of enactment of the bill. Additional frequencies are also identified for possible auction. Broadband for Public Safety Act of 2011, S. 1040 Under S. 1040 , governance would come primarily from grants administration. DHS would administer grants programs set up through the creation of a Construction Fund. DHS would also administer a Maintenance and Operation Fund. The Comptroller General would be required to perform audits. The FCC would retain its power to establish the roles and responsibilities of the PSBL. The bill would expand the Board of Directors of the PSBL, mandating the appointment of representatives from over 40 associations listed in the bill and allowing for the election of additional members. S. 1040 would require each state to provide information about its plans for deployment of the new network; the plans would be submitted to DHS and the FCC for joint review and approval. Grants could be applied to improvements and new infrastructure to meet public safety requirements for networks in the 700 MHz band, the 800 MHz band, or the 4.9 GHz band. The OEC would advise construction grant recipients on best practices and would provide guidance of project implementation. The Construction Fund and the Maintenance and Operation Fund would receive proceeds from spectrum license auctions, as designated in the bill. The first $5.5 billion from designated auctions would be deposited in the Construction Fund. Auction proceeds in excess of $5.5 billion, up to $11 billion, would go to the Maintenance and Operation Fund. Auction revenues above $11 billion would be applied to deficit reduction. Any unspent money in the Construction Fund would be transferred to the Maintenance and Operation Fund at the conclusion of the construction phase; the end of the construction phase would be determined by DHS. Any revenue from sharing, leasing, or sublicensing access to the public safety spectrum licenses or infrastructure would be deposited in the Maintenance and Operation Fund. The FCC would be directed to reallocate the D Block for public safety use and assign the license to the PSBL. The PSBL would be permitted to authorize providers of public safety services to construct and operate wireless broadband public safety networks on its spectrum holdings. The FCC would be required to authorize shared use, sublicensing, or leasing, provided that public safety services receive priority access to the network. Spectrum allocated for public safety use at 4.9 GHz would be opened to restricted sharing with commercial users. The FCC, in consultation with NIST, DHS, and others, would also set rules for interoperability between public safety and commercial networks and for roaming. Upon enactment of the bill, the FCC would be required to end the renewal of public safety licenses between 170 MHz and 512 MHz except under circumstances specified in the bill. Within three years, the GAO would be required to submit a report to Congress identifying public safety spectrum holdings that could be reassigned through auction and the likely cost of such a migration. The FCC would be required to submit a report to Congress on how public safety agencies are using public safety spectrum allocations and whether more spectrum should be made available. Within five years, the FCC and other stakeholders would be required to provide a recommendation to Congress regarding the transfer of communications systems below 512 MHz to public safety licenses in the 700 MHz and 800 MHz bands. Funding for this migration might be made available from the Maintenance and Operation Fund. The bill would mandate that all federal law enforcement agency communications not operating on commercial networks transfer to frequencies in the 700 MHz and 800 MHz bands, within 10 years of the date of enactment of the bill. The bill specifies minimum requirements to be established by the FCC for the broadband network. DHS, in consultation with NIST, shall establish standards to meet the public safety requirements developed by the FCC. The FCC, in consultation with DHS and the NTIA, would be required to issue a report and order on the use of IP-enabled networks to achieve interoperability. To capture spectrum license auction revenues, S. 1040 would extend the auction authority from the end of FY2012 to FY2020. An auction of at least 15 MHz of contiguous spectrum from frequencies between 1675 and 1710 MHz would be required within a year of enactment of the bill. Additional frequencies are identified for auction not later than January 31, 2014. Broadband for First Responders Act, H.R. 607 H.R. 607 would expand the Board of Directors of the PSBL, mandating the appointment of representatives from 40 associations listed in the bill and allowing for the election of additional members. The licensee would be required to submit a report to Congress on network plans. The Comptroller General would be required to perform audits. The FCC would establish the rules for public safety service providers to construct and operate a network on determination by the PSBL that this action would expedite network deployment. DHS would administer grants programs set up through the creation of a Construction Fund and a Maintenance and Operation Fund. The act would create a Construction Fund and a Maintenance and Operation Fund to receive proceeds from spectrum license auctions. The first $5.5 billion from designated auctions would be deposited in the Construction Fund, with the balance going to the Maintenance and Operation Fund. Appropriations of up to $5.5 billion would be authorized to supplement auction revenue, if needed to reach a total of $11 billion. H.R. 607 would direct the FCC to reallocate the D Block to public safety use and permit access to the public safety broadband spectrum and infrastructure to other providers. The bill would require a public safety agency statement of requirements that would enable nationwide interoperability and roaming across any communications system that used public safety spectrum, as defined in the law. The bill would mandate the transition from narrowband systems below 512 MHz to networks operating on public safety frequencies in the 700 MHz and 800 MHz bands. The FCC and other stakeholders would be required to provide a detailed plan for the transition. The FCC would set technical and operational rules for the network and, with NIST and others, set requirements to ensure interoperability, security, and functionality. DHS, with NIST, would take the lead in developing standards to meet these and other requirements. The FCC, in consultation with DHS and the NTIA, would be required to issue a report and order on the use of IP-enabled networks to assist interoperability. To capture spectrum license auction revenues, H.R. 607 would extend the auction authority from the end of FY2012 to FY2020. The GAO would be required to submit a report identifying the frequencies below 512 MHz used by public safety agencies that should be reassigned for auction as commercial licenses. The bill would require the recovery of spectrum at 420-440 MHz and 450-470 MHz for auction and encourage the FCC to reconfigure spectrum to increase the value of these bands. Some of this spectrum is currently assigned for amateur radio use. To capture spectrum license auction revenues, the draft discussion bill might extend the authority of the FCC from the end of FY2012 to FY2021. Frequencies used by the federal government are identified for possible auction. The FCC might be given the authority to establish incentive auctions; statutory protections regarding TV broadcasters participating in or affected by incentive auctions are proposed. Other provisions regarding auctions might be applied. Appendix B. Proposals for Spectrum Assignment The Federal Communications Commission (FCC) is the only federal agency to propose a national network for public safety communications infrastructure and to take action to plan, implement, and fund it. The FCC has proposed a public-private partnership to build a broadband network to benefit public safety. Its proposal would incorporate obligations into auction rules for a commercial network operator that would provide for a shared, national network using public safety and commercial frequencies at 700 MHz. Planning for the network would be conducted on a nationwide basis. To create the partnership, the FCC provided for two national licenses of 10 MHz each. One license was assigned to a Public Safety Broadband Licensee (PSBL). The 10-MHz license held by the PSBL is part of the 24 MHz originally assigned to public safety. The other license—designated the Upper Block D, or D Block—was scheduled for auction in 2008 to a commercial provider. At the auction, the FCC's requirements could not be met by any bidder. The failure to find a commercial partner to work with the public safety license-holder effectively reset the planning process to zero. The FCC decided to include an assessment of public safety broadband needs as part of its preparation of a national broadband plan, as required by the American Recovery and Reinvestment Act. With a public notice released September 28, 2009, the FCC sought information about current and potential future use of broadband in public safety communications. As stated above, after the auction of the D Block failed in early 2008, the FCC issued a new request for comments on how to restructure the auction to provide a network that would meet public safety needs. This led to a host of new suggestions on how to use the spectrum. The FCC's choices, however, are constrained by provisions of the Deficit Reduction Act of 2005 that require it to auction the D Block. Many of the options proposed to the FCC might therefore require Congress to amend the act or to introduce other enabling legislation. Comments filed with the FCC have opened debates about alternative courses of action. Although there are a number of different proposals, each in some way addresses the question of whether it will be public safety representatives or commercial owners and network operators that control the decision-making process. The following is a summary of proposals under discussion and possible agency or legislative actions that might be needed to implement them. Other options may be proposed or developed. Auction the D Block to Commercial Interests Agree to new rules for a D Block auction that satisfy the key goals laid out by the FCC for a shared network that benefits both public safety users and commercial interests. The D Block might be auctioned as a single, national license or as many licenses assigned to specific geographic areas. The FCC has the authority to structure such an auction under the Communications Act of 1934, as amended, including the amendments provided by the Deficit Reduction Act of 2005. This approach was recommended by the FCC. Auction the D Block without any obligations to share with public safety. Public safety agencies could eventually add broadband applications to communications systems built in the 24 MHz of frequencies originally assigned to them. The FCC has the authority to facilitate this decision. Auction the D Block without any obligations to share with public safety and "give" the auction proceeds to public safety, possibly by transferring it to an existing grants program. One program that has been mentioned is the Public Safety Interoperable Communication (PSIC) grant program set up by a provision in the Deficit Reduction Act of 2005. Congress might choose to amend the provisions for grants in the Deficit Reduction Act of 2005 or it might choose to create new legislation specifically for the distribution of the D Block auction proceeds. In either case, the cost of new authorizations would be scored by the Congressional Budget Office. Except where Congress has provided for exceptions, the Communications Act of 1934 states that, as a general rule, auction proceeds are deposited in the U.S. Treasury. Assign the D Block to Public Safety Licensees Assign the D Block to the Public Safety Broadband Licensee to administer as part of plans for a nationwide, interoperable broadband network for public safety. Because the Deficit Reduction Act of 2005 included the D Block frequencies among those that the FCC was required to auction, it appears that Congress must amend the law in order for this particular option to be exercised. Assign the D Block to the Public Safety Broadband Licensee for administration and provide federal grants to state, local or regional agencies to build and operate the network. This approach, which would include spectrum license auctions as a source of revenue, has been endorsed by the Obama Administration and is included in its 2012 Budget. Assign the D Block to state, local, or regional network managers. These would negotiate with commercial partners on how to build, operate, and fund a shared network. This action would require agreement among the participants on how to assure nationwide interoperability of the separate networks. The Public Safety Broadband Licensee would provide matching sub-licenses for its spectrum holdings in those areas. Combine the D Block with the existing public safety broadband license and award the license to a new not-for-profit corporation set up for the purpose of building and administering the public safety broadband network. Funding sources for the network would be a mix of federal and private sector investment. Auction the D Block and the Public Safety Broadband Network Licenses Combine the 10-MHz D Block with the 10-MHz Public Safety Broadband License and auction the newly created 20-MHz block, with sharing requirements similar to some of those considered by the FCC for the D Block auction. Funds from the auction proceeds might go to public safety through a program established for that purpose. In addition to legislation that would establish the funding program, Congress might need to amend language in the Balanced Budget Act of 1997 that directed the FCC to assign 24 MHz from the 700 MHz band to public safety. Appendix C. Congressional Efforts on Behalf of Public Safety Communications Many of the statutes passed since 2001 have provided guidelines and set performance goals for public safety communications while delegating decisions about implementation to federal agencies and state officials. Although Congress has appropriated money for public safety communications, it has not directly addressed the question of investment in network infrastructure, leaving it largely to federal agencies to set priorities for how public safety grants can be used. Grants for emergency communications have been used to purchase equipment that facilitates interoperability, for planning, and for training. Congress first addressed the issue of emergency communications interoperability in the Balanced Budget Act of 1997 by providing additional radio frequency spectrum that would allow for interoperable networks. Provisions intended to improve interoperable functions in public safety networks were included in the Homeland Security Act of 2002 ( P.L. 107-296 ). Two years later, responding to recommendations of the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), Congress included a section in the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) that expanded its requirements for action in improving interoperability and public safety communications. Also in response to a recommendation by the 9/11 Commission, Congress set a firm deadline for the release of radio frequency spectrum needed for public safety radios, as part of the Deficit Reduction Act of 2005 ( P.L. 109-171 ). These laws provided the base from which the Department of Homeland Security (DHS) might develop a national public safety communications capability as required by the Homeland Security Appropriations Act, 2007 ( P.L. 109-295 ). Title VI, Subtitle D of the act, referred to as the 21 st Century Emergency Communications Act of 2006, placed new requirements on DHS. Additional requirements were included in the Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ). Balanced Budget Act of 1997 The initial allocation to public safety of frequencies in the 700 MHz band was required by Congress in the Balanced Budget Act of 1997 ( P.L. 105-33 ), which directed the Federal Communications Commission (FCC) to designate 24 MHz of spectrum capacity for public safety. To carry out the process of assigning this newly allocated spectrum asset, the FCC created the Public Safety National Coordination Committee (NCC) as a Federal Advisory Committee. Active from 1999 through 2003, the NCC had a Steering Committee from government, the public safety community, and the telecommunications industry. The NCC developed technical and operational recommendations for the 700 MHz band, including plans for interoperable channels. The existing governance for these channels is through Regional Planning Committees (RPCs), established and loosely coordinated by the FCC, with the participation of the National Public Safety Telecommunications Council (NPSTC), a group consisting primarily of public safety associations. The RPCs are responsible for submitting 700 MHz band plans to the FCC for approval, and for managing these plans. The Homeland Security Act of 2002 and Actions by the Department Provisions of the Homeland Security Act instructed 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. The newly created DHS placed responsibility for interoperable communications within the Directorate for Science and Technology, reasoning that the focus of DHS efforts would be on standards and on encouraging research and development for communications technology. Responsibility to coordinate and rationalize federal networks, and to support interoperability, had previously been assigned to the Wireless Public SAFEty Interoperable COMmunications Program—called Project SAFECOM—by the Office of Management and Budget as an e-government initiative. With the support of the George W. Bush Administration, SAFECOM was placed in the Science and Technology directorate and became the lead agency for coordinating federal programs for interoperability. The Secretary of Homeland Security assigned the responsibility of preparing a national strategy for communications interoperability to the Office of Interoperability and Compatibility (OIC), which DHS created, an organizational move that was later ratified by Congress in the Intelligence Reform and Terrorism Prevention Act. SAFECOM continued to operate as an entity within the OIC, which assumed the leadership role. Intelligence Reform and Terrorism Prevention Act Acting on recommendations made in 2004 by the 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 ( P.L. 108-458 ). The Commission's 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. Congress addressed both the context and the specifics of the recommendation for signal corps capabilities. The Intelligence Reform and Terrorism Prevention Act amended the Homeland Security Act to specify that DHS give priority to the rapid establishment of interoperable capacity in urban and other areas determined to be at high risk from terrorist attack. The Secretary of Homeland Security was required to work with the Federal Communications Commission (FCC), the Secretary of Defense, and the appropriate state and local authorities to provide technical guidance, training, and other assistance as appropriate. Minimum capabilities were to be established for "all levels of government agencies," first responders, and others, including the ability to communicate with each other. The act further required the Secretary of Homeland Security to establish at least two trial programs in high-threat areas. The process of development for these programs was to contribute to the creation and implementation of a national model strategic plan. The purpose was to foster interagency communications at all levels of the response effort. Building on the concept of using the Army Signal Corps as a model, the law directed the Secretary to consult with the Secretary of Defense in the development of the test projects, including review of standards, equipment, and protocols. Congress also raised the bar for performance and accountability, setting program goals for the Department of Homeland Security. Briefly, the goals were to: Establish a comprehensive, national approach for achieving interoperability; Coordinate with other federal agencies; Develop 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, research, development, testing and related programs; Establish coordinated guidance for federal grant programs; Provide technical assistance; and Develop and disseminate best practices. The act included a requirement that any request for funding from DHS for interoperable communications "for emergency response providers" be accompanied by an Interoperable Communications Plan, approved by the Secretary. Criteria for the plan were also provided in the act. The act also provided a sense of Congress that the next Congress—the 109 th —should pass legislation supporting the Commission's recommendation to expedite the release of spectrum. This was addressed in the Deficit Reduction Act of 2005 ( P.L. 109-171 ). Deficit Reduction Act of 2005 and the Public Safety Interoperability Grant Program Provisions in the Deficit Reduction Act of 2005 planned for the release of spectrum by February 18, 2009, and created a fund to receive spectrum auction proceeds and disburse designated sums to the Treasury and for other purposes, including a grant program of up to $1 billion for public safety agencies. The fund's disbursements were to be administered by the NTIA. At the time, the Congressional Budget Office projected that the grants program for public safety would receive $100 million in FY2007, $370 million in FY2008, $310 million in FY2009 and $220 million in FY2010. However, the 109 th Congress, in its closing hours, passed a bill with a provision requiring that the grants program receive "no less than" $1 billion to be awarded "no later than" September 30, 2007. Language in Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) required some changes in the grant program and reaffirmed the 2007 fiscal year deadline. In February 2007, the NTIA transferred the management of the public safety grant program to DHS, signing a memorandum of understanding (MOU) with the Office of Grants and Training. The MOU included an overview of how the Public Safety Interoperable Communications (PSIC) Grant Program, as it is called, is to be administered. The overview was reiterated and explained in testimony. Both the MOU and the testimony indicate that the priority was to fund needs identified through Tactical Interoperable Communications Plans and Statewide Interoperable Plans developed in conjunction with SAFECOM. On July 18, 2007, the Secretaries of Commerce and Homeland Security jointly announced the details of the PSIC grant program. The program, as announced, was to provide $968,385,000 in funding for all 50 states, the District of Columbia, and U.S. Territories. The announcement of the top-level, statewide allocations met the September 30 deadline set by Congress. The states were required to submit brief descriptions of envisioned projects and how grant requirements and guidelines would be met. One of the requirements was that states must have a Statewide Communication Interoperability Plan (SCIP) that has been approved by DHS's Office of Emergency Communications. Actual expenditure amounts are reported as states tap their allocations. Under current law, the states and eligible territories have until the end of FY2011, with a possible extension to 2012, to use the funds made available to them. In 2010, an audit by the Office of the Inspector General (OIG), Department of Commerce, provided PSIC grant amounts and drawdowns by state through March 31, 2010. At that time the drawdowns amounted to 31% of the $968.4 million made available through the PSIC program. The OIG has undertaken audits of PSIC grants in nine states that provide some information on how the grant money is being used. The Homeland Security Appropriations Act, 2007 The destruction caused by Hurricanes Katrina and Rita in August-September 2005 reinforced the recognition of the need for providing interoperable, interchangeable communications systems for public safety and also revealed the potential weaknesses in existing systems to withstand or recover from catastrophic events. Testimony at numerous hearings following the hurricanes suggested that DHS was responding minimally to congressional mandates for action, most notably as expressed in the language of the Intelligence Reform and Terrorism Prevention Act. Bills subsequently introduced in both the House and the Senate proposed strengthening emergency communications leadership and expanding the scope of the efforts for improvement. Some of these proposals were included in Title VI of the Homeland Security Appropriations Act, 2007 ( P.L. 109-295 ). Title VI—the Post-Katrina Emergency Management Reform Act of 2006—reorganized the Federal Emergency Management Agency (FEMA), gave the agency new powers, and clarified its functions and authorities within DHS. The act also addressed public safety communications in Title VI, Subtitle D—the 21 st Century Emergency Communications Act of 2006. This section created an Office of Emergency Communications (OEC) and the position of Director, reporting to the Assistant Secretary for Cybersecurity and Communications. The Director was required to take numerous steps to coordinate emergency communications planning, preparedness, and response, particularly at the state and regional level. These efforts were to include coordination with Regional Administrators appointed by the FEMA Administrator to head 10 Regional Offices. To assist these efforts, Congress required the creation of Regional Emergency Communications Coordination (RECC) Working Groups. Other responsibilities assigned to the Director included conducting outreach programs, providing technical assistance, coordinating regional working groups, promoting the development of standard operating procedures and best practices, establishing nonproprietary standards for interoperability, developing a national communications plan, working to assure operability and interoperability of communications systems for emergency response, and reviewing grants. Required elements of the National Emergency Communications Plan (NECP) included establishing requirements for assessments and reports, and an evaluation of the feasibility of developing a mobile communications capability modeled on the Army Signal Corps. The feasibility study was to be done by DHS on its own or in cooperation with the Department of Defense. Congress also required assessments of emergency communications capabilities, including an inventory that identified radio frequencies used by federal departments and agencies. The completed National Emergency Communications Plan set goals for improving emergency communications and interoperability but did not address developing a network infrastructure for public safety communications or for using the 700 MHz spectrum for that purpose. To support its vision of interoperability as a system of systems, DHS sponsored an Emergency Response Council (ERC) composed of several dozen agencies, associations, and other entities involved in public safety and emergency response planning. In 2007 the ERC provided a set of agreements on a Nationwide Plan for Interoperable Communications. The ERC published 12 guiding principles deemed essential to their key goals of forging partnerships, designing interoperable systems, educating policymakers, and allocating resources. To date, the council's role has been primarily to establish a base for advocacy and communication among representatives of public safety agencies and associations. Regional Emergency Communication Coordination In P.L. 109-295 , Congress directed the OEC to coordinate with the Regional Emergency Communication Coordination (RECC) Working Groups established by FEMA. These groups were to provide a platform for coordinating emergency communications plans among states and were intended to include representatives from many sectors with responsibility for public safety and security. Plans for forming RECCs were announced in December 2007. In 2008 organization charts were developed, graphing how the RECCs were structured and where they would fit in the existing chain-of-command of the Federal Emergency Management Agency (FEMA). A National RECC Coordinator was appointed and plans were announced to appoint administrators for each of the regions. A key proposal for the RECC structure is to "Establish and use the RECC's as a single Federal emergency communications coordination point for Federal interaction with the State, local and tribal governments." Congress placed an emphasis on assisting first responders in its statement of RECC goals but did not limit the RECCs' ability to set more inclusive goals. Although the RECCs might be an effective conduit for interaction to develop policies and plan for shared infrastructure, they are currently used primarily as a forum for FEMA's Disaster Operations Directorate to relay guidelines and orders. Based on the role of RECCs as assigned by the National Emergency Communications Plan, their focus will be on assisting first responders to prepare for disaster response. Leadership will be provided by FEMA and governance will be through the chain-of-command of the agencies' directorates. The formation of the regional working groups, the RECCs, responded in part to requests from the public safety community to expand interoperable communications planning to include the second tier of emergency workers. Nonfederal members of the RECC are to include first responders, state and local officials and emergency managers, and public safety answering points (911 call centers). Additionally, RECC working groups are to coordinate with a variety of communications providers (such as wireless carriers and cable operators), hospitals, utilities, emergency evacuation transit services, ambulance services, amateur radio operators, and others as appropriate. National Emergency Communications Plan In compliance with requirements of the Homeland Security Appropriations Act, 2007, the Department of Homeland Security issued the National Emergency Communications Plan (NECP) in July 2008. The NECP sets three goals for levels of interoperability By 2010, 90% of all areas designated within the Urban Areas Security Initiative (UASI) will demonstrate response-level emergency communications, as defined in grant programs, within one hour for routine events involving multiple jurisdictions and agencies. By 2011, 75% of non-UASI will have achieved the goal set for UASIs. By 2013, 75% of all jurisdictions will be able to demonstrate response-level emergency communications within three hours for a significant incident as outlined in national planning scenarios. These jurisdictional goals are to be knit together into a national communications capability through program efforts such as FEMA's Regional Emergency Communications Coordination (RECC) Working Group. The three goals are bolstered by seven objectives for improving emergency communications for first responders, dealing largely with organization and coordination. Each of these objectives has "Supporting Initiatives" and milestones. | The United States has yet to find a solution that assures seamless communications among first responders and emergency personnel at the scene of a major disaster. Since September 11, 2001, when communications failures contributed to the tragedies of the day, Congress has passed several laws intended to create a nationwide emergency communications capability. The 111th Congress considered pivotal issues, such as radio frequency spectrum license allocation and funding programs for a Public Safety Broadband Network (PSBN), without finding a solution that satisfied the expectations of both public safety and commercial network operators. Congressional initiatives to advance public policies for Next Generation 911 services (NG9-1-1) also remained incomplete. The 112th Congress is under renewed pressure to come to a decision about the assignment of a block of radio frequency spectrum licenses referred to as the D Block, and to provide a plan for federal support of broadband networks for emergency communications. The cost of constructing new networks (wireless and wireline) is estimated by experts to be in the tens of billions of dollars over the long term, with similarly large sums needed for maintenance and operation. Identifying money for federal support in the current climate of budget constraints provides a challenge to policy makers. The greater challenge, however, may be to assure that funds are spent effectively toward the national goals that Congress sets. After years of debate, a majority in the public safety community has agreed to implement common technologies using Internet Protocol (IP)-enabled networks and the wireless technology known as Long Term Evolution (LTE) to build a nationwide PSBN. IP-enabled networks are also considered essential to the introduction of NG9-1-1. The adoption of the Internet Protocol for emergency communications represents a significant advance in the technologies available for response and recovery operations. IP-enabled technologies are faster and smarter, capable of analyzing and directing communications as they move through networks. Achieving the transition to a leading-edge, broadband network powered by the next generation of IP technologies requires significant changes in operations and long-standing agency traditions, major investments in infrastructure and radios, and the development of enabling technologies. The need appears increasingly urgent for timely decisions by policy makers on new infrastructure for emergency communications and spectrum allocation for public safety radios. Commercial deployment of wireless networks using LTE standards that might also support public safety use are out-pacing the planning efforts of public safety and government officials. The House of Representatives, on December 13, 2011, approved the Middle Class Tax Relief and Job Creation Act of 2011 (H.R. 3630, Representative Camp). H.R. 3630, Title IV contains provisions, approved in markup on December 1, 2011, by the Subcommittee on Communications and Technology, House Committee on Energy and Commerce. H.R. 3630 is under consideration by a conference committee for which a major focus of discussion is an extension of payroll tax cuts and how to fund them. On the Senate side, the legislative response to H.R. 3630 will likely include provisions from the American Jobs Act of 2011 (S. 1549 and others) and from the Public Safety and Wireless Innovation Act (S. 911, as amended, Senator Rockefeller). S. 911 received bi-partisan approval by the Committee on Commerce, Science, and Transportation. Other legislation that has been introduced in the 112th Congress to address some of these issues includes the Broadband for Public Safety Act of 2011 (S. 1040, Lieberman), and the Broadband for First Responders Act (H.R. 607, King). |
The Appalachian Regional Commission, created in 1965, is the oldest of the four regional commissions and authorities chartered by Congress to address development and related issues affecting multi-state regions and substate areas experiencing long-term economic distress and isolation. In 1960, governors of nine states (Alabama, Georgia, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and West Virginia) formed the Council of Appalachian Governors. The ad hoc group's mission was to press for greater federal involvement in addressing the region's common problems. In 1963, President Kennedy established the President's Appalachian Regional Commission (PARC), appointed Franklin D. Roosevelt, Jr., as its chairman, and charged it with devising a comprehensive development program for the region. The resulting PARC report, issued in 1964 during the Johnson Administration, expanded the definition of the region to include selected counties in the state of Ohio. It detailed the problems and shortcomings of the 10-state region, including low per capita income, high employment, educational deficiencies, and poor public infrastructure. The report identified four priority areas of action, including: regional infrastructure, particularly highways, as a means of reducing regional isolation; water and wastewater management resources; natural resources development; and human resources development, including housing, education, job skills, and health care. The report called for the creation of a new independent agency capable of coordinating state and federal actions. On March 9, 1965, President Johnson signed into law the Appalachian Regional Development Act, P.L. 89-4. The act identified three purposes of the Appalachian Regional Development Commission (ARDC) based on the PARC recommendations. These included assisting the region in addressing its special problems; promoting economic development in the region; and establishing a framework for joint federal and state efforts in developing basic facilities essential to promoting coordinated regional responses to the region's problems. The 1965 Act authorized the creation of several new programs intended to address the most pressing issues in the region. These new initiatives included: the Appalachian Development Highway System, which was administered by the Department of Commerce, with the federal government covering 50% to 70% of the construction cost of such projects; a health facilities demonstration program administered by the Department of Health, Education, and Welfare, with the federal government covering 100% the operating cost of such facilities for the first two years; land stabilization, conservation, and erosion control agreements with private landowners and the Secretary of Agriculture; technical assistance to timber development organizations to aid in developing sound timber management policies; mining restoration; water resource control; and sewage treatment works grants. The act directed the ARC to give priority consideration to funding for projects using such factors as: the relationship of the project to an area's growth potential; the per capita income of an area's population; a state or local area's financial resources; and the potential of a project to improve the long-term employment outlook of an area. The act also required the submission of an annual progress report to Congress on the activities carried out under the act. The 1965 Act identified several counties in 11 states within the purview of the ARDC. The Appalachian Regional Development Act Amendments in 1967 ( P.L. 94-188 ) added counties in New York and Mississippi, increasing the number of state members of the ARC to 13, which has remained unchanged. During its 40-year history, the ARC Act has been amended several times in an effort to refine its mission. In 1975, Congress amended the ARC, to require the governor of each member state to serve as a member of it. The act also required ARC decisions regarding policy, approval of state and regional development plans, and the allocation of funds to be made with a quorum of state members present. In addition, the 1975 amendments: directed the ARC to publish regulations specifying minimum guidelines for public participation in the development, revision, and implementation of all ARC plans and programs; required that states consult with local development districts and local units of government; and authorized federal grants to the ARC for assistance to states for a period not exceeding two years to strengthen the state development planning process for the region, including the coordination of state planning under this act and the Public Works and Economic Development Act of 1965, which authorized funding for the Economic Development Administration. The amendments also stated that no funds authorized by the act could be used to reclaim, improve, grade, seed, or reforest strip-mined areas, except on lands owned by federal, state, or local government bodies or by private, nonprofit entities organized under state law. Such reclamation efforts could only be undertaken if the land was to be used for public recreation, conservation, community development facilities, and public housing. It also authorized the Department of Housing and Urban Development to make grants and loans from the Appalachian Housing Fund to nonprofit, limited dividend, or cooperative organizations, and public bodies. Such grants and loans were designated for planning and obtaining federally insured mortgage financing or other financial assistance for housing construction and rehabilitation projects for low- and moderate-income families and individuals. Further, the 1975 amendments authorized grants for education projects which served to demonstrate area-wide education planning, services, and programs, with special emphasis on vocational and technical education, career education, cooperative and recurrent education, and guidance counseling. It required each state member to submit to the ARC a development plan for each area of the state within the ARC. The state development plans were to reflect the goals, objectives, and priorities identified in the regional development plan approved for the subregion of which such state is a part. It also required the ARC to conduct a study and report on the status of Appalachian migrants, current migration patterns and implications, and the actual and potential impact the Commission program has or might have on out-migration and the welfare of Appalachian migrants. The Appalachian Regional Development Reform Act of 1998 directed the ARC to designate counties as: distressed counties—those that are the most severely and persistently distressed; competitive counties—those which are approaching economic parity with the rest of the country; and attainment counties—those which have attained or exceeded such economic parity. The act provided for annual reviews of county designations and permitted designation renewals for another one-year period only if a county still met the designation criteria. It also required the ARC to give special consideration to counties designated as distressed, limited ARC's contribution to 30% of project costs for projects located in a county designated as competitive; and prohibited assistance for a county designated as an attainment county, but provided for exceptions and an authorized waiver by the ARC. The 1998 amendments also brought administrative and programmatic changes. They included provisions that required the ARC to meet at least once a year, and allowed the ARC to conduct additional meetings by electronic means; required the ARC to obtain a quorum of state members before reaching certain decisions; permanently extended the authorization of appropriations for ARC administrative expenses and empowered the ARC to make grants for administrative expenses; limit the ARC federal contribution supporting health care and vocational and educational initiatives to 50% of total project cost, down from 100% of cost, with an exception of an 80% federal contribution for projects in distressed counties; and reduced from 75% to 50% the federal share of program costs of research and development projects, with an exception of an 80% federal contribution for counties designated as distressed. Section 208 of the act repealed the programs and provisions under the act relating to: the land stabilization, conservation, and erosion control program; the timber development program; the mining area restoration program; the water resource development and utilization survey; the Appalachian airport safety improvements program; the sewage treatment works program; and amendments to the Housing Act of 1954. On March 12, 2002, the President signed the Appalachian Regional Development Act Amendments of 2002. The 2002 amendments called for the ARC to: support local development districts; encourage the use of eco-industrial development technologies and approaches; and coordinate economic development activities of, and the use of economic development resources by, federal agencies in the Appalachian region. The act limited all ARC grants to 50% of project costs or 80% for projects when carried out in designated distressed counties and eliminated the requirement that an area have significant growth potential as a criterion for programs and projects to be awarded assistance under the act. It allowed, at ARC's discretion, coverage of up to 75% of the administrative expenses of local development districts that have a charter or authority that includes the economic development of a county designated as distressed. It also directed the President to establish the Interagency Coordinating Council on Appalachia. The amendments added language that authorized the ARC to undertake three new initiatives in the areas of telecommunications and technology, entrepreneurship including development of business incubators, and regional skills partnership. Specifically, the ARC is directed to provide technical assistance, make grants, and enter into contracts with persons or entities in the region for projects to provide increased access to advanced telecommunications information technologies and to electronic commerce. The 2002 amendments encouraged the ARC to provide increased support for the development of homegrown businesses. It authorized the ARC to provide technical assistance, make grants, enter into contracts, or otherwise provide funds to persons or entities in the region for projects that would: provide entrepreneurial training and education for youths, students, and businesspersons; improve access to debt and equity capital, including the establishment of venture capital funds; aid communities in identifying, developing, and implementing development strategies for various sectors of the economy; and develop a working network of business incubators, including supporting entities that provide such services. Further, the amendments authorized the Commission to establish regional skill partnerships comprised of representatives from business or nonprofit entities, labor organizations, educational institutions, and state and local governments. The Commission provides technical assistance and award grants to eligible entities to be used to assess and improve the job skills of workers in specified industries. Total grant assistance for each of the three new initiatives (telecommunications, entrepreneurship and regional skills partnership) is to be limited to no more than 50% of the cost of activities eligible under the program, however in the case of distressed communities the federal share may be increased to 80%. In addition, no more than 10% of the amounts awarded for regional skill partnership grants may be used for administrative activities. The act also added four new counties to the ARC—Edmonson and Hart, Kentucky; and Montgomery and Panola, Mississippi. The original Act of 1965 provided for a federal co-chair appointed by the President and with the advice and consent of the Senate. The act also called for the governor of each member state, or a person designated by the governor, to serve on the ARC with one of the governors or designees elected by state members to serve as the state co-chair. It also allowed for the appointment of federal and state alternates to the Commission. Compensation for the federal co-chair was to be paid by the federal government, while each state member would be compensated by the member state. The act charged the ARC with: developing comprehensive and coordinated plans and programs for the region, and establishing priorities among the activities identified within such plans and programs; conducting research and analysis of the region's resources with the cooperation of the federal, state, and local agencies; reviewing ARC supported programs with the cooperation of affected federal, state and local governments, and public and private entities, and recommending modifications and additions aimed at enhancing program effectiveness; recommending interstate cooperation, including the formation of interstate compacts; encouraging the creation of local development districts and advising the Secretary of Commerce on grant applications from local development districts for administrative expenses; encouraging private investment in commercial, industrial, and recreational projects; and providing a forum for the discussion of and proposed resolution of problems confronting the region. The act also directed the federal government to pay 100% of the administrative expenses of the ARC for the first two fiscal years of its existence, and transferred 50% of such cost to the states thereafter with each state's share of such cost determined by the member states. The act conveyed certain administrative powers to the ARC, including the power to amend or repeal bylaws and rules governing the conduct of its business and the performance of its functions. It also conveyed to the ARC the power to: appoint and determine the compensation of its employees, including the executive director; request a federal, state, local, or intergovernmental agency to temporarily detail personnel to the ARC; enter into arrangements, including contracts, with participating state governments; accept gifts and donations, including real property; and maintain an office in the District of Columbia, hold hearings, and request information necessary for the execution of its mission from any federal, state, or local agency. The following are the five categories of counties located in the ARC. The status of each community dictates whether it receives ARC-supported assistance. Distressed Counties have poverty and unemployment rates that are at least 150% of the national averages and per capita incomes that are no more than 67% of the national average. Counties are also considered distressed if they have poverty rates that are at least twice the national average and they qualify based on either the unemployment or per capita income indicator. At-Risk Counties have poverty rates and unemployment rates at least 125% of the national averages and per capita income that is no more than 67% of the national average. Counties are also considered at-risk if they meet the threshold of two of the three distressed-level indicators. This year, 2006, marked the first year that ARC formally designated communities as at-risk. This is a category not mentioned in the statute authorizing the ARC. Communities that fall into this category are those whose economic distress factors are below the national average for designation as an attainment or competitive county, but do not meet the criteria for designation as a distressed county. See the section on current funding and legislative issues for a discussion of this designation. Transitional Counties are those that do not meet the thresholds for distressed or at-risk designation, but have unemployment, poverty, or per capita income rates that are worse than the national average. Competitive Counties have poverty and unemployment rates that are equal to or less than the national averages and have per capita incomes that are equal to or are greater than 80%, but less than 100%, of the national average. Attainment Counties have poverty rates, unemployment rates, and per capita incomes that are at least equal to the national rates. There are 410 counties located within the now 13 member states that make up the ARC. The 410 counties are divided into 72 Local Development Districts (LDDs). These multi-county planning and development organizations help local governments to identify development needs of their communities. For FY2006, 77 counties meet the requirements for distressed county designation. Table 2 and Figure 1 identify these counties. For the past two years (FY2004 and FY2005), federal funding for the ARC has remained at $65 million annually. This is slightly less than the $71 million appropriated during the two previous years (FY2002 and FY2003). In addition to direct allocation, the ARC uses its funds to bundle with state, federal, and private funding sources in support of its strategic goals. Federal agencies that most often partner with ARC include the Economic Development Administration in the Department of Commerce, the Rural Development Administration in the Department of Agriculture, the Department of Housing and Urban Development through the use of Community Development Block Grant funds, and the Department of Education. In addition to ARC non-highway program activities, funds are also made available for the construction of the 3,000-mile Appalachian Development Highway System (ADHS). Since the passage of the Transportation Equity Act for the 21 st Century (TEA-21), funding for the ADHS has been authorized through the Highway Trust Fund. Prior to the 1998 Act, the ADHS funding was included in the ARC appropriations. TEA-21 authorized an annual appropriation of $450 million for the ADHS for the five-year period from FY1999 through FY2003. Although the appropriation authority for ADHS has been transferred to the Highway Trust Fund, the ARC and its 13 governors continue to exercise programmatic control. This allows the governor of each state to determine where and how ADHS funds are used. Funds are apportioned among the 13 states based on each state's proportional share of cost of completing the ADHS. ARC's funding mechanism uses a multi-level, collaborative approach to select and fund projects and activities. Working in collaboration with other federal agencies, the ARC awards grants to various entities for activities that address one of five goal areas outlined in the ARC strategic plan. They are: improving the skills and knowledge of Appalachian residents; improving the physical infrastructure of Appalachian communites; improving the community capacity of Appalachian residents and organizations; developing dynamic local economies; and increasing Appalachian residents' access to affordable, quality health care. The amount of ARC funds each state receives is not codified in the statute authorizing the ARC, but is based on a formula worked out by the governors of the member states. In addition, the method used to determine allocations among the strategic goal areas is also a negotiated process between the member states and the federal co-chair. The statute requires the ARC to target 50% of its funds to distressed communities in the region, and prohibits or strictly limits the use of ARC funds in attainment areas. The Administration's budget for FY2007 requests an appropriation of $65 million for ARC activities. This is the same amount approved for FY2006. The House, in passing its version of Energy and Water Development Appropriations Act of FY2007 ( H.R. 5427 , H.Rept. 109-474 ), recommended $35.5 million for ARC activities, $30 million below the Administration's request and FY2006 appropriations. The House passed the measure May 24, 2006. On June 29, 2006, the Senate Appropriations Committee approved its version of H.R. 5427 , which included $65.5 million for ARC activities ( S.Rept. 109-274 ). In approving the $30 million reduction in ARC funding the House noted the need to reduce funding in the face of a budget crunch. The ARC authorizing statute requires the ARC to allocate at least 50% of its annual appropriations to distressed counties. It also prohibits funds from being awarded to counties that have achieved attainment status. During her July 12, 2006, testimony before the House Subcommittee on Economic Development, Public Buildings, and Emergency Management, the ARC federal co-chair, Anne B. Pope, noted that many ARC counties fall short of the definition for designation as a distressed county. However, these counties face serious challenges and should receive some level of preferential treatment if they are to avoid the slide to distress designation. At present, ARC defines an at-risk county as having poverty rates and unemployment rates at least 125% of the national averages and per capita income that is no more than 67% of the national average. Counties are also considered at-risk if they meet the threshold of two of the three distressed-level indicators. According to ARC calculations, 81 counties meet the requirements to be designated at-risk (See Table 5 for a listing of counties.) This year, 2006, marked the first year that ARC formally designated communities as at-risk, according to the federal co-chair's testimony before the subcommittee. This is a category not mentioned in the statute authorizing the ARC. Under ARC current statute, projects in these at-risk counties are subject to the same 50% federal match requirements as those in counties with stronger economies. Projects in designated distressed counties are eligible for up to an 80% ARC funding match. To address this issue, Senator George Voinovich introduced the Appalachian Regional Development Act Amendments of 2006, S. 2832 . The bill, which was approved by the Senate on July 25, 2006, would create a new category of eligible county—at-risk counties—and would increase the federal match requirement from 50% to no more than 70% of project costs across a range of ARC program areas including economic development, health care services, regional job skills partnerships, telecommunications, and business development. According to the ARC, 81 counties meet the unemployment, poverty, and per capita income thresholds for designation as an at-risk county. The states of West Virginia, Alabama, and Kentucky have the highest number of communities meeting the at-risk thresholds. On October 1, 1988, President Reagan signed into law the Rural Development, Agriculture, and Related Agencies Appropriations Act for FY1989. Title II of that act, known as the Lower Mississippi Delta Development Act, authorized the creation of the Lower Mississippi Delta Development Commission (LMDDC), and appropriated $2 million to carry out the activities of the Commission. As outlined in the authorizing statute, the Commission's legislative mandate was to identify the economic needs and priorities of the Lower Mississippi Delta region, and to develop a 10-year economic development plan for the region. The act established the administrative structure of the Commission to include two commissioners appointed by the President and seven by the governors of Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri, and Tennessee, or their designees. Sec. 4(2) of the Lower Mississippi Delta Development Act defined the "Lower Mississippi" region as: ... those areas within a reasonable proximity of the Mississippi River in Arkansas, southern Illinois, western Kentucky, Louisiana, Mississippi, southeastern Missouri, and western Tennessee that share common economic social, cultural ties, and that suffer from any combination of high unemployment; low net family income; agriculture and oil industry decline; a decrease in small business activity; or poor or inadequate transportation infrastructure, health care, housing, or educational opportunities.... The act identified specific communities meeting the threshold definition for inclusion in the region. It also included language allowing the Commission to include other adjoining counties, when necessary, in order to carry out the purposes of the act. It identified nine such adjoining counties in the definition of the region. The LMDDC was chaired by then-Arkansas Governor William J. Clinton. Its findings and recommendations were included in two reports: Body of the Nation: The Interim Report of the Lower Mississippi Delta Development Commission , and the final report entitled the Delta Initiatives: Realizing the Dream...Fulfilling the Potential . The Commission's operations were terminated on September 30, 1990. The final report of the Commission included approximately 400 recommendations aimed at improving the economic conditions of the region. The report served as the catalyst for additional federal involvement in the region during the Clinton Administration. During that Administration, several cabinet departments undertook studies and initiatives, some congressionally mandated, aimed at addressing some of the issues and opportunities confronting the region. Highlights include: On October 31, 1994, President Clinton signed into law the Lower Mississippi Delta Region Heritage Study Act. Congress passed the act as part of a followup to recommendations included in the 1990 report by the LMDDC. The 1994 Act directed the Department of the Interior to prepare for Congress a study of significant natural, recreational, historical or pre-historical, and cultural lands, water sites, and structures located within the Delta region. In 1996, the Department of Transportation published Linking the Delta Region with the Nation and the World. The report was a response to the 55 transportation recommendations included in the 1990 report entitled Delta Initiatives: Realizing the Dream...Fulfilling the Potential. The 1996 report noted that between 1990 and 1995, nearly all the transportation-related recommendations of the Commission had been implemented. The report also noted that among "the most significant changes for the Delta economy was improved access to intermodal transportation terminals, combined with the increased capacity of those terminals." In July 1998, 10 federal agencies signed the Lower Mississippi Delta Region Interagency Memorandum of Understanding (MOU), which established a general framework for cooperation among the participating agencies involved in economic revitalization initiatives in the Delta region. In 1999, the Department of Transportation published The Mississippi Delta: Beyond 2000, An Interim Report . The report is an assessment of the progress made in addressing the recommendations contained in Delta Initiatives: Realizing the Dream...Fulfilling the Potential . In 2000, the Department of Agriculture and the Housing Assistance Council published Improvements in Housing and Infrastructure Conditions in the Lower Mississippi Delta, which outlined strategies for improving housing and infrastructure conditions in designated counties in Arkansas, Mississippi, and Louisiana. On December 21, 2000, Congress passed the Consolidated Appropriations Act for FY2001. The act included two provisions pertinent to the Lower Mississippi Delta. First, the act amended Section 4(2) of the Lower Mississippi Delta Development Act to include Alabama as a full member of the Delta Regional Authority and identified nine Alabama counties to be included in the definition of the Lower Mississippi Delta region. Second, Title V of the act authorized the creation of the Delta Regional Authority (DRA). For the purposes of this act, the definition of the Lower Mississippi region is the same as defined by Sec. 4 of the Lower Mississippi Delta Development Act of 1988— P.L. 100-460 , as amended. The Delta Regional Authority Act of 2000 established the administrative structure for the DRA and charged the DRA with the mission of promoting economic development within the region. On May 13, 2002, President Bush signed the Farm Security and Rural Investment Act of 2002 ( P.L. 107-171 ). The act included provisions amending the voting procedures for DRA member states, providing supplemental federal grants for Delta projects, and identifying four additional Alabama counties as meeting the requirements for inclusion in the region. The DRA's administrative structure and duties and responsibilities are similar to those of the ARC. The DRA has federal and state co-chairs. The state co-chair is a governor of one of the member states and may serve a term of not less than one year. The governing statute allows for the selection of both a federal and state alternate to serve as a member of the DRA. Administrative expenses are split between the federal government and the member states on a 50-50 basis. The DRA is vested with the authority to enter into contracts, leases, and other agreements that would further its mission. It may also establish compensation for its executive director and other personnel, and may request temporary details of personnel from other federal, state, local agencies. Table 6 lists by state the counties and parishes included in the definition of the Lower Mississippi Delta Region and the statutes authorizing their inclusion. Please note two caveats when reviewing Table 6 . First, several communities are included, by statute, in the definition of the Lower Mississippi Delta Region, but do not meet the requirements for designation as distressed counties or parishes. Those communities appear in italics . Counties and parishes that do not appear in italics have been designated as distressed and are eligible for DRA assistance. Second, several other communities have been designated for inclusion in the definition of the region as "distressed counties and parishes," but were not identified in statute as designated Mississippi Delta counties. The authorizing statute entries for those counties and parishes are left blank. These communities were designated by the DRA as distressed under the provisions of Section 2009aa-5 of Title VI of the Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 1921). (See the following section on county and parish eligibility.) Section 2009aa-5—Distressed Counties and Areas and Non-Distressed Counties—of the Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 1921) directs the DRA to establish criteria for designation of a county or parish as distressed. For the purpose of the act, such counties and parishes must be characterized as severely and persistently distressed and underdeveloped and have high rates of poverty or unemployment. In addition, isolated areas of distress in otherwise non-distressed counties and parishes may qualify for assistance if they have high rates of poverty or unemployment. The designation of an area as an isolated area of distress must be supported: by the most recent federal data available; or by the most recent data available to the state in which the isolated area of distress is located. The DRA adopted the Economic Development Administration's (EDA) definition of a "distressed county" for the purpose of determining a community's eligibility for funding. Under EDA rules, an area is considered distressed if it meets one of the following criteria: An unemployment rate that is at least one percent higher than the national average unemployment rate for the most recent 24-month period for which data are available; Per capita income that is 80% or less of the national average per capita income, for the most recent period for which data are available; A special need arising from actual or threatened severe unemployment or economic adjustment problems resulting from severe short-term or long-term changes in economic conditions, such as: (a) substantial outmigration or population loss; (b) underemployment of workers at less than full-time or at less skilled tasks than their training or abilities permit; (c) military base closures or realignments, defense contractor reductions in force, or Department of Energy defense-related funding reductions; (d) natural or other major disasters or emergencies; (e) extraordinary depletion of natural resources; (f) closure or restructuring of industrial firms, essential to area economies; and/or (g) destructive impacts of foreign trade. Section 2009aa-5 also directs the DRA to identify annually communities in the region that meet the requirements for designation as distressed counties or parishes or non-distressed counties and parishes containing isolated areas of distress. Of the 236 DRA counties, 214 counties met the required criteria at the time this definition for distressed counties was adopted. The last calculation for distressed county or parish designation was June 2004, with 227 of the 240 Delta Regional Authority counties classified as distressed. The area served by the DRA is perhaps the most distressed region in the country. Of the 240 counties comprising the region 238 have incomes at or below the national poverty level. Congress has reduced funding for the agency significantly since its first appropriation of $20 million in FY2001. Funding for the DRA has declined to $6 million for FY2005. However, for FY2006, Congress doubled the amount the Administration requested, appropriating $12 million for DRA activities. The additional funds will assist the DRA in supporting Hurricane Katrina recovery efforts. Consistent with the Administration's budget request, the House approved an appropriation of $5.9 million for DRA activities. This is $6 million less than approved by the Senate and appropriated for FY2006. On August 26, 1994, President Clinton signed into law the Northern Great Plains Rural Development Act ( P.L. 103-318 ). The act established the Northern Great Plains Rural Development Commission (NGPRDC) and directed it to study and make recommendations for improving the economic development prospects of residents of rural Northern Great Plains communities. The Commission was charged with developing a 10-year rural economic development plan for Northern Great Plains (NGP) with the assistance of interested citizens, public officials, groups, agencies, businesses, and other entities. The act established a 10-member Commission comprising the governor, or the governor's designee, from each of the following five states: North Dakota, South Dakota, Nebraska, Iowa, and Minnesota, and one member appointed from each of the five states by the Secretary of the United States Department of Agriculture (USDA). The act charged the NGPRDC with developing a 10-year plan that would address economic development, technology, transportation, telecommunications, employment, education, health care, housing, and other needs and priorities of the five-state region. The act encouraged the NGPRDC to develop the plan in collaboration with Native American tribes, federal agencies, non-profit and community-based development organizations, universities, foundations, and business concerns. It conveyed to the NGPRDC the power to hire experts and consultants, enter into contracts, and hold hearings related to its mission. The NGPRDC was required to submit both interim and final reports within 18 months from the first meeting date of the NGPRDC. The reports were to be submitted to the Secretary of Agriculture, the President pro tempore of the Senate, the Senate Committee on Agriculture, the Speaker of the House, the House Agriculture Committee, the President, and the governor of each of the five states. The act directed the NGPRDC to include in the reports specific recommendations intended to promote five key areas of concern: regional collaboration, business development, capital formation, infrastructure expansion and improvements, and education and training. The act established a sunset date for the NGPRDC of September 30, 1997. The NGPRDC completed its work in 1997. Its findings and recommendations were included in the Final Report of the Northern Great Plains Rural Development Commission . The Commission identified six broad themes and recommended 75 actions aimed at regional concerns raised in the Northern Great Plains Rural Development Act. In September 1997, the Northern Great Plains Initiative for Rural Development (Initiative) was established to continue the work of the NGPRDC. The Initiative is a 501(c)3 not-for-profit corporation. Its primary mission is to promote the implementation of the NGPRDC's 75 recommendations for action. The Initiative is governed by a Board of Directors comprising both business and community leaders of the region. A management team of five rural development leaders—one from each of the five states in the region—provides volunteer staff services. On May 13, 2002, President George W. Bush signed into law the Farm Security and Rural Investment Act of 2002. Title VI of that act amended the Consolidated Farm and Rural Development Act by inserting a new Subtitle G creating the Northern Great Plains Regional Authority (NGPRA) and authorizing an appropriation of $30 million for each of the fiscal years 2002 through 2007 to carry out the activities of the NGPRA. The act charged the NGPRA with implementing the recommendations of the NGPRDC. It required the NGPRA to establish a multi-year development plan for the five-state region. In addition, each member state was required to develop a state plan that must be an integral part of the region's multi-year development plan. Like the Appalachian Regional Commission (ARC) and the Delta Regional Authority (DRA), the NGPRA is a federal-state partnership led by a federal co-chair, and one state co-chair selected from the governors of the five participating states: Minnesota, South Dakota, North Dakota, Nebraska, and Iowa. Unlike its ARC and DRA counterparts, the NGPRA also includes a representative of Native American tribes located in the five state areas as a co-chair. Under the act, the federal government was responsible for funding 100% of the administrative costs of the NGPRA in FY2002, 75% in FY2003, and 50% in FY2004. Yet another characteristic that distinguishes the NGPRA from ARC and DRA (and the Denali Commission) is the creation of a non-profit entity to assist it in carrying out its mission. Specifically, the act also designated Northern Great Plains, Inc., a nonprofit 501(3)(c) created in 1997, with implementing the recommendations of the NGPRDC and acting as the primary resource for it on regional issues and international trade. Northern Great Plains, Inc., also supports research, education, and training on issues affecting the region. At the local level, like the ARC and DRA, the NGPRA uses the existing network of EDA-designated economic development districts to coordinate efforts within a multi-county area. The NGPRA also may certify other organizations meeting certain requirements as local development districts. A designated local development district may receive NGPRA grants to cover 80% of its administrative costs for a period of three years. These districts are responsible for serving as a liaison between state, local, and tribal governments, nonprofit organizations, the business community, and the public. In addition, they assist in developing regional economic development strategies, providing technical assistance to local communities, and assisting organizations involved with leadership and civic development programs. The act directed the NGPRA to develop distress criteria standards using unemployment, population outmigration, and poverty data. Under the act, 75% of funds must be targeted to the most distressed counties in each state, and 50% of project dollars must be reserved for transportation, telecommunications, and basic infrastructure improvements. Non-distressed communities containing isolated areas of distress may receive no more than 25% of funds appropriated. Created by an act of Congress in 1998, the Denali Commission is unique among the four federally chartered regional development authorities and commissions. It is the only federally chartered regional development commission targeted at a single state (Alaska). As outlined by its congressional charter, the Commission's mission included providing job training and other economic development assistance to distressed rural areas in the state. The act also charged the Commission with providing for rural power generation and transmission facilities, modern communication systems, water and sewer systems, and other infrastructure needs of remote areas in the state. The seven-member Commission comprises a federal co-chair appointed by the Secretary of Commerce, a state co-chair appointed by the governor of Alaska, and one representative each from the Alaskan Municipal League, the University of Alaska, the Alaska Federation of Natives, the Executive President of the Alaska State AFL-CIO, and the President of the Associated General Contractors of Alaska. The federal co-chair of the Commission is selected from among persons placed in nomination by the Speaker of the House and the President pro tempore of the Senate, a unique characteristic of the process used to select the federal co-chair of a regional commission. The act also mandated that the Commission develop a proposed annual work plan for the state, including soliciting proposals from local governments and other entities and organizations. The Commission must submit to the Secretary of Commerce, the Commission's federal co-chair, and the Office of Management and Budget a report that outlines the proposed work plan and identifies infrastructure development and job training funding priorities in the areas covered by the work plan. In addition, the act allowed for public input and comment on the work plan. It required the Secretary of Commerce to publish the work plan in the Federal Register and to allow for a 30-day public comment period. Within 30 days after the public comment period, the federal co-chair of the Commission may approve, disapprove, or partially approve the work plan. When disapproving or partially approving a work plan, the federal co-chair must specify the reasons for disapproval and include recommendations for revisions that would result in its approval. If a work plan is not approved or only partially approved, the plan must be submitted to the Commission for review and revision, if applicable. As noted earlier, the Commission is charged with promoting rural development, including promoting infrastructure improvements in rural areas , such as improvements in power generation and transmission facilities, telecommunications, and water and sewer facilities. The Commission is also charged with providing job training and repairing or replacing, as appropriate, bulk fuel tanks. The Commission defines a "rural area" as any community that lacks adequate public infrastructure; is so remote as to impose additional cost on persons and businesses importing and exporting products, traveling to, and communicating with, urban centers; or is a one-industry village or community located near a natural resource with a small population and a low-wage labor pool. The act did not identify specific criteria to be used in determining eligibility for assistance; instead it left that task for the Commission. It did include language that requires the Commission to provide job training and other economic development services to residents of distressed rural communities and noted that many of these areas have unemployment rates in excess of 50%. On May 5, 2005, the Commission identified community distress criteria for 2005 and listed communities meeting the criteria. The Commission identified the following thresholds for designation as a rural distressed community: per capita income that does not exceed 67% of the national average; poverty rate in excess of 150% of the national average; and three-year unemployment rate of 150% of the national average. A community also may qualify as distressed if its poverty rate is twice the national average and it meets one of the other two criteria relating to unemployment or per capita income. Concerned about the availability and timeliness of Census data in determining the distress status of some communities, the Commission, in May 2005, identified an alternative method of identifying distressed communities. The alternative method, labeled the "surrogate standard," uses community level data that are available annually from the Alaska Department of Labor and Workforce Development, Research and Analysis (ADLWDRA). In order for a community to qualify under the surrogate standards as a distressed community, it must meet the following criteria: the average market income may not exceed $14,872; at least 70% of the residents 16 years or older may not have earned more than $14,872 in 2003; and fewer than 30% of the residents of the community 16 years or older were employed during all quarters of 2005. The Commission also confers distressed status on non-distressed communities that meet surrogate standard criteria when a plus or minus 3% formula is applied to the criteria. A community must meet two of three criteria to be classified as distressed: the average market income is less than $15,318; at least 67% of the residents of a community 16 years or older may not have earned more than $15,318; and fewer than 33% of residents of the community 16 years or older were employed during all four quarters of 2003. Table 10 lists communities by classification as distressed counties. A community may successfully appeal its non-distress designation if it can demonstrate that it meets a set of surrogate standard criteria when a plus/minus 3% formula is applied to the criteria. Table 11 lists communities that do not meet the 2006 surrogate standard criteria for distressed communities, but do meet the criteria when a plus/minus 3% formula is applied. To successfully appeal, a community must meet two of the three surrogate standard criteria to be classified as distressed under the plus/minus 3% formula change: Criterion 1: Average market income from unemployment insurance, covered employment, and fishing is less than $15,318, rather than $14,872 ($14,872 x 1.03 = $15,318). Criterion 2: More than 67% of residents earn less than $14,872, rather than more than 70% of residents (70%—3% = 67%). Criterion 3: Fewer than 33% of residents worked all four quarters of 2003, rather than fewer than 30% of residents (30% + 3% = 33%). The only single-state federal regional development authority has seen a steady increase in its annual allocation during the five-year period from 2001 to 2005. Its annual allocation is comparable to that of the ARC. For FY2006, however, the Congress appropriated $49.5 million for Denali Commission activities, which was $17 million less than appropriated for FY2005. For FY2007, the Administration requested $2.5 million in support of the Denali Commission. The House approved $7.5 for Commission activities, while the Senate Appropriations Committee has recommended a funding level of $50 million. | This report examines the legislative history and design structure of the nation's four federally chartered regional commissions: the Appalachian Regional Commission (ARC), the Denali Commission (DC), the Delta Regional Authority (DRA), and the Northern Great Plains Regional Authority (NGPRA). For each of the four entities, this report includes a summary of the legislative history leading to its creation, its funding history, and a listing by state of political subdivisions included in its designated service areas. The report also identifies criteria a jurisdiction must meet in order to be designated as a recipient of funding, the structure of the governing authority charged with administering funds, and current funding and legislative issues, if any. |
Since the terrorist attacks of September 11, 2001, Congress has appropriated more than a trillion dollars for military operations in Afghanistan, Iraq, and elsewhere around the world. The House and Senate are now considering an additional request for $33 billion in supplemental funding for the remainder of FY2010, and the Administration has also requested $159 billion to cover costs of overseas operations in FY2011. In the face of these substantial and growing sums, a recurring question has been how the mounting costs of the nation's current wars compare to the costs of earlier conflicts. The following table provides estimates of costs of major wars from the American Revolution through conflicts in Korea, Vietnam, and the Persian Gulf in 1990-1991. It also provides updated estimates of costs of current operations. Estimates are in current year dollars that reflect values at the time of each conflict and in constant dollars that reflect today's prices. The table also shows estimates of war costs as a share of the economy. Comparisons of costs of wars over a 230-year period, however, are inherently problematic. One problem is how to separate costs of military operations from costs of forces in peacetime. In recent years, the DOD has tried to identify the additional "incremental" expenses of engaging in military operations, over and above the costs of maintaining standing military forces. Before the Vietnam conflict, however, the Army and the Navy, and later the DOD, did not view war costs in such terms. Figures are problematic, as well, because of difficulties in comparing prices from one vastly different era to another. Inflation is one issue—a dollar in the past would buy more than a dollar today. Perhaps a more significant problem is that wars appear more expensive over time as the sophistication and cost of technology advances, both for military and for civilian activities. Adjusted for inflation, the War of 1812 cost about $1.6 billion in today's prices, which appears, by contemporary standards, to be a relatively small amount. But using commonly available estimates of gross domestic product, the overall U.S. economy 192 years ago was less than 1/1,400 th as large as it is now. So at the peak of the conflict in 1813, the war consumed more than 2% of the nation's measurable economic output, the equivalent of more than $300 billion today. The data in the attached table, therefore, should be treated, not as truly comparable figures on a continuum, but as snapshots of vastly different periods of U.S. history. For the Vietnam War and the 1990-1991 Persian Gulf War, the figures reported here are DOD estimates of the "incremental" costs of military operations (i.e., the costs of war-related activities over and above the normal, day-to-day costs of recruiting, paying, training, and equipping standing military forces). Estimates of the costs of post-9/11 operations in Afghanistan, Iraq, and elsewhere through FY2009 are by [author name scrubbed] of CRS, based on (1) amounts appropriated by Congress in budget accounts designated to cover war-related expenses and (2) allocations of funds in reports on obligations of appropriated amounts by the DOD. Data for FY2010 are DOD estimates of costs defined quite similarly. These figures appear to reflect a broader definition of war-related expenses than earlier DOD estimates of incremental costs of the Vietnam and Persian Gulf conflicts. In years prior to the Vietnam War, neither the Army and Navy, nor the DOD, nor any other agency or organization attempted to calculate incremental costs of war-related operations over and above the costs of peace-time activities. In the absence of official accounts of war expenditures, CRS estimated the costs of most earlier wars—except for the American Revolution, the Confederate side of the Civil War, and the Korean conflict—by comparing war-time expenditures of the Army and the Navy with average outlays for the three years prior to each war. The premise is that the cost of a war reflects, in each case, a temporary buildup of forces from the pre-war level. During the Korean War, however, the United States engaged in a large buildup of forces not just for the war, but for deployments elsewhere in the world as well. For the Korean conflict, therefore, CRS compared outlays of the DOD during the war with a trend line from average expenditures of the three years before the war to average expenditures of the three years after the war. Estimated costs of most conflicts, from the War of 1812 through the Korean War, are based on official reports on the budgets of the Army, Navy, and, for Korea, the Air Force. No official budget figures are available, however, for the Revolution or for the confederate states during the Civil War. The estimated cost of the American Revolution is from a financial history of the United States published in 1895 and cited in a Legislative Reference Service memo prepared in 1956. The estimated Civil War cost of the confederacy is from the Statistical Abstract of the United States 1994 edition. Data on Army and Navy outlays prior to 1940 are from the Department of Commerce, Historical Statistics of the United States from Colonial Times to 1970, Part 2, 1975. GDP estimates prior to 1940 are from Louis D. Johnston and Samuel H. Williamson, "The Annual Real and Nominal GDP for these United States, 1790 - Present." Economic History Services, October 2005, at http://www.measuringworth.org/usgdp/ . Outlays and GDP figures from FY1940 on are from the Office of Management and Budget. For each conflict, CRS converted cost estimates in current year prices into constant FY2011 dollars using readily available inflation indices. For years since 1948, CRS used an index of inflation in defense outlays from the DOD. For years from 1940-1947, CRS used an index of inflation in defense outlays from the Office of Management and Budget. For years prior to 1940, CRS used an index based on the Consumer Price Index (CPI) that the U.S. Department of Labor, Bureau of Labor Statistics (BLS) maintains and updates quarterly. That index extends back to 1913. For earlier years, CRS used an extension of the CPI by academic researchers that is maintained at Oregon State University. That index also uses the official BLS CPI from 1913 forward and periodically updates both earlier and later figures to reflect new, official CPI estimates. Inflation adjustments extending over a period of more than 200 years are problematic in many ways. The estimates used here are from reliable academic sources, but other experts might use alternative indices of prices or might weight values differently and come up with quite different results. In addition, over long periods, the relative costs of goods within the economy change dramatically. By today's standards, even simple manufactured goods were expensive in the 1770s compared, say, to the price of land. Moreover, it is difficult to know what it really means to compare costs of the American Revolution to costs of military operations in Iraq when, 230 years ago, the most sophisticated weaponry was a 36-gun frigate that is hardly comparable to a modern $3.5 billion destroyer. As a result, yesterday's wars appear inexpensive compared to today's conflicts if only because the complexity, value, and cost of modern technology are so much greater. Finally, a very technical and relatively minor point—the inflation indices used here are more specialized for more recent periods. Figures since 1940 are adjusted using factors specific to defense expenditures, but no such index is available for earlier years. At least in recent years, cost trends in defense have differed considerably from cost trends in the civilian economy. Contemporary inflation indices capture such differences, while older ones do not. | This CRS report provides estimates of the costs of major U.S. wars from the American Revolution through current conflicts in Iraq, Afghanistan, and elsewhere. It presents figures both in "current year dollars," that is, in prices in effect at the time of each war, and in inflation-adjusted "constant dollars" updated to the most recently available estimates of FY2011 prices. All estimates are of the costs of military operations only and do not include costs of veterans benefits, interest paid for borrowing money to finance wars, or assistance to allies. The report also provides estimates of the cost of each war as a share of Gross Domestic Product (GDP) during the peak year of each conflict and of overall defense spending as a share of GDP at the peak. Comparisons of war costs over a 230-year period, however, are inherently problematic. One problem is how to separate costs of military operations from costs of forces in peacetime. In recent years, the Department of Defense (DOD) has tried to identify the additional "incremental" expenses of engaging in military operations, over and above the costs of maintaining standing military forces. Figures used in this report for the costs of the Vietnam War and of the 1990-1991 Persian Gulf War are official DOD estimates of the incremental costs of each conflict. Costs of post-9/11 military operations in Afghanistan, Iraq, and elsewhere are estimates of amounts appropriated to cover war-related expenses. These amounts appear to reflect a broader definition of war-related expenditures than earlier DOD estimates of incremental Vietnam or Persian Gulf War costs. Before the Vietnam conflict, the Army and Navy, and later the DOD, did not identify incremental expenses of military operations. For the War of 1812 through World War II, CRS estimated the costs of conflicts by calculating the increase in expenditures of the Army and Navy compared to the average of the three years before each war. The premise is that increases reflect the cost of a temporary buildup to fight each war. Costs of the Revolutionary War and of the Confederate side in the Civil War are from other published sources. Costs of the Korean War were calculated by comparing DOD expenditures during the war with a trend line extending from the average of three years before the war to the average of three years after the war. Figures are problematic, as well, because of difficulties in comparing prices from one vastly different era to another. Inflation is one issue—a dollar in the past would buy more than a dollar today. Perhaps a more significant problem is that wars appear vastly more expensive over time as the sophistication and cost of technology advances, both for military and for civilian purposes. The estimates presented in this report, therefore, should be treated, not as truly comparable figures on a continuum, but as snapshots of vastly different periods of U.S. history. |
F ederal budget decisions express the priorities of Congress and reinforce its influence on federal policies. Making budgetary decisions for the federal government is a complex process and requires the balance of competing goals. The Great Recession adversely affected federal budget outcomes through revenue declines and spending increases from FY2008 through FY2013. The federal budget recorded a deficit of 9.8% of gross domestic product (GDP) in FY2009, the largest value since World War II. Subsequent improvement of the economy and implementation of policies designed to lower spending have improved the short-term budget outlook, though federal deficits remain at relatively high levels. In FY2017, the federal budget recorded a deficit of 3.5% of GDP, which was higher than the average deficit since FY1947 (2.7% of GDP). Over the next several years, projections of a continued decline in discretionary spending are more than offset by increases in mandatory spending, increases in net interest payments, and reductions in revenues, leading to a rise in federal deficits. Increases in the long-term cost of federal retirement and health care programs and debt servicing costs each contribute to upward pressure on federal spending levels. Operating these programs in their current form may pass on substantial economic burdens to future generations. Revenues are projected to decline as a percentage of GDP over the next several years before increasing later in the 10-year budget window as provisions enacted by the 2017 tax revision ( P.L. 115-97 ) are scheduled to expire. Congress and the President may consider proposals for deficit reduction if fiscal issues remain a key item on the legislative agenda. This report summarizes issues surrounding the federal budget, examines policy changes relevant to the budget framework for FY2019, and discusses recent major policy proposals included in the President's FY2019 budget. It concludes by addressing major short- and long-term fiscal challenges facing the federal government. Each fiscal year Congress and the President engage in a number of practices that influence short- and long-run revenue and expenditure trends. This section describes the budget cycle and explains how budget baselines are constructed. Budget baselines are used to measure how legislative changes affect the budget outlook and are integral to evaluating these policy choices. Action on a given year's federal budget, from initial formation by the Office of Management and Budget (OMB) until final audit, typically spans four calendar years. The executive agencies begin the budget process by compiling detailed budget requests, overseen by OMB. Agencies work on their budget requests in the calendar year before the budget submission, often during the spring and summer (about a year and a half before the fiscal year begins). The President usually submits the budget to Congress around the first Monday in February, or about eight months before the beginning of the fiscal year, although submissions are often later in the first year of an Administration. Congress typically begins formal consideration of a budget resolution once the President submits the budget request. The budget resolution is a plan, agreed to by the House and Senate, which establishes the framework for subsequent budgetary legislation. Because the budget resolution is a concurrent resolution, it is not sent to the President for approval. If the House of Representatives and Senate cannot agree on a budget resolution, a substitute measure known as a "deeming resolution" may be implemented by each chamber, which may give force to certain budget enforcement measures. House and Senate Appropriations Committees and their subcommittees usually begin reporting discretionary spending bills after the budget resolution is agreed upon. Appropriations Committees review agency funding requests and propose levels of budget authority (BA). Appropriations acts passed by Congress set the amount of BA available for specific programs and activities. Authorizing committees, which control mandatory spending, and committees with jurisdiction over revenues also play important roles in budget decisionmaking. During the fiscal year, Congress and OMB oversee the execution of the budget. Once the fiscal year ends on the following September 30, the Department of the Treasury and the Government Accountability Office (GAO) begin year-end audits. Budget baseline projections are used to project the future influence of current laws and measure the effect of future legislation on spending and revenues. They are not meant to predict future budget outcomes. Baseline projections are included in both the President's budget and the congressional budget resolution. It is important to understand the assumptions and components included in budget baselines. In some cases, slight changes in the underlying models or assumptions can lead to large effects on projected deficits, receipts, or expenditures. The Congressional Budget Office (CBO) computes current-law baseline projections using assumptions set out in budget enforcement legislation. On the revenue side of the budget, the 2017 tax revision ( P.L. 115-97 ; see additional discussion below) enacted several changes to individual and corporate income tax rates and to other tax policy provisions that are set to expire before the end of the 10-year budget baseline window. On the spending side, baseline discretionary spending levels are largely constrained by the caps and automatic spending reductions enacted as part of the Budget Control Act of 2011 (BCA; P.L. 112-25 ) and further modified on several occasions, most recently with the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ). Since the CBO baseline assumes that current law continues as scheduled, it incorporates policy provisions in current law that have historically been revised before taking effect. Specifically, the CBO baseline assumes that discretionary budget authority from FY2019 through FY2021 will be restricted by the caps as created by the BCA as amended, and that certain tax policy changes enacted in the 2017 tax revision and in other laws will expire as scheduled under current law. This leads to baseline projections of lower spending and higher revenue levels relative to a baseline that would reflect policy changes some would consider likely given past actions (sometimes referred to as a "current policy" baseline). In addition to these elements of current law, macroeconomic assumptions, including those related to GDP growth, inflation, and interest rates, will also affect the baseline estimates and projections. Minor changes in the economic or technical assumptions that are used to project the baseline also could result in significant changes in future deficit levels. A summary of budget outcomes in the latest CBO baseline is provided in Table 1 . CBO's current baseline projections, released in April 2018, show rising budget deficits over the next several years. This represents a reversal from the significant declines in inflation-adjusted deficits experienced in the past few fiscal years. Those declines were primarily due to continued increases in employment (which increased revenues collected from income and payroll taxes) and reductions in discretionary spending. While the baseline projections include continued declines in discretionary outlays, those reductions are more than offset by increases in mandatory spending. Mandatory spending increases are largely due to the rising cost of Social Security and Medicare programs, and declines in federal revenues. Baseline projections also include increases in debt held by the public (or debt held by all entities other than the federal government) throughout the 10-year budget window. Debt held by the public finances budget deficits and federal loan activity, and is a function of three things: (1) the size of existing debt, (2) economic growth, and (3) interest rates. Debt held by the public was 76.5% of GDP at the end of FY2017, and is projected to be 96.2% of GDP at the end of FY2028. CBO also provides projections based on alternative policy assumptions, which illustrate levels of spending and revenue if current policies continue rather than expire as scheduled under current law. If discretionary spending increased with inflation after FY2018 instead of proceeding in accordance with the limits instituted by the BCA and tax reductions in the 2017 tax revision are extended, CBO projects an increase in the budget deficit of almost $2,400 billion relative to the current-law baseline, exclusive of debt servicing costs, over the FY2019 to FY2028 period. Beyond the 10-year forecast window, federal deficits are expected to grow unless major policy changes are made. This is a result of increases in outlays largely attributable to rising health care and retirement costs combined with little to no change in projected revenue levels over that timeframe. Over the last seven decades, federal spending has accounted for an average of 19.3% of the economy (as measured by GDP), while federal revenues averaged roughly 17.2% of GDP. Spending has exceeded revenues in each fiscal year since FY2002, resulting in annual budget deficits. Between FY2009 and FY2012, spending and revenue deviated significantly from historical averages, primarily as a result of the economic downturn and policies enacted in response to financial turmoil. In FY2017, the U.S. government spent $3,982 billion and collected $3,316 billion in revenue. The resulting deficit of $665 billion, or 3.5% of GDP, was higher than the average deficit from FY1947 through FY2017 of 2.1% of GDP. The trends in revenues and outlays between FY1947 and FY2017 are shown in Figure 1 . Federal outlays are often divided into three categories: discretionary spending, mandatory spending, and net interest. Discretionary spending is controlled by the annual appropriations acts. Mandatory spending encompasses spending on entitlement programs and spending controlled by laws other than annual appropriations acts. Entitlement programs such as Social Security, Medicare, and Medicaid make up the bulk of mandatory spending. Congress sets eligibility requirements and benefits for entitlement programs, rather than appropriating a fixed sum each year. Therefore, if the eligibility requirements are met for a specific mandatory program, outlays are made without further congressional action. Net interest comprises the government's interest payments on the debt held by the public, offset by small amounts of interest income the government receives from certain loans and investments. In FY2000, total outlays equaled 17.6% of GDP, the lowest recorded level since FY1966. In FY2009, outlays peaked at 24.4% of GDP. Outlays then fell steadily for the next few years, equaling 20.3% of GDP in FY2014, before rising to 20.8% of GDP in FY2017. Under the CBO baseline, total outlays are projected to continue rising and will reach 23.6% of GDP in FY2028. Figure 2 provides historical data and CBO projections of federal spending between FY1962 and FY2028. In FY1962, discretionary spending was consistently the largest source of federal outlays, peaking at 13.1% of GDP in FY1968. In the ensuing decades discretionary spending as a share of the economy underwent a gradual decline, and totaled 6.1% of GDP in FY2000. Discretionary spending increased in most years between FY2000 and FY2010, largely due to increases in security spending and federal interventions designed to stimulate the economy, and peaked in FY2010 at 9.1% of GDP. Discretionary spending fell from FY2010 through FY2017, due to both the wind down of stimulus programs and the implementation of restrictions established by the BCA. In FY2017, discretionary spending totaled 6.4% of GDP. CBO's most recent forecast projects short-term increases in discretionary spending, largely due to enactment of the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ). BBA 2018 allowed for large increases in discretionary spending in FY2018 and FY2019. Baseline forecasts subsequently include projections of lowered discretionary spending levels in FY2020 (the first year with spending caps unaffected by BBA 2018) and beyond. By FY2021, discretionary spending is projected to fall to 5.9% of GDP, which would be its lowest level ever; discretionary spending is projected to total 5.4% of GDP by FY2028. The projected decline in discretionary spending in the baseline over the next decade is largely due to the reductions under current law contained in the BCA. Figure 2 also shows mandatory spending as a share of GDP. Mandatory spending was a much smaller source of outlays than discretionary spending in earlier years, totaling just 4.7% of GDP in FY1962. Over time the share of mandatory spending has consistently grown, initially due to the increase in subscription in large mandatory programs such as Social Security and Medicare and then due to demographic and economic shifts that further increased the sizes of those programs. Mandatory spending totaled 13.2% of GDP in FY2016, up from 9.4% of GDP in FY2000. Mandatory spending peaked in FY2009 at 14.5% of GDP. Mandatory spending levels during the FY2009-FY2012 period were elevated mainly because of increases in outlays for income security programs as a result of the recession. The continuing economic recovery has resulted in lower mandatory spending on certain programs. Mandatory spending is projected to increase beginning in FY2019 due to growth in certain entitlement programs. Under current law, CBO projects that mandatory spending will total 15.2% of GDP in FY2028, greater than the FY2009 level. It is also possible to evaluate trends in the share of total spending devoted to each component. In FY2017, mandatory spending amounted to 63% of total outlays, discretionary spending reached 30% of total outlays, and net interest comprised 7% of total outlays. The largest mandatory programs, Social Security, Medicare, and the federal share of Medicaid, constituted 48% of all federal spending in FY2017. CBO's baseline projections include a rise in net interest and a decline in discretionary spending as a share of total federal expenditures. In FY2028, the baseline projects that mandatory spending will total 64% of outlays, discretionary spending will total 23% of outlays, and net interest will total 13% of outlays. Discretionary spending currently represents less than one-third of total federal outlays. Some budget experts contend that to achieve a long-term decline in federal spending, reductions in mandatory spending are needed. Budget and social policy experts have also stated that cuts in mandatory spending may cause substantial disruption to many households, because mandatory spending comprises important parts of the social safety net. Future projections of increasing deficits and resulting high debt levels may warrant further action to address fiscal health over the long term. In FY2017, federal revenue collections totaled 17.3% of GDP, roughly equal to the historical average since FY1947 (17.2% of GDP). Real federal revenues have increased in recent years, due primarily to an improving economy. Between FY2009 and FY2013, revenue collection was depressed as the result of the economic downturn and certain tax relief provisions. In FY2009 and FY2010, revenue collections totaled 14.6% of GDP. The 2017 tax revision ( P.L. 115-97 ), enacted in December 2017, significantly altered federal receipt projections. Changes to the federal code implemented by P.L. 115-97 include a temporary reduction in individual income tax rates, a permanent reduction in the corporate income tax rate, permanent modification of the international tax system, and a number of mostly temporary modifications to income tax expenditures. Revenues are projected to decline from 17.8% of GDP in FY2016 to 16.5% of GDP in FY2019. Revenues are projected to gradually increase to total 18.5% of GDP in FY2028 under the CBO baseline. Increases toward the end of the baseline forecast are explained in part by the scheduled expiration of temporary provisions in the 2017 tax revision. Figure 3 shows revenue collections between FY1962 and FY2028, as projected in the CBO baseline. Individual income taxes have long been the largest source of federal revenues, followed by social insurance (payroll) and corporate income taxes. In FY2017, individual income tax revenues totaled 8.3% of GDP. While individual income taxes as a share of the economy have remained relatively constant since the end of World War II, the share of federal revenues devoted to social insurance programs has increased from 2.9% of GDP in FY1962 to 6.1% of GDP in FY2017. That increase is largely attributable to growth in taxes that fund large entitlement programs. Shares devoted to corporate income and other outlays have declined, from 3.5% and 2.8% of GDP, respectively, in FY1962 to 1.5% of GDP and 1.4% of GDP, respectively, in FY2017. The CBO baseline projects that in FY2028 real individual tax revenues will be higher than current levels, other receipts will be lower than present levels, and corporate and payroll taxes will be roughly equivalent to FY2018 collections, though those projections would likely change if expirations of provisions in the 2017 tax revision do not proceed as scheduled. The annual difference between revenue (i.e., taxes and fees) that the government collects and outlays (i.e., spending) results in either a budget deficit or surplus. Annual budget deficits or surpluses determine, over time, the level of publicly held federal debt and affect the level of interest payments to finance the debt. Between FY2009 and FY2012, annual deficits as a percentage of GDP were higher than deficits in any four-year period since FY1945. The unified budget deficit in FY2017 was $665 billion, or 3.5% of GDP. The unified deficit, according to some budget experts, gives an incomplete view of the government's fiscal conditions because it includes off-budget surpluses. Excluding off-budget items (i.e., Social Security benefits paid net of Social Security payroll taxes collected and the U.S. Postal Service's net balance), the on-budget FY2017 federal deficit was $715 billion. The April 2018 CBO baseline projected the FY2018 budget deficit to be $804 billion, or 4.0% of GDP. The rise in the estimated budget deficit for FY2018 relative to FY2017 is the result of decreases in real revenues more than offsetting a small decrease in real outlays. FY2018 outlays are projected to increase to 20.8% of GDP from 20.6% of GDP in FY2017; revenues are projected to fall to 16.6% of GDP in FY2018, down from 17.3% of GDP in FY2017. Gross federal debt is composed of debt held by the public and intragovernmental debt. Intragovernmental debt is the amount owed by the federal government to other federal agencies, to be paid by the Department of the Treasury, which mostly consists of money contained in trust funds. Debt held by the public is the total amount the federal government has borrowed from the public and remains outstanding. This measure is generally considered to be the most relevant in macroeconomic terms because it is the debt sold in credit markets. Changes in debt held by the public generally track the movements of the annual unified deficits and surpluses. Historically, Congress has set a ceiling on federal debt through a legislatively established limit. The debt limit also imposes a type of fiscal accountability that compels Congress (in the form of a vote authorizing a debt limit increase) and the President (by signing the legislation) to take visible action to allow further federal borrowing when nearing the statutory limit. The debt limit by itself has no direct effect on the borrowing needs of the government. The debt limit, however, can hinder the Treasury's ability to manage the federal government's finances when the amount of federal debt approaches this ceiling. In those instances, the Treasury has had to take extraordinary measures to meet federal obligations, leading to inconvenience and uncertainty in Treasury operations at times. A binding debt limit would prevent the Treasury from selling additional debt and could prevent timely payment on federal obligations, resulting in default. Possible consequences of a binding debt limit include (1) a reduced ability of Treasury to borrow funds on advantageous terms, resulting in further debt increases; (2) possible turmoil in global economies and financial markets; and (3) acquisition of penalties or fines from the failure to make timely payments. More broadly, a binding debt limit may also affect the perceived credit risk of federal government borrowing. Consequently, the federal government's borrowing capacity could decline. In FY2017, the United States spent $263 billion, or 1.4% of GDP, on net interest payments on the debt. What the government pays in interest depends on market interest rates as well as the size and composition of the federal debt. Currently, low interest rates have held net interest payments as a percentage of GDP below the historical average despite increases in borrowing to finance the debt. Some economists, however, have expressed concern that federal interest costs could rise if interest rates continue to increase, resulting in future strain on the budget. Interest rates are projected to rise in the CBO baseline, resulting in net interest payments of $915 billion (3.1% of GDP) in FY2028, a figure that well exceeds the historical average of 1.7% of GDP since FY1940. The 115 th Congress has adopted legislation with short- and long-term effects on the federal budget. The 2017 tax revision included major changes to the federal tax code, including changes to individual and corporate income taxes, international taxes, and a variety of tax expenditures (deductions, exclusions, and credits available to taxpayers). BBA 2018 enacted a two-year revision to the discretionary spending caps imposed by the BCA and also suspended the statutory debt limit until March 2019. Congress has also enacted several pieces of legislation with ramifications for the appropriations process and statutory debt limit. The 2017 tax revision, signed into law on December 22, 2017, made extensive changes to the federal tax system. A comprehensive list of the modifications made in the 2017 tax revision is available in CRS Report R45092, The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law , coordinated by [author name scrubbed] and [author name scrubbed]. Changes made in the 2017 tax revision include the following: temporary modifications (scheduled to expire at the end of tax year 2025) to individual income tax brackets, with a reduction in the top rate from 39.6% to 37%, an increase in the income threshold for the top bracket, and a temporary increase in the individual alternative minimum tax (AMT) exemption; a permanent modification in corporate income tax rates from a graduated rate structure with a top rate of 35% to a flat rate of 21%, and a permanent repeal of the corporate AMT; numerous modifications, mostly temporary, to the tax expenditures available to individual and corporate income tax filers, which include changes made to the standard deduction, the mortgage interest deduction, and the deduction for state and local taxes paid; a temporary (scheduled to expire at the end of tax year 2025) increase in the federal estate and gift tax exclusion; and a permanent shift in the taxation of foreign income from a modified version of a worldwide basis (where all income from U.S. firms earned in other countries is subject to U.S. taxation) to a modified version of a territorial profits basis (where profits are taxed on the basis of the country where they are earned). Summary data from the final cost estimate conducted by the Joint Committee on Taxation (JCT) for the 2017 tax revision are provided in Table 2 . The law was estimated to increase deficits by a total of $1,456 billion from FY2018 to FY2027, with deficit increases from FY2018 to FY2026 and a small deficit decrease in FY2027 as many of the temporary provisions included in the act expire. That estimate excluded macroeconomic feedback effects: JCT estimated that such effects would reduce deficits by a total of $385 billion over the FY2018-FY2027 period. CBO included an estimated effect of the 2017 tax revision on the federal budget in its April 2018 baseline release, which incorporated an additional year (FY2028) and included the effects on debt servicing costs and of implementation details learned since the date of enactment. That estimate projected that exclusive of macroeconomic feedback, the 2017 tax revision increased total deficits by $2,314 billion from FY2018 to FY2028; including macroeconomic feedback, which reduced deficits by $461 billion, the act was estimated to increase deficits by $1,854 billion over the same period. BBA 2018, enacted into law on February 9, 2018, is the latest modification to the deficit reduction measures imposed by the BCA. The BCA was enacted on August 2, 2011, and contained a variety of measures intended to reduce future deficits by at least $2,100 billion over the FY2012-FY2021 period. Most of the direct reduction in deficits imposed by the BCA was to be generated by caps on discretionary budget authority, with the remainder produced by a sequester on some types of mandatory spending. Before enactment of BBA 2018, the deficit reduction measures established by the BCA were amended by the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ), the Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67 ), and the Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74 ). The specific changes made by each amending law differ, but all three laws provided for short-term increases in discretionary spending by raising the discretionary budget authority caps established by the BCA in certain years while reducing mandatory spending by extension of the sequester on mandatory programs. Unlike BBA 2013 and BBA 2015, the direct and indirect budgetary effects to the BCA made in BBA 2018 were not offset (according to standard legislative cost estimation procedures) by other changes included in the law. Table 3 shows how the discretionary caps from FY2014 through FY2021 have changed since enactment of the BCA. BBA 2018 raised the discretionary caps in FY2018 and FY2019 by a combined $296 billion, a much greater increase than provided for in previous amendments to the BCA. FY2018 and FY2019 discretionary budget authority as provided for in BBA 2018 is projected to be a combined $114 billion higher than the initial caps established by the BCA, though the caps in FY2020 and FY2021 remain virtually unchanged since 2012. Each year Congress enacts a set of laws providing for discretionary appropriations, which gives federal agencies the authority to incur obligations. Appropriations acts typically provide authority for a single fiscal year, and may come in the form of regular appropriations (providing authority for the next fiscal year), supplemental appropriations (providing additional authority for the current fiscal year), or continuing appropriations (providing stop-gap authority for agencies without a regular appropriation). Most recently, the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ) was signed into law on March 23, 2018, providing full-year appropriations for all federal agencies without a regular appropriation through the end of FY2018 (which ends September 30, 2018). Time periods for which no or incomplete appropriations are provided are known as funding lapses, and may result in partial or full shutdown of federal operations. Short-term funding lapses occurred in January and February 2018. Recent legislation has also modified the statutory debt limit. BBA 2018 suspended the debt limit until March 1, 2019, and dictated that the debt limit be increased upon reinstatement as needed to accommodate any additional federal borrowing undertaken up to that point. Before enactment of BBA 2018, Treasury had implemented extraordinary measures (which had been used in prior debt limit episodes) to prevent the debt limit from binding upon its reinstatement from a previous suspension on December 8, 2017. The Trump Administration submitted its FY2019 budget to Congress on February 12, 2018. The President's budget lays out the Administration's views on national priorities and policy initiatives. Congress has also begun consideration of the FY2019 budget. President Trump presented his policy agenda in the Administration's FY2019 budget submission. If the policies are fully implemented, the Administration estimates that total FY2018 outlays would be $4,214 billion (21.0% of GDP) and revenues would be $3,340 billion (16.7% of GDP), resulting in a budget deficit of $873 billion (4.4% of GDP). The Administration estimates that deficits under the proposed budget would increase in FY2019 and then decline as a share of output over the course of the budget window, with the significance of the decline varying with how certain macroeconomic effects are applied to the forecast. A summary of the total deficit effects of the budget's proposed changes is presented in Table 4 . The budget proposes reforms that would reduce several types of outlays. The largest spending cut proposals are to (1) nondefense discretionary programs, with an outlay reduction of $1,669 billion from FY2019 through FY2028; (2) Medicaid and other mandatory programs (including Children's Health Insurance and welfare), with $1,074 billion in FY2019-FY2028 outlay reductions; (3) repeal and replacement of the Patient Protection and Affordable Care Act (ACA; P.L. 111-48 ), with $675 billion in FY2019-FY2028 deficit reductions; and (4) Medicare programs, with a $236 billion reduction in FY2019-FY2028 outlays. The budget proposes increases in infrastructure spending, which would result in total outlays increasing by $199 billion over the FY2019-FY2028 period. Finally, the budget proposes increases to the total defense budget, with increases in base defense spending and decreases in Overseas Contingency Operations (OCO) spending resulting in an increase in discretionary defense outlays of $143 billion over the FY2019-FY2028 period. The President's budget assumes that those policy changes produce additional indirect budgetary effects on net interest spending and through changes in economic output. The proposed policy changes are estimated to reduce net interest spending by $319 billion over the FY2019-FY2028 period. Moreover, the budget assumes those policies increase economic growth in a manner that reduces FY2019-FY2028 deficits by an additional $813 billion. The budget's economic forecast was based on information available in November 2017, and the budget states that this additional growth accounts for enactment of the 2017 tax revision. As noted earlier, the CBO and JCT included smaller deficit reduction estimates ($461 billion over the FY2019-FY2028 period and $385 billion over the FY2018-FY2027 period, respectively) resulting from such macroeconomic feedback. The President's budget uses economic projections in its calculations that differ from those used in congressional budget operations. The budget projects that the real economic growth rate (measured as the percentage change in real GDP) will be 3.0% per year both in FY2018 and over the FY2019 through FY2028 period. That total is higher than the assumptions included in CBO's April 2018 forecast, which includes real economic growth projections averaging 1.9% per year from FY2019 through FY2028. Previous iterations of the President's budget have also included differences in economic projections with those produced by CBO, though such differences have typically been smaller than the projection gap in the FY2018 and FY2019 budgets. The United States last experienced real economic growth of greater than 3.0% in FY2005. The Administration estimated that assuming real economic growth to be 1% lower over the FY2018-FY2018 period would increase its projected budget deficits by $3,144 billion over the FY2018 to FY2028 window. The Trump Administration provided two deficit projections in its FY2019 budget. First, OMB projected a Balanced Budget and Emergency Deficit Control Act (BBEDCA) baseline: the BBEDCA baseline, or "pre-policy" baseline, assumes that discretionary spending remains constant in real (i.e., inflation-adjusted) terms and revenue and mandatory (or direct) spending continue as under current law. Under this scenario, the FY2019 deficit is projected to total $0.969 trillion (4.6% of GDP), the FY2028 deficit is projected to be $1,378 billion (4.3% of GDP), and cumulative deficits are projected to be $11,540 billion over the FY2019-FY2028 period. The other deficit projection, the proposed budget, illustrates the effect on the budget outlook if all of the policies proposed in the budget are implemented. In FY2019, the Administration projects that the deficit will reach $984 billion (4.7% of GDP). Under the proposed budget, deficits would steadily decrease from FY2021 through FY2028, producing a budget deficit of $363 billion (1.1% of GDP) in FY2028. The net budget deficit from FY2019 through FY2028 totals $7,095 billion in the proposed budget. Neither projection incorporates the budgetary effects of BBA 2018, which was enacted just prior to the budget release. CBO estimated that BBA 2018 would increase FY2018-FY2027 deficits by a combined $252 billion relative to current law, exclusive of debt servicing costs. Figure 4 illustrates how federal deficits in the President's pre-policy and proposed budgets compare to current law (CBO baseline) over the next decade. The proposals in the President's budget are projected to result in deficit reductions of $4,445 billion over the next decade relative to the pre-policy baseline. The President's budget proposes to adjust the caps on discretionary spending as originally established by the Budget Control Act (BCA). In August 2011, the BCA placed limits on discretionary budget authority and included provisions for additional spending cuts to be implemented through an automatic process that were eventually triggered by the absence of agreement from a committee tasked with passing deficit reduction legislation. Since enactment of the BCA, Congress and the President have modified the BCA several times, primarily to allow increases in discretionary spending (for more information, see the earlier section titled " Recent Budget Policy Legislation and Events "). A summary of the changes to the discretionary caps in the President's budget is presented in Figure 5 . In FY2019, the President's budget would leave the defense cap unchanged while decreasing the nondefense cap by $57 billion; both caps were recently modified by BBA 2018. The budget calls for increases to the defense caps by $84 billion and $87 billion in FY2020 and FY2021, respectively, and proposes decreases in the nondefense caps of $87 billion and $109 billion in FY2020 and FY2021. While the caps on discretionary budget authority as established by the BCA are scheduled to expire after FY2021, the President's budget also proposes changes to discretionary spending in FY2022-FY2028 under the assumption that discretionary spending grows with current services growth rates. Over the FY2022-FY2028 period the Administration proposes increases to defense spending in each year ranging from $87 billion to $92 billion. The budget proposes decreases in nondefense spending that grow from $132 billion in FY2022 to $274 billion in FY2028. Following passage of full-year FY2018 appropriations, Congress has turned its attention to the FY2019 budget. The budget committees in the House and Senate each may develop budget legislation as they receive information and testimony from a number of sources, including the Administration, the CBO, and congressional committees with jurisdiction over spending and revenues. Absent legislative action, the limits on discretionary budget authority for FY2019 are scheduled to be $647 billion for defense activities and $597 billion for nondefense activities, which is a combined $36 billion higher than the limits in FY2018 (see Table 3 ). Ongoing federal budgetary challenges remain which may lead to congressional action. Issues related to deficit reduction and the long-term budget outlook may continue to arise in policy discussions. Increased spending on entitlement programs, as currently structured, will likely contribute to rising deficits and debt, placing ever-increasing focus on how to achieve fiscal sustainability over the long term. Various budget issues may feature prominently in near-term congressional debates. Discussions over FY2019 discretionary appropriations legislation may be held in advance of the beginning of the fiscal year (or afterwards in the case of supplemental or continuing appropriations). Congress may elect to revisit the deficit reduction measures imposed by the BCA as amended, which include discretionary caps on defense and nondefense budget authority through FY2021 and spending reduction measures on certain mandatory programs through FY2027. As discussed earlier, Congress has already lifted the discretionary caps (to allow for more spending) in each year from FY2013 through FY2019 relative to their values established in the BCA. Congress may also choose to modify the statutory debt limit. The debt limit is currently suspended through March 2019, at which time it is to be reinstated to accommodate federal borrowing levels. If faced with a nearly binding debt limit, Treasury may choose to enact extraordinary measures to postpone when the debt limit binds. Short-run budget surpluses in March and April of that year (primarily from the receipt of annual income tax returns) mean that extraordinary measures enacted in March will likely postpone a binding debt limit by several months. The latest CBO budget forecast projects a larger nominal budget deficit in FY2019 ($981 billion) than the federal deficit in FY2017 ($665 billion), which was the last year extraordinary measures were enacted in March. Such an increase may reduce the length of time extraordinary measures would postpone a binding debt limit relative to what was experienced in 2017. The federal government faces long-term budget challenges. Occasional budget deficits are not necessarily problematic. Deficit spending can allow governments to smooth outlays and revenues to shield taxpayers and program beneficiaries from abrupt economic shocks in the short term, while also temporarily boosting GDP when the economy is underperforming. Persistent deficits, however, lead to growing levels of federal debt that may lead to higher interest payments and may also have adverse macroeconomic consequences in the long term, including slowing investment and lowering economic growth. Indefinite growth of real debt will eventually lead to a borrowing crisis, though the timing of such an event is subject to great uncertainty. Reducing large deficits will require increases in taxes, reductions in spending, or both. Some measures of fiscal solvency in the long term indicate that, under current policy, the United State faces major future imbalance, specifically as it relates to rising retirement and health care costs and the likely impact on government-financed health care spending. Existing deficit reduction policies like the BCA had improved recent and near-term deficits but do not make significant changes to the parts of the budget that are projected to grow the fastest in the long run. Therefore, many budget analysts believe that additional deficit reduction is required to put the budget on a sustainable path over the long term. CBO's current law baseline projects inflation-adjusted deficits (equal to 4.9% of GDP) from FY2019 through FY2028 despite a real economic growth rate averaging 1.8% per year over the same period: that combination of sustained economic growth and large federal deficits would be unprecedented in the postwar era. CBO, GAO, and the Trump Administration agree that the current mix of federal fiscal policies is unsustainable in the long term. The nation's aging population, combined with rising health care costs per beneficiary, may keep federal health costs rising faster than per capita GDP. CBO projected in March 2017 that under current policy, federal spending on health programs (including Medicare, Medicaid, CHIP, and exchange subsidies) would grow from 5.5% of GDP in FY2017 to 8.8% of GDP in FY2047. A 2017 GAO report on fiscal health also cited health spending as a source of concern. Though these forecasts are highly uncertain, it seems probable that spending on these programs will rise as a share of GDP over time. In addition, growing debt and rising interest rates are projected to cause interest payments to consume a greater share of future federal spending. CBO projects that under current law, spending to service the federal debt (net interest payments) will grow rapidly, from 1.4% of GDP in FY2017 to 5.2% of GDP in FY2047. GAO's recent long-term fiscal simulations, under an alternative policy scenario, projected that debt held by the public as a share of GDP would exceed the post-World War II historical high in the next 15 to 25 years. Keeping future federal outlays at 20% of GDP, or approximately at their historical average, and leaving fiscal policies unchanged, according to CBO projections, would require drastic reductions in all spending other than that for Medicare, Social Security, and Medicaid, or reining in the costs of these programs. Under CBO's extended baseline, maintaining the debt-to-GDP ratio at today's level (77%) in FY2047 would require an immediate and permanent cut in non interest spending, increase in revenues, or some combination of the two in the amount of 1.9% of GDP (or about $380 billion in FY2018 alone) in each year. Maintaining this debt-to-GDP ratio beyond FY2047 would require additional deficit reduction. If policymakers wanted to lower future debt levels relative to today, the annual spending reductions or revenue increases would have to be larger. For example, in order to bring debt as a percentage of GDP in FY2047 down to its historical average over the past 50 years (40% of GDP), spending reductions or revenue increases or some combination of the two would need to generate net savings of roughly 3.1% of GDP (or $620 billion in FY2018) in each year. The alternative to decreased spending as a means of deficit reduction is to increase revenues through modifications to the federal tax system. The 2017 tax revision represented the latest major change to the federal tax code, and was estimated by CBO and JCT to reduce revenues over the FY2018-FY2027 period. CBO's latest budget and economic forecast projects that revenues as a percentage of GDP will be at or below their postwar average (17.2% of GDP) from FY2018 through FY2023 before reaching 18.5% of GDP in FY2028. Federal revenue levels toward the end of the 10-year baseline window will depend in part on whether the temporary tax provisions enacted as part of the 2017 tax revision expire as scheduled. In the long run, increases in federal debt are constrained by the amount of remaining "fiscal space," which is the amount of government borrowing that creditors are willing to finance. The amount of fiscal space available depends on the current size of the debt, how fast it is increasing relative to GDP, and the attractiveness of federal debt to investors relative to other market instruments. Changes in debt relative to GDP depend on the size of deficits, the government's borrowing rate, and how quickly the economy is growing. With continuously increasing debt levels, at some point debt would become so large that investors would no longer be willing to finance deficits and fiscal space would be exhausted. Exactly when investors would stop financing federal borrowing is uncertain. Because interest rates are presently lower than their historical averages, there is little current concern that the federal government is in danger of running out of fiscal space in the short run. CBO Documents The Congressional Budget Office (CBO) provides data and analysis to Congress throughout the budget and appropriations process. Each January, CBO issues a Budget and Economic Outlook that contains current-law baseline estimates of outlays and revenues. In March, CBO typically issues an analysis of the President's budget submission with revised baseline estimates and projections. These documents can be delayed as a result of the legislative agenda or if the President's budget is off schedule. In late summer, CBO issues an updated Budget and Economic Outlook with new baseline projections. In these documents, CBO sets a current-law baseline as a benchmark to evaluate whether legislative proposals would increase or decrease outlays and revenue collection. Baseline estimates are not intended to predict likely future outcomes, but to show what spending and revenues would be if current law remained in effect. CBO typically evaluates the budgetary consequences of most legislative proposals and the Joint Committee on Taxation (JCT) evaluates the consequences of revenue proposals. CBO also releases other periodic publications focusing on the future fiscal health of the United States. In its publication The Long-Term Budget Outlook , CBO makes projections on the state of the federal budget over the next 30 years. CBO discusses spending and revenue levels and the related issues that it expects will arise under different policy assumptions. In its Budget Options volumes, CBO provides specific policy options and the impact they will have on spending and revenues over a 10-year budget window. CBO also provides arguments for and against enacting each policy. OMB Documents The President's budget contains five major volumes: (1) The Budget , (2) Historical Tables , (3) Analytical Perspectives , (4) Appendix , and (5) Supplemental Materials . These documents lay out the Administration's projections of the fiscal outlook for the country, along with spending levels proposed for each of the federal government's departments and programs. The Historical Tables volume also provides significant amounts of budget data, much of which extend back to 1962 or earlier. Along with the Administration's budget documents, the Department of the Treasury also releases its Green Book , which provides further detail on the revenue proposals that are contained in the budget. | The federal budget is a central component of the congressional "power of the purse." Each fiscal year, Congress and the President engage in a number of activities that influence short- and long-run revenue and expenditure trends. This report offers context for the current budget debate and tracks legislative events related to the federal budget. After a decline in budget deficits over the past several years, the deficit is projected to increase significantly in FY2019. Enactment of the 2017 tax revision (P.L. 115-97) and the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) are projected to decrease revenues and increase outlays relative to past years, thus increasing deficits. The Budget Control Act of 2011 (BCA; P.L. 112-25) implemented several measures intended to reduce deficits from FY2012 through FY2021, and deficits declined from FY2012 through FY2015. In its April 2018 forecast, the Congressional Budget Office (CBO) baseline projects that the FY2019 deficit will equal $981 billion (4.6% of GDP), its highest value since the economy was recovering from the Great Recession in FY2012. The 2017 tax revision and BCA will continue to affect budget outcomes in FY2019 and beyond. Congress may debate amending the BCA as it has in the past through the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240), Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67), Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74), and BBA 2018. The annual appropriations process, the statutory debt limit, and further tax modifications may also draw congressional attention in FY2019. Additionally, Congress may choose to debate structural changes to the federal budget, including reforms to mandatory and discretionary spending programs proposed by the House Committee on Ways and Means and the Trump Administration. The Trump Administration released its FY2019 budget on February 12, 2018. Proposed policy changes in the budget include increases in discretionary defense spending and relatively large decreases in mandatory spending other than Social Security and Medicare and in nondefense discretionary programs. Following passage of full-year FY2018 appropriations, Congress has turned its attention to the FY2019 budget. The Budget Committees in the House and Senate each develop budget legislation as they receive information and testimony from a number of sources, including the Administration, the Congressional Budget Office, and congressional committees with jurisdiction over spending and revenues. Trends resulting from current federal fiscal policies are generally thought by economists to be unsustainable in the long term. Projections suggest that achieving a sustainable long-term trajectory for the federal budget would require deficit reduction. Reductions in deficits could be accomplished through revenue increases, spending reductions, or some combination of the two. |
In the years following the September 11, 2001, terrorist attacks, considerable concern has been raised because the 19 terrorists were aliens (i.e., foreign nationals) who apparently entered the United States on temporary visas despite provisions in immigration law intended to bar the admission of suspected terrorists. The report of the National Commission on Terrorist Attacks Upon the United States (also known as the 9/11 Commission) contended that "[t]here were opportunities for intelligence and law enforcement to exploit al Qaeda's travel vulnerabilities." The 9/11 Commission maintained that border security was not considered a national security matter prior to September 11, and as a result the consular and immigration officers were not treated as full partners in counterterrorism efforts. The 9/11 Commission's monograph, 9/11 and Terrorist Travel , underscored the importance of the border security functions of immigration law and policy. In the 108 th Congress, several proposals were introduced in response to the 9/11 Commission's findings, some of which contained provisions relating to border security, most notably the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ). In the 109 th Congress, the REAL ID Act of 2005 ( P.L. 109-13 , Division B) included, among other things, a number of provisions related to immigration reform and document security that were considered during congressional deliberations on the Intelligence Reform and Terrorism Prevention Act, but which were ultimately not included. Under current law, three departments—the Department of State (DOS), the Department of Homeland Security (DHS) and the Department of Justice (DOJ)—play key roles in administering the law and policies on the admission of aliens. DOS's Bureau of Consular Affairs (Consular Affairs) is the agency responsible for issuing visas, DHS's Citizenship and Immigration Services (USCIS) is charged with approving immigrant petitions, and DHS's Bureau of Customs and Border Protection (CBP) is tasked with inspecting all people who enter the United States. DOJ's Executive Office for Immigration Review (EOIR) has a significant policy role through its adjudicatory decisions on specific immigration cases. This report focuses on the terrorism-related grounds for inadmissibility and deportation/removal. It opens with an overview of the terror-related grounds as they evolved through key legislation enacted in recent years. The section on current law explains the legal definitions of "terrorist activity," "engage in terrorist activity," and "terrorist organization," and describes the terror-related grounds for inadmissibility and removal. The report then discusses the alien screening process to determine admissibility and to identify possible terrorists, both during the visa issuance process abroad and the inspections process at U.S. ports of entry. With certain exceptions, aliens seeking admission to the United States must undergo separate reviews performed by DOS consular officers abroad and CBP inspectors upon entry to the United States. These reviews are intended to ensure that applicants are not ineligible for visas or admission under the grounds for inadmissibility spelled out in the Immigration and Nationality Act (INA). These criteria are health-related grounds; criminal history; security and terrorist concerns; public charge (e.g., indigence); seeking to work without proper labor certification; illegal entry and immigration law violations; ineligible for citizenship; and aliens previously removed. Some grounds for inadmissibility may be waived or are not applicable in the case of nonimmigrants, refugees (e.g., public charge), and other aliens. For aliens seeking to enter temporarily as nonimmigrants, even terrorism grounds for inadmissibility may possibly be waived. As the terrorism grounds for inadmissibility have expanded to cover a broader range of activities and associations, some have believed it appropriate to ensure that immigration authorities are permitted to waive their application in certain circumstances. Prior to the Immigration Act of 1990 ( P.L. 101 - 649 ), there was no express terrorism-related ground for exclusion. Congress added the terrorism ground in the 1990 Act as part of a broader effort to streamline and modernize the security and foreign policy grounds for inadmissibility and removal. Before 1990, certain terrorists were excludable under security grounds, but the 1990 Act opened the door for broader elaboration of what associations and promotional activities could be deemed to be terrorist activities. In part as a response to the 1993 World Trade Center bombing, Congress strengthened the anti-terrorism provisions in the INA and passed provisions that many maintained would ramp up enforcement activities, notably in the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) of 1996 ( P.L. 104 - 208 ) and the Antiterrorism and Effective Death Penalty Act ( P.L. 104 - 132 ). As part of the Violent Crime Control Act of 1994 ( P.L. 103 - 322 ), Congress also amended the INA to establish temporary authority for an "S" nonimmigrant visa category for aliens who are witnesses and informants on criminal and terrorist activities. In September 2001, Congress enacted S. 1424 ( P.L. 107 - 45 ), providing permanent authority for admission under the S visa. Enacted in October 2001, the USA PATRIOT Act ( P.L. 107-56 ) was a broad anti-terrorism measure that included several important changes to immigration law. Specifically in the context of this report, the USA PATRIOT Act amended the INA to add more terrorism-related grounds for inadmissibility and expand the definitional scope of terms used to describe terrorism-related activities and organizations. The Enhanced Border Security and Visa Entry Reform Act of 2002 ( P.L. 107-173 ) aimed to improve the visa issuance process abroad as well as immigration inspections at the border. It expressly required the development of an interoperable electronic data system to share information relevant to alien admissibility and removability and the implementation of an integrated entry-exit data system. It also required that, beginning in October 2004, all newly issued visas have biometric identifiers. In addition to increasing consular officers' access to electronic information needed for alien screening, it expanded the training requirements for consular officers who issue visas. The Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) focused primarily on targeting terrorist travel through an intelligence and security strategy based on reliable identification systems and effective, integrated information-sharing. Its immigration provisions aimed at closer monitoring of persons entering and leaving the United States as well as tightening up the grounds for removal. It also authorized a substantial increase in funding for immigration-related homeland security. The REAL ID Act ( P.L. 109 - 13 , Division B) represented a continuation in the trend to expand the terror-related grounds for exclusion and removal. Of particular relevance to this report, the REAL ID Act expanded the terror-related grounds for inadmissibility and deportability, and amended the definitions of "terrorist organization" and "engage in terrorist activity" used by the INA. The Consolidated Appropriations Act, 2008 ( P.L. 110 - 161 ), subsequently modified the application of certain terrorism-related provisions of the INA, including exempting 10 organizations from falling under the definition of "terrorist organization" and expanding immigration authorities' waiver authority over many terrorism-related INA provisions. Since 1990, certain "terrorism"-related activities by an alien have expressly been grounds for exclusion and removal. Over the years, these grounds have been expanded to expressly cover membership in terrorist organizations, as well as an increasingly broad range of activities in support of terrorism-related activities or entities. Many of the terrorism-related grounds for inadmissibility and deportation use certain terms—that is, "terrorist activity," "engage in terrorist activity," and "terrorist organization"—that are expressly defined by the INA to describe particular kinds of conduct or entities. The following sections provide an overview of the terrorism-related terms defined by the INA, as well as the terrorism-related grounds for inadmissibility and deportation. Terms including "terrorist activity," "engage in terrorist activity," and "terrorist organization" are specifically defined for INA purposes and refer to distinct concepts. As these definitions change, so too does the scope of INA provisions that use them. The term "terrorist activity" refers to certain, specified acts of violence—for example, hijacking an airplane or assassinating a Head of State. "Engaging in terrorist activity" includes both the commission of direct acts of terrorism and certain activities in support of them, such as soliciting participation in a terrorist act. The INA defines "terrorist organization" to include two general categories of groups. The first category includes groups that have been designated as terrorist organizations by the United States, thereby providing public notice of these organizations' involvement in terrorism. The second category includes other groups that carry out terror-related activities, but have not been designated either because they are operating under the radar or have shifting alliances, or because designating the group as a terrorist organization would jeopardize ongoing U.S. criminal or military operations. The groups belonging to this second category may be called non-designated terrorist organizations. The terms "engage in terrorist activity" and "terrorist organization" were amended by the REAL ID Act to cast a wider net over groups and persons who provide more discrete forms of assistance to terrorist organizations, particularly with respect to fund-raising and soliciting membership in those organizations. Subsequently, the Consolidated Appropriations Act FY2008 expressly exempted certain groups from being considered "terrorist organizations" and authorized immigration authorities to exempt other groups from being considered "terrorist organizations" when certain criteria were met. The act also specified the Taliban as a "terrorist organization" for INA purposes. "Terrorist activity" is defined by INA § 212(a)(3)(B)(iii). In order for an action to constitute "terrorist activity," it must have been unlawful in the place where it was committed (or, if it would have occurred in the United States, have been unlawful under U.S. law) and involve the hijacking or sabotage of an aircraft, vessel, or other vehicle; seizing or detaining, and threatening to kill, injure, or continue to detain, another individual in order to compel a third person (including a governmental organization) to do or abstain from doing any act as an explicit or implicit condition for the release of the individual seized or detained; a violent attack upon an internationally protected person (e.g., Head of State, Foreign Minister, or ambassador); an assassination; the use of any biological agent, chemical agent, or nuclear weapon or device; the use of any explosive, firearm, or other weapon or dangerous device ( other than for mere personal monetary gain ), with intent to endanger, directly or indirectly, the safety of one or more individuals or to cause substantial damage to property; or a threat, attempt, or conspiracy to commit any of the foregoing. The REAL ID Act expanded the INA's definition of "terrorist organization" to include a broader range of groups that provide indirect assistance to other groups involved in terrorist activities. Further, the INA's definition of "terrorist organization" now covers entities that have not directly engaged in terrorist activities or assisted terrorist organizations, but have subgroups that do so. For purposes of the INA, a "terrorist organization" may describe groups falling into one of three categories ("Tiers"): any group designated by the Secretary of State as a terrorist organization pursuant to INA § 219, on account of that entity threatening the security of U.S. nationals or the national security of the United States ("Tier I"); upon publication in the Federal Register , any group designated as a terrorist organization by the Secretary of State in consultation with or upon the request of the Attorney General or Secretary of Homeland Security, after finding that the organization engages in terrorist activity ("Tier II"); and any group of two or more individuals, whether organized or not, which engages in, or has a subgroup that engages in terrorist activity ("Tier III"). The Consolidated Appropriations Act, 2008, specifies that the Taliban is considered a Tier I terrorist organization. The definition of "terrorist organization" is quite broad, potentially covering any group that either directly engages or has a subgroup that engages in terrorist activity, regardless of whether the group has actually been designated by U.S. authorities as "terrorist." Possibly complicating matters further is that the INA defines "terrorist activity" and "engage[ing] in terrorist activity" broadly, arguably ignoring the context in which activity occurs and whether such activity is supported by the United States. For example, the use of weapons to endanger the safety of persons or cause substantial damage to property (other than for monetary gain) is considered "terrorist activity." Accordingly, a pro-democracy group engaged in armed conflict against an oppressive regime could potentially be considered a "terrorist organization" under the INA, even if the group's activities were supported by the United States, and as a result the persons involved with the group could be inadmissible and ineligible for asylum. Prior to the enactment of the Consolidated Appropriations Act, 2008, the Secretary of State or Secretary of Homeland Security, following consultation with the other and the Attorney General, had authority to waive the application of this provision with respect to a group that might otherwise constitute a "terrorist organization" solely on account of having a subgroup that had engaged in terrorist activity. However, U.S. authorities could not waive the application of this provision with respect to any group that had itself "engage[d] in terrorist activity." Some policymakers expressed concern over the consequences of the limited scope of this waiver authority. In a September 2006 congressional hearing, a State Department representative testified that Although Secretarial exercise of the inapplicability authority allows us to make significant progress in reaching some populations in need of resettlement, it does not provide the flexibility required in all refugee cases. For example, Cuban anti-Castro freedom fighters and Vietnamese Montagnards who fought alongside U.S. forces have been found inadmissible on this basis, as have Karen who participated in resistance to brutal attacks on their families and friends by the Burmese regime. The Administration will continue to seek solutions for these groups and to further harmonize national security concerns with the refugee admissions program. The Consolidated Appropriations Act, 2008, amended the INA to permit appropriate immigration authorities to waive application of the INA's "terrorist organization" definition to any non-designated (i.e., Tier III) group, except when the group has either engaged in terrorist activity against the United States or another democratic country, or purposefully engaged in a pattern of terrorist activity against civilians. On the basis of activities occurring before the act's date of enactment, section 691(b) of the Consolidated Appropriations Act, Division J, further specified that 10 groups are not considered "terrorist organizations" for INA purposes. These groups are the Karen National Union/Karen National Liberation Army (KNU/KNLA); the Chin National Front/Chin National Army (CNF/CNA); the Chin National League for Democracy (CNLD); the Kayan New Land Party (KNLP); the Arakan Liberation Party (ALP); the Tibetan Mustangs; the Cuban Alzados; the Karenni National Progressive Party (KNPP); appropriate groups affiliated with the Hmong; and appropriate groups affiliated with the Montagnards. Immigration authorities had previously waived the application of the INA's "material support" provision to persons who provided assistance to all of the above-listed groups except the Hmong and Montagnards. Until enactment of the Consolidated Appropriations Act, however, members of these organizations could have faced immigration consequences on account of belonging to groups considered "terrorist organizations." P.L. 110-257 , which was enacted into law on July 1, 2008, retroactively amended the Consolidated Appropriations Act to include the African National Congress (ANC) among the list of groups not considered "terrorist organizations" for INA purposes. As discussed previously, the INA treats being "engaged in terrorist activity" as a separate concept from "terrorist activity" itself. The REAL ID Act amended the definition of "engage in terrorist activity" to cover more indirect forms of support for non-designated terrorist organizations. In order to "engage in terrorist activity," an alien must, either in an individual capacity or as part of an organization, commit or incite to commit, under circumstances indicating an intention to cause death or serious bodily injury, a terrorist activity; prepare or plan a terrorist activity; gather information on potential targets for terrorist activity; solicit funds or other things of value for (1) terrorist activity, (2) a designated terrorist organization (i.e., a Tier I or Tier II organization), or (3) a non-designated terrorist organization (i.e., a Tier III organization), unless the solicitor can prove by clear and convincing evidence that he did not know, and should not have reasonably known, that the organization was a terrorist organization; solicit another individual to (1) engage in terrorist activity, (2) join a designated terrorist organization, or (3) join a non-designated terrorist organization, unless the solicitor can prove by clear and convincing evidence that he did not know, and should not have reasonably known, that the organization was a terrorist organization; or commit an act that the individual knows, or reasonably should know, provides material support to (1) the commission of a terrorist activity, (2) an individual or organization that the individual knows or should reasonably know has committed or plans to commit a terrorist activity, (3) a designated terrorist organization or member of such an organization, or (4) a non-designated terrorist organization or a member of such an organization, unless the actor can demonstrate by clear and convincing evidence that the actor did not know, and should not reasonably have known, that the organization was a terrorist organization. Prior to the enactment of the Consolidated Appropriations Act, 2008, the INA included a provision, found at INA § 212(d)(3)(B), permitting immigration authorities to waive the application of the material support provision of the INA's "engage in terrorist activity" definition. Under prior law, an alien who provided material support to an individual or organization engaging in terrorist activity would not himself be considered to have "engaged in terrorist activity" for purposes of the INA if the Secretary of State or Secretary of Homeland Security, following consultation with the other and the Attorney General, concluded in his sole, unreviewable discretion that the definition of "engage in terrorist activity" did not apply with respect to the alien's material support. This waiver authority was used by the State Department and DHS to permit the consideration of applications for refugee status from aliens abroad and to consider asylum and adjustment of status claims for certain aliens present in the United States who provided material support to terrorist entities. In 2006, the State Department waived the material support provision with respect to three large groups of refugees. In 2007, DHS exercised waiver authority over the material support provision with respect to aliens who gave material support to one of the following eight groups: Karen National Union/Karen National Liberation Army (KNU/KNLA); Chin National Front/Chin National Army (CNF/CNA); Chin National League for Democracy (CNLD); Kayan New Land Party (KNLP); Arakan Liberation Party (ALP); Tibetan Mustangs; Cuban Alzados; or Karenni National Progressive Party (KNPP). This waiver applied only to aliens who provided material support to these organizations, not to aliens who were members of these groups. As previously discussed, the Consolidated Appropriations Act, 2008, enacted after the issuance of these waivers, specified that the above-listed groups would not be considered "terrorist organizations" for INA purposes. Accordingly, a person who provided material support to such groups would not be considered to have "engage[d] in terrorist activity," regardless of the Secretary of Homeland Security's prior decision to waive application of this provision. The material support provision had been interpreted by immigration authorities as generally covering any support given to a terrorist entity, regardless of whether such support was provided due to duress or coercion. DHS had opted not to apply the material support provision to persons who provided material support under duress to a terrorist organization, if a totality of the circumstances was deemed to justify the exemption. In September 2007, the Secretary of Homeland Security exempted from the material support provision certain persons who provided material support under duress to the Revolutionary Armed Forces of Colombia (FARC). In December 2007, DHS issued a similar exemption with respect to persons who provided material support under duress to the National Liberation Army of Columbia (ELN). The Consolidated Appropriations Act, 2008, replaced this waiver provision with a more general provision, discussed infra at " Waiver Authority over Inadmissibility Provisions ." In June 2008, the Secretary of State and the Secretary of Homeland Security exercised waiver authority under INA § 212(d)(3)(B) with respect to aliens associated or affiliated with any of the 10 groups expressly exempted by the Consolidated Appropriations Act from being considered "terrorist organizations" for immigration purposes who were not otherwise granted relief under that exemption, so long as certain criteria are fulfilled. Among other things, the waiver does not apply to aliens whose terrorist activities targeted non-combatants or aliens who pose a danger to the safety and security of the United States. Engaging in specified, terrorism-related activity has direct consequences concerning an alien's ability to lawfully enter or remain in the United States. The INA provides that aliens engaged in terrorism-related activities generally cannot legally enter the United States. If an alien is legally admitted into the United States and subsequently engages in terrorist activity, he is deportable. Even if an alien does not fall under terrorism-related categories making him inadmissible or deportable, he might still be denied entry or removed from the United States on separate, security-related grounds. The INA categorizes certain classes of aliens as inadmissible, making them "ineligible to receive visas and ineligible to be admitted to the United States." Most recently, these grounds were expanded by the REAL ID Act in 2005, including by making activities such as espousal of terrorist activity and receipt of military-type training from or on behalf of a terrorist organization grounds for exclusion. The REAL ID Act also amended the terrorism-related grounds for deportability of aliens who have already entered the United States, so that these grounds are now the same as those for inadmissibility. The terrorism-related grounds for inadmissibility and deportation are primarily found in INA §§ 212(a)(3)(B) and 237(a)(4)(B). An alien is inadmissible or deportable on terrorism-related grounds if he has engaged in a terrorist activity; is known or reasonably believed by a consular officer, the Attorney General, or the Secretary of Homeland Security to be engaged in or likely to engage in terrorist activity upon entry into the United States; has, under circumstances indicating an intention to cause death or serious bodily harm, incited terrorist activity; is a representative of (1) a designated or non-designated terrorist organization; or (2) any political, social, or other group that endorses or espouses terrorist activity; is a member of (1) any designated terrorist organization (i.e., a Tier I or Tier II organization); or (2) any non-designated terrorist organization (i.e., a Tier III organization), unless the alien can demonstrate by clear and convincing evidence that the alien did not know, and should not reasonably have known, that the organization was a terrorist organization; is an officer, official, representative, or spokesman of the Palestine Liberation Organization; endorses or espouses terrorist activity or persuades others to endorse or espouse terrorist activity or support a terrorist organization; is the spouse or child of an alien who is inadmissible on terror-related grounds, if the activity causing the alien to be found inadmissible occurred within the last five years, unless the spouse or child (1) did not and should not have reasonably known about the terrorist activity or (2) in the reasonable belief of the consular officer or Attorney General, has renounced the activity causing the alien to be found inadmissible under this section; or has received military-type training, from or on behalf of any organization that, at the time the training was received, was a terrorist organization. An additional, catch-all provision found at INA § 212(a)(3)(F) provides that association with terrorist organizations may also be grounds for inadmissibility. Any alien who either the Secretary of State or Attorney General, after consultation with the other, determines has been associated with a "terrorist organization and intends while in the United States to engage solely, principally, or incidentally in activities that could endanger the welfare, safety, or security of the United States," is inadmissible. Pursuant to the REAL ID Act, this provision may also be used to remove an alien who has already been legally admitted into the United States. Prior to enactment of the Consolidated Appropriations Act FY2008, immigration authorities possessed exemption authority over the application of inadmissibility provisions concerning aliens who (1) were representatives of political, social, or other groups that endorse or espouse terrorist activity or (2) endorsed or espoused terrorist activity, or persuaded others to endorse or espouse terrorist activity or support a terrorist organization. However, even prior to the enactment of the Consolidated Appropriations Act, immigration authorities possessed discretionary authority to waive application of the terrorism-related grounds for inadmissibility with respect to aliens seeking to temporarily enter the United States as non-immigrants. The Consolidated Appropriations Act FY2008 significantly broadened waiver authority over the terrorism-related grounds for inadmissibility. Now, the Secretary of State or Secretary of Homeland Security, in consultation with the other and the Attorney General, may generally waive application of almost all of the terrorism-related inadmissibility provisions contained in INA § 212(a)(3)(B). However, only the Secretary of Homeland Security (not the Secretary of State) may exercise waiver authority with respect to an alien after removal proceedings against the alien are instituted. Immigration authorities may not waive application of INA § 212(a)(3)(B) with respect to specified categories of aliens. These include aliens who are presently engaged or are likely to engage after entry in terrorist activity; voluntarily and knowingly engage or have engaged in terrorist activity on behalf of a designated (i.e., Tier I or Tier II) terrorist organization; voluntarily and knowingly have received military training from a Tier I or Tier II organization; are members or representatives of Tier I or Tier II organizations; or voluntarily and knowingly endorse or espouse the terrorist activity of a Tier I or Tier II organization, or convince others to support terrorist activity on behalf of a Tier I or Tier II organization. While the Consolidated Appropriations Act generally expands immigration authorities' waiver authority, in contrast to prior law, the inadmissibility provision covering aliens who endorse or espouse terrorist activity may no longer be waived in situations where the endorsement or espousal of support concerned the terrorist activities of a Tier I or Tier II terrorist organization. Although the Secretary of State and Secretary of Homeland Security are expressly accorded authority to waive certain terrorism-related grounds making an alien inadmissible under INA § 212, no similar waiver authority is expressly provided over the terror-related grounds that make an alien deportable under INA § 237, though language in the Consolidated Appropriations Act suggests that the waiver authority is intended to apply to both inadmissible and deportable aliens. Even if an alien is not found inadmissible or deportable on terror-related grounds, he may nevertheless be removed from the United States or denied entry on separate, security-related grounds. An alien may be deemed inadmissible or deportable if he has engaged, is engaged, or (in the case of an alien not yet admitted into the United States) intends to engage in "any activity a purpose of which is the opposition to, or the control or overthrow of, the Government of the United States by force, violence, or other unlawful means." In the case of aliens not yet admitted into the United States, either a consular officer or relevant immigration authority may designate an alien inadmissible if he has reasonable grounds to believe that the alien seeks to enter the United States to engage in such conduct. Further, if the Secretary of State has reasonable grounds to believe an alien's entry, presence, or activities in the United States would have potentially serious adverse foreign policy consequences for the United States, that alien may be deemed inadmissible or deportable. However, aliens who are officials of foreign governments or purported foreign governments, or who are candidates for foreign office, are not inadmissible or deportable solely on account of their beliefs or statements. Other aliens may not be deported or denied entry into the United States on account of their past, current, or expected beliefs, statements, or associations, if such beliefs, statements, or associations would be lawful within the United States, unless the Secretary of State personally determines that those aliens' admission would compromise a compelling United States foreign policy interest. No similar limitation on removal is provided for aliens who are inadmissible or deportable on the separate, terrorism-related grounds concerning (1) espousal of terrorist activity or (2) association with a terrorist organization. Personal interviews are required for all prospective legal permanent residents and are generally required for foreign nationals seeking nonimmigrant visas. Pursuant to the Intelligence Reform and Terrorist Prevention Act of 2004, an in-person consular interview is required for most applicants between the ages of 14 and 79 for nonimmigrant visas. Consular officers use the Consular Consolidated Database (CCD) to screen visa applicants. Over 82 million records of visa applications are now automated in the CCD, with some records dating back to the mid-1990s. Since February 2001, the CCD has stored photographs of all visa applicants in electronic form, and more recently the CCD has begun storing 10-finger scans. In addition to indicating the outcome of any prior visa application of the alien in the CCD, the system links with other databases to flag problems that may affect the issuance of the visa. The CCD is the nexus for screening aliens for admissibility, notably screening on terrorist security and criminal grounds. For some years, consular officers have been required to check the background of all aliens in the "lookout" databases, specifically the Consular Lookout and Support System (CLASS). In 2003, Homeland Security Presidential Directive/HSPD-6 transferred certain terrorist watch list functions previously performed by the Department of State's Bureau of Intelligence and Research to the Terrorist Screening Center (TSC), the entity that ultimately became the National Counterterrorism Center (NCTC). NCTC has direct access to CCD and CLASS, as do the relevant DHS immigration and Department of Justice law enforcement agencies. The Security Advisory Opinion (SAO) system requires a consular officer abroad to refer selected visa cases for greater review by intelligence and law enforcement agencies. The current interagency procedures for alerting officials about foreign nationals who may be suspected terrorists, referred to in State Department nomenclature as Visa Viper, began after the 1993 World Trade Center bombing and were institutionalized by enactment of the Enhanced Border Security and Visa Entry Reform Act of 2002. If consular officials receive information about a foreign national that causes concern, they send a Visa Viper cable (which is a dedicated and secure communication) to the NCTC. In 2009, consular posts sent approximately 3,000 Visa Viper communications to NCTC. In a similar set of SAO procedures, consular officers send suspect names, identified by law enforcement and intelligence information (originally certain visa applicants from 26 predominantly Muslim countries), to the FBI for a name check program called Visa Condor. There is also the "Terrorist Exclusion List" (TEL), which lists organizations designated as terrorist-supporting and includes the names of individuals associated with these organizations. With procedures distinct from the terrorist watch lists, consular officers screen visa applicants for employment or study that would give the foreign national access to controlled technologies, that is, those that could be used to upgrade military capabilities, and refer foreign nationals from countries of concern (e.g., China, India, Iran, Iraq, North Korea, Pakistan, Sudan, and Syria) to the FBI and other key federal agencies. This screening is part of a name-check procedure known as Visa Mantis, which has the following stated objectives: (1) stem the proliferation of weapons of mass destruction and missile delivery systems; (2) restrain the development of destabilizing conventional military capabilities in certain regions of the world; (3) prevent the transfer of arms and sensitive dual-use items to terrorist states; and (4) maintain U.S. advantages in certain militarily critical technologies. Aliens who are successful in their request for a visa are then issued the actual travel document. Since October 2004, all visas issued by the United States use biometric identifiers (e.g., scans of the right and left index fingers) in addition to the digitized photograph that has been collected for some time. These biometric data are available through the CCD, which links with the United States Visitor and Immigrant Status Indicator Technology (US-VISIT), DHS's automated entry and exit data system, at the time the visa is issued. The Intelligence Reform and Terrorist Prevention Act of 2004 established an Office of Visa and Passport Security in the Bureau of Diplomatic Security of the Department of State, headed by a person with the rank of Deputy Assistant Secretary of State for Diplomatic Security. The Deputy Assistant Secretary and appropriate Department of Homeland Security officials are tasked with preparing a strategic plan to target and disrupt individuals and organizations at home and in foreign countries that are involved in the fraudulent production, distribution, or use of visas, passports and other documents used to gain entry to the United States. This strategic plan is to emphasize individuals and organizations that may have links to domestic terrorist organizations or foreign terrorist organizations as defined by INA. The Office also analyzes methods used by terrorists to travel internationally, particularly the use of false or altered travel documents to illegally enter foreign countries and the United States, and it advises the Bureau of Consular Affairs on changes to the visa issuance process that could combat such methods, including the introduction of new technologies. The Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) required the Secretary of DHS, in consultation with the Secretary of State, to submit to Congress a plan to ensure that DHS and DOS acquire and deploy to all consulates, ports of entry, and immigration services offices, technologies that facilitate document authentication and the detection of potential terrorist indicators on travel documents. The law further required that the plan address the feasibility of using such technologies to screen passports submitted for identification purposes to a United States consular, border, or immigration official. By 2007, it appeared that DHS had not yet established the terrorist travel program mandated by §7215 of P.L. 108-458 . As a consequence, §503 of the Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) requires the Secretary to establish the program within 90 days of enactment and to report to Congress within 180 days on the implementation of the program. The act further requires that the Assistant Secretary for Policy at DHS (or another official that reports directly to the Secretary) be designated as head of the terrorist travel program and outlines specific duties to be carried out by the head of the program. The INA requires the inspection of all aliens who seek entry into the United States; possession of a visa or another form of travel document does not guarantee admission into the United States. As a result, all persons seeking admission to the United States must demonstrate to a CBP inspector that they are a foreign national with a valid visa and/or passport or that they are a U.S. citizen. There are 327 official ports of entry in the United States, including 15 preclearance offices in Canada, Ireland, and the Caribbean. For FY2008, CBP reported inspecting approximately 409 million individuals (citizens as well as foreign nationals) at land, air, and sea ports of entry. Because many foreign nationals are permitted to enter the United States without visas, notably, as discussed above, through the VWP, border inspections are extremely important for those having their initial screening at the port of entry. Primary inspection at the port of entry consists of a brief interview with a CBP officer, a cursory check of the traveler's documents and a query of the Interagency Border Inspection System (IBIS). If the inspector is suspicious that the traveler may be inadmissible under the INA or in violation of other U.S. laws, the traveler is referred to a secondary inspection. During secondary inspections, travelers are questioned extensively and travel documents are further examined. Several immigration databases are queried as well, including lookout databases. Under the US-VISIT system, certain foreign nationals are required to provide fingerprints, photographs or other biometric identifiers upon arrival in the United States. US-VISIT has grown from a photograph and two-finger biometric system for immigration identification to the major identity management and screening system for DHS. CBP inspectors are currently taking a digital photograph and scanning 10 fingerprints from each foreign national who presents him or herself at designated ports of entry. According to DHS, US-VISIT operates and maintains two major automated identification systems in support of its mission: the Automated Biometric Identification System (IDENT) for biometric data, and the Arrival and Departure Information System (ADIS) for biographic data. To keep inadmissible aliens from departing for the United States, IIRIRA required the implementation of a pre-inspection program at selected locations overseas. At these foreign airports, U.S. immigration officers inspect aliens before their final departure to the United States. IIRIRA also authorized assistance to air carriers at selected foreign airports to help in the detection of fraudulent documents. The Intelligence Reform and Terrorist Prevention Act of 2004 directed DHS to expand the pre-inspection program at foreign airports to at least 15 and up to 25 airports, and submit a report on the progress of the expansion by June 30, 2006. The act also directed DHS to expand the Immigration Security Initiative, which places CBP inspectors at foreign airports to prevent people identified as national security threats from entering the country. The law required that at least 50 airports participate in the Immigration Security Initiative by December 31, 2006. Pursuant to INA § 235(c), in cases where the arriving alien is suspected of being inadmissible on security or related grounds, including terror-related activity, the alien may be summarily excluded by the regional director with no further administrative right to appeal. The Attorney General shall review such orders of removal. If the Attorney General concludes on the basis of confidential information that the alien is inadmissible on security or related grounds under § 212(a)(3) of the INA, and determines after consulting with appropriate U.S. security agencies that disclosure of such information would be prejudicial to the public interest, safety, or security, the regional director of the CBP is authorized to deny any further inquiry as to the alien's status and either order the alien removed or order disposal of the case as the director deems appropriate. Generally, an alien's removal to a particular country is withheld upon a showing that his life or freedom would be threatened in that country because of his race, religion, nationality, membership in a particular social group, or political opinion. However, an alien is, with limited exception, ineligible for this remedy if, inter alia , he has been convicted of an aggravated felony or "there are reasonable grounds to believe that the alien is a danger to the security of the United States." Pursuant to U.S. legislation implementing the U.N. Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT), all aliens—including those otherwise ineligible for withholding of removal and/or subject to expedited removal on security or related grounds such as terror-related activity—may not be removed to a country where they would more likely than not be tortured. Legislation was enacted in the 110 th Congress to modify the terrorism-related grounds for inadmissibility and removal, as well as the impact that these grounds have upon alien eligibility for relief from removal. As previously discussed, the Consolidated Appropriations Act, 2008 ( P.L. 110-161 ), enacted in December 2007, modified certain terrorism-related provisions of the INA, including by exempting specified groups from the INA's definition of "terrorist organization" and significantly expanding immigration authorities' waiver authority over the terrorism-related grounds for exclusion. P.L. 110-257 , which was enacted into law on July 1, 2008, limits application of the terrorism-related grounds for inadmissibility with respect to the African National Congress (ANC) and certain ANC Members. Specifically, P.L. 110-257 expressly exempts the ANC from the INA's definition of "terrorist organization." The act also provides the Secretary of State and the Secretary of Homeland Security, in consultation with the other and the Attorney General, with authority to exempt most of the terrorism-related and criminal grounds for inadmissibility from applying to aliens with respect to activities undertaken in opposition to apartheid rule in South Africa. Further, federal authorities are required to take all necessary steps to ensure that databases used to determine admissibility to the United States are updated so that they are consistent with the exemptions provided to aliens for anti-apartheid activity. Immigration reform is an issue in the 111 th Congress, and legislative proposals may contain provisions modifying the immigration consequences of terrorism-related activity. The case of Umar Farouk Abdulmutallab, who allegedly tried to take down Northwest Airlines Flight 253 on December 25, 2009, has refocused attention on terrorist screening during the visa issuance process. The 23-year-old Nigerian national allegedly tried unsuccessfully to ignite an explosive device on an incoming flight to Detroit. U.S. consular officers in London, where Abdulmutallab was a student at University College London, had issued him a multi-year, multiple-visit tourist visa in June 2008. According to a State Department spokesman: "At the time that his visa was issued, there was nothing in his application nor in any database at the time that would indicate that he should not receive a visa. He was a student at a very reputable school. He had plenty of financial resources, so he was not an intending immigrant. There was no derogatory information about him last year—last June—that would indicate that he shouldn't get a visa, so we issued the visa." The suspect's father, a wealthy banker and former Nigerian government official, had reportedly contacted U.S. officials to indicate his concern about his son's welfare and involvement in Islamic fanaticism. State Department officials have reported that the father came into the Embassy in Abuja, Nigeria, on November 19, 2009, to express his concerns about his son and that the consular officials at the Embassy in Abuja sent a cable to the National Counterterrorism Center (NCTC). They relied on the standard interagency procedures for screening suspected terrorists, referred to as Visa Viper. State Department officials acknowledge that a consular officer misspelled Abdulmutallab when conducting the name check in the CCD and as a result did not report in the Visa Viper that Abdulmutallab had received a visa in 2008. This error was reportedly corrected in a Visa Viper cable sent November 25, 2009. Some have questioned whether the Embassy in Abuja, Nigeria, or other U.S. consular officials had sufficient authority and justification to revoke the visa issued to Abdulmutallab in London as a result of the information his father provided. According to a State Department spokesman: "[T]he information in this VISAS VIPER cable was insufficient for this interagency review process to make a determination that this individual's visa should be revoked." While consular officers have the authority to issue and to revoke visas on terrorist grounds, they defer to the NCTC to identify suspected terrorists and designate known terrorists. After a visa has been issued, the consular officer as well as the Secretary of State has the discretionary authority to revoke a visa at any time. A consular officer must revoke a visa if the alien is ineligible under INA §212(a) as described above to receive such a visa, or was issued a visa and overstayed the time limits of the visa; the alien is not entitled to the nonimmigrant visa classification under INA §101(a)(15) definitions specified in such visa; the visa has been physically removed from the passport in which it was issued; or the alien has been issued an immigrant visa. The Foreign Affairs Manual (FAM) instructs: "in making any new determination of ineligibility as a result of information which may come to light after issuance of a visa, the consular officer must seek and obtain any required advisory opinion." This applies, for example, to findings of ineligibility under "misrepresentation," "terrorist activity," or "foreign policy." FAM further instructs: "pending receipt of the Department's advisory opinion, the consular officer must enter the alien's name in the CLASS under a quasi-refusal code, if warranted." According to DOS officials, they sometimes prudentially revoke visas (i.e., they revoke a visa as a safety precaution). When a consular officer suspects that a visa revocation may involve U.S. law enforcement interests, FAM instructs the consular officer to consult with law enforcement agencies at post and inform the State officials of the case, to permit consultations with potentially interested entities before a revocation is made. The rationale for this consultation is that there may be legal or intelligence investigations that would be compromised if the visa were revoked and that law enforcement and intelligence officials may prefer to monitor the individual to further investigate his actions and associates. Visa revocation has been a ground for removal in INA §237(a)(1)(B) since enactment of P.L. 108-458 in December 2004. That provision (§5304 of P.L. 108-458 ) permits limited judicial review of removal if visa revocation is the sole basis of the removal. | The Immigration and Nationality Act (INA) spells out a strict set of admissions criteria and exclusion rules for all foreign nationals who come permanently to the United States as immigrants (i.e., legal permanent residents) or temporarily as nonimmigrants. Notably, any alien who engages in terrorist activity, or is a representative or member of a designated foreign terrorist organization, is generally inadmissible. After the September 11, 2001, terrorist attacks, the INA was broadened to deny entry to representatives of groups that endorse terrorism, prominent individuals who endorse terrorism, and (in certain circumstances) the spouses and children of aliens who are removable on terrorism grounds. The INA also contains grounds for inadmissibility based on foreign policy concerns. The report of the National Commission on Terrorist Attacks Upon the United States (also known as the 9/11 Commission) concluded that the key officials responsible for determining alien admissions (consular officers abroad and immigration inspectors in the United States) were not considered full partners in counterterrorism efforts prior to September 11, 2001, and as a result, opportunities to intercept the September 11 terrorists were missed. The 9/11 Commission's monograph, 9/11 and Terrorist Travel, underscored the importance of the border security functions of immigration law and policy. In the 110th Congress, legislation was enacted to modify the terrorism-related grounds for inadmissibility and removal, as well as the impact that these grounds have upon alien eligibility for relief from removal. The Consolidated Appropriations Act, 2008 (P.L. 110-161) modified certain terrorism-related provisions of the INA, including exempting specified groups from the INA's definition of "terrorist organization" and expanding immigration authorities' waiver authority over the terrorism-related grounds for exclusion. P.L. 110-257 expressly excludes the African National Congress (ANC) from being considered a terrorist organization, and provides immigration authorities the ability to exempt most terrorism-related and criminal grounds for inadmissibility from applying to aliens with respect to activities undertaken in opposition to apartheid rule in South Africa. Immigration reform is an issue in the 111th Congress, and legislative proposals may contain provisions modifying the immigration consequences of terrorism-related activity. The case of Umar Farouk Abdulmutallab, who allegedly attempted to ignite an explosive device on Northwest Airlines Flight 253 on December 25, 2009, has refocused attention on terrorist screening during the visa process. He was traveling on a multi-year, multiple-entry tourist visa issued to him in June 2008. State Department officials have acknowledged that Abdulmutallab's father came into the Embassy in Abuja, Nigeria, on November 19, 2009, to express his concerns about his son, and that those officials at the Embassy in Abuja sent a cable to the National Counterterrorism Center. State Department officials maintain they had insufficient information to revoke his visa at that time. |
In recent Congresses, renewed attention has been paid to the rules and practices of the Senate that allow committed Senate minorities (or individuals) to delay or prevent a vote on pending business unless a supermajority can successfully use the cloture process to reach a vote. Various proposals to change Senate rules in relation to extended debate and the use of cloture, among other issues, have been discussed; some of these proposals have been debated on the Senate floor, and some changes to the Standing Rules (as well as new temporary orders) have been adopted by the Senate. However, since reaching a vote on a contested proposal to amend the Senate Standing Rules likely would require, under Rule XXII, invoking cloture with the support of two-thirds of Senators voting, some supporters of change have advocated making changes to Senate procedure instead by establishing a new precedent (basically, a reinterpretation of the rules). Some Senators and outside observers have used the term "nuclear" to describe such proceedings, in part because they might rely on steps that are novel (potentially in contravention of existing rules and precedents), or because they could undermine the prerogatives exercised heretofore by Senate minorities or individual Senators. Some discussion of possible proceedings of this kind has focused chiefly on Senate consideration of presidential nominations to the executive branch and/or the federal judiciary. So-called "nuclear" floor proceedings were publicly contemplated in 2005 in relation to judicial nominations; in July 2013 similar actions were discussed in relation to presidential nominations to executive branch positions. On November 21, 2013, the Senate took actions to address concerns about both executive branch and judicial appointments (with the exception of nominations to the Supreme Court). Specifically, the Senate reinterpreted the application of Senate Rule XXII to floor consideration of presidential nominations by overturning a ruling of the chair on appeal. For nominations other than to the Supreme Court, the new precedent lowered the vote threshold by which cloture can be invoked—from three-fifths of the Senate to a simple majority of those voting, thereby enabling a supportive majority to reach an "up-or-down" vote on confirming a nomination. Reaching a confirmation vote, however, still requires either unanimous consent or a successful cloture process, as detailed further below. The vote threshold by which the Senate can confirm a presidential nomination is, and has always been, a numerical majority of those voting (provided a quorum is present). However, floor consideration of any nomination is subject to no general time limits under Senate rules, and those rules provided no mechanism by which a simple majority could end or even limit consideration and bring the Senate to a vote. While the Senate frequently agrees by unanimous consent to vote on a pending nomination, Senators opposing a particular nomination often have been able to delay or prevent a numerical majority from reaching such a vote. Paragraph 2 of Senate Rule XXII (also known as the "cloture rule") provides a process by which a supermajority of the Senate can vote to limit further consideration of a pending question. When the rule was adopted in 1917, the cloture process applied only to legislation. However, in 1949, the Rule was amended so that cloture could also be filed in relation to nominations, thereby making it possible for a supermajority to limit further consideration of a nomination and proceed to a vote. However, not until 1968 was a cloture motion filed in relation to a nomination. Since 1975, the Rule's supermajority threshold by which cloture could be invoked on a pending nomination (or any other question other than in relation to a proposed change to the Senate standing rules) has been three-fifths of the Senate (60, unless there is more than one vacancy in the chamber). As on legislation, a cloture motion filed on a nomination under Rule XXII receives a vote after two days of Senate session. The text of the Rule provides that, if on that vote the requisite supermajority supports cloture, the Senate will—after no more than 30 hours of consideration—vote on the pending question, with final approval subject to only a simple majority vote. Notably, unlike the process by which the Senate agrees to bring legislation to the floor for initial consideration, the procedures by which the Senate can bring up a nomination (that is, make it pending for floor consideration) do not, in current practice, rely on the provisions of Rule XXII. Specifically, by precedent, the motion to go into executive session and proceed to consider a specific item of business on the Executive Calendar (i.e., a nomination or treaty) is not subject to debate. As a result, reaching a vote on the motion does not require a cloture process, so a simple majority of those voting can agree to bring up the nomination without requiring a supermajority to invoke cloture in order to limit debate on the question of bringing up the nomination. Note, however, that the Senate (except by unanimous consent) cannot consider multiple nominations en bloc ; in addition, paragraph 2 of Rule XXII provides that once cloture has been invoked on any pending question, the question "shall be the unfinished business to the exclusion of all other business until disposed of." This means that the Senate can consider nominations only sequentially, absent unanimous consent to do otherwise. Cloture motions can be filed on multiple nominations, effectively allowing the two-day layover period before a vote on cloture to lapse concurrently on each nomination. However, once the Senate invokes cloture on one nomination, it cannot vote on cloture on any other nomination until the expiration of the post-cloture time (and a final vote) on the first nomination; in other words, processing multiple contested nominations requires the use of any post-cloture time in sequence, not concurrently. In January 2013, after extended deliberations about proposed changes to its Standing Rules and procedural practices, the Senate adopted S.Res. 15 —a standing order that governs certain floor proceedings, but that expires at the end of the 113 th Congress. The standing order did not change the process of invoking cloture provided by Rule XXII; rather, for certain nominations, Section 2 of S.Res. 15 provides only for different post-cloture limits on consideration from those provided in Rule XXII. Specifically, for the remainder of the 113 th Congress, all but the very highest of executive nominations are subject to a maximum of eight hours of post-cloture consideration, and district judge nominations are subject to only two hours, post-cloture. (See Table 1 below.) All other federal judicial positions, as well as high level executive nominations (effectively cabinet level), remain subject to up to a 30 hours of post-cloture debate, as provided for under Rule XXII. The precedent set on November 21, 2013, did not change the text of Rule XXII of the Standing Rules. The Senate applies its rules to specific situations in accordance with its precedents, most recently compiled as Riddick's Senate Procedure , cited earlier. Senate precedents are effectively an identification of instances in which the Senate established or applied a particular understanding of the actions that its rules preclude or allow in specific circumstances. The non-partisan Parliamentarian relies on these precedents to advise the presiding officer on how to enforce and apply the rules, as well as how to respond to points of order from Senators seeking to enforce the rules (or in response to parliamentary inquiries seeking to elucidate the rules' effects). Through action on any appeals of rulings of the chair or submitted points of order, however, the Senate itself is the final authority on the interpretation and application of its rules. In summary, in floor proceedings on November 21, the Senate established a new precedent by which it has reinterpreted the provisions of Rule XXII to require only a simple majority to invoke cloture on most nominations. The effect of the Senate's new precedent is to lower the vote threshold by which cloture can be invoked on a nomination other than to the U.S. Supreme Court from three-fifths of the Senate to a simple majority of those voting, thereby enabling a supportive simple majority to reach an "up-or-down" vote on confirming the nomination. The new precedent, however, does not expedite the cloture process. Absent unanimous consent to arrive at a vote, once the Senate proceeds to a nomination, a cloture motion can be filed on the nomination, but the Senate still will not vote on the cloture motion until the second day of Senate session after the cloture motion is filed (unless the Senate unanimously consents to schedule the vote earlier). The Senate can, however, turn to other business during the two days of session that elapse prior to the cloture vote. Under the new precedent, for the Senate then to limit debate on a nomination requires only a simple majority of those voting on cloture (unless the nomination is to the Supreme Court). Once cloture has been invoked, the nomination remains subject to post-cloture consideration, which, for the 113 th Congress is a maximum of 2, 8, or 30 hours, depending on the nomination (see Table 1 ). In future Congresses, the post-cloture consideration limits will revert back to 30 hours for all nominations, unless the Senate provides otherwise. In addition, Rule XXII still prohibits consideration of other business (except by unanimous consent) during this post-cloture period; therefore, multiple nominations can still only be processed sequentially. In sum, the new precedent did not change existing requirements for floor time to complete a cloture process and reach a vote on a pending nomination. Under previous practice, the Senate was already able to proceed to executive session and proceed to consider a nomination with the support of only a numerical majority. The new precedent now allows that same supportive majority to employ the cloture process to proceed to a vote on confirming the nomination . As a result, a simple numerical majority can now take actions to reach the final vote on a nomination, when before only three-fifths of the Senate could agree to limit consideration and reach a vote. Broader effects of the November 21 precedent cannot yet be fully assessed, but the precedent could have implications for elements of the nomination and confirmation process that occur prior to floor consideration. Under current Senate practices, the only nominations that the Senate can, by majority vote, proceed to consider, invoke cloture on, and confirm, are those that appear on the Executive Calendar. For judicial and most executive branch nominations, only those reported by committee are placed on the Executive Calendar; except by unanimous consent, the Senate has treated these nominations as eligible for floor consideration only after being favorably reported by committee. Before the new precedent, opponents of these nominations might have focused their opposition on floor consideration, aware of the supermajority threshold for invoking cloture on the nomination. The new lower (majority) threshold for cloture now might induce opponents to oppose such nominees more frequently in committee, since those not reported out of committee effectively can be considered on the Senate floor only by unanimous consent. Pursuant to S.Res. 116 , a Senate standing order adopted in the 112 th Congress, the process is somewhat different for 272 positions in cabinet departments, certain advisory boards, and independent agencies. S.Res. 116 provides a process by which these "privileged" nominations can be placed on the "Nominations" portion of the Executive Calendar, and thereby made eligible for floor consideration, without being first referred to and reported by committee—but only as long as no Senator requests that a nomination be referred. So while these nominations can potentially become eligible for floor consideration without committee action, any Senator can require that they be instead referred to committee—thereby effectively requiring the nomination to be reported by committee before floor consideration. In sum, the potential effects of the new precedent on pre-floor action are effectively the same for all nominations (whether "privileged" under S.Res. 116 , or not), except for those to the Supreme Court. In addition, while the lower threshold for cloture on nominations will remain in effect until the Senate takes further action to alter it, the reduction in the limits on post-cloture consideration for certain nominations (pursuant to S.Res. 15 , 113 th Congress) will revert back to 30 hours in the 114 th Congress (2015-2016). At the time the standing order was agreed to, Senators understood that the support of three-fifths of the Senate was potentially necessary to reach confirmation votes. Accordingly, the November 21 precedent could affect the likelihood that the standing order will be renewed. Particularly if the standing order is not renewed, Senators will need to continue to negotiate unanimous consent agreements to process routine nominations swiftly. Finally, the process by which the President selects nominees may be now influenced by the understanding that nominees considered on the floor in the future can receive a vote with only the support of a numerical majority. In the past, many nominees may have been selected with an eye towards the possible need for supermajority support. The procedures by which the precedent was set also may have implications for future proposals to alter Senate rules or their application. A key procedural detail on which the November 21 proceedings turned was the inability of opponents of these proceedings to extend debate on the appeal of the chair's ruling. Under Senate practice, appeals are typically subject to no debate limit except in a post-cloture environment; therefore, overturning a chair's decision on appeal in the face of sustained opposition typically would require a successful cloture process (and therefore a supermajority vote) to reach a vote on the appeal. The appeal of note in the events of November 21, however, was in relation to a non-debatable question (the cloture motion) and the appeal was therefore treated as itself being non-debatable; this allowed the Senate to reach a vote on the appeal immediately. Since the practicability of proposed "nuclear" proceedings has often turned on the Senate being able to reach a vote to establish new procedures in a contested situation, the parliamentary circumstances under which the new precedent was set will likely be examined for their implications for future attempts to change Senate rules or the Senate's interpretation and application of them. CRS Report R42929, Procedures for Considering Changes in Senate Rules , by [author name scrubbed], provides a detailed examination of the complications presented by certain procedural paths by which the Senate might consider changing its rules, with specific attention to the significance of debate limits (or lack thereof) on questions that may be raised during contested floor proceedings. On October 28, 2013, the Senate agreed to a motion by Majority Leader Harry Reid (NV) that the Senate proceed to Executive Session to consider the nomination of Patricia Ann Millett to be United States Circuit Judge for the District of Columbia Circuit; the majority leader immediately filed cloture on the nomination. On October 31, the Senate failed to invoke cloture on the Millett nomination, 55-38; immediately after the vote, the majority leader entered a motion to reconsider the vote by which cloture had not been invoked. On November 21, 2013, the majority leader moved to proceed (that is, asked the Senate to take up) the motion to reconsider the failed October 31 cloture vote on the Millett nomination. Since the question on which reconsideration was proposed—that is, a cloture motion—is itself not subject to debate, the motion to proceed to the reconsideration motion was also not subject to debate; therefore, after the yeas and nays (i.e., a rollcall vote) were requested and ordered, the Senate voted immediately on the motion to proceed to the reconsideration motion; the motion to proceed was agreed to, 57-40. Having thus taken up the reconsideration motion, the majority leader moved to reconsider the failed cloture vote; this question of whether or not to reconsider the failed cloture vote was also not subject to debate. After rejecting an intervening motion to adjourn made by Minority Leader Mitch McConnell, the Senate voted to reconsider the cloture vote, 57-43 (thus agreeing to bring the cloture motion back before the Senate). The majority leader then raised a point of order that "the vote on cloture under rule XXII for all nominations other than for the Supreme Court of the United States is by majority vote." Consistent with the provisions of paragraph 2 of Rule XXII that provide for a three-fifths vote on cloture (in relation to all questions except a proposal to amend the text of the Senate standing rules), the chair ruled against the point of order. The majority leader appealed the ruling of the chair. Since this appeal was in relation to a non-debatable question (the cloture motion), the appeal itself was therefore treated as non-debatable. After the chair responded to a series of parliamentary inquiries from the minority leader, the Senate voted on the appeal; 52 Senators voted to overturn the ruling and 48 voted to sustain the chair. After the vote, the minority leader raised a point of order that the three-fifths threshold provided for in Rule XXII applies to invoking cloture on a nomination. The chair ruled against the point of order, based on the precedent just set via vote on the previous appeal. The minority leader appealed the ruling of the chair, but the Senate sustained the ruling, 52-48. Finally, the chair then laid the cloture motion before the Senate. No debate being in order on the cloture motion, the Senate then re-voted on the failed cloture motion, agreeing to it 55-43. Based on the precedent just set by the Senate providing that a numerical majority was sufficient for invoking cloture on certain nominations (of which the Millett nomination was one), the presiding officer announced that the motion was agreed to. The Senate then continued proceedings on the nomination, but in post-cloture time (which, under Rule XXII, is limited to 30 hours of consideration). | On November 21, 2013, by overturning a ruling of the chair on appeal, the Senate set a precedent that lowered the vote threshold required by Senate Standing Rule XXII for invoking cloture on most presidential nominations. The precedent did not change the text of Rule XXII of the Standing Rules; rather, the Senate established a precedent reinterpreting the provisions of Rule XXII to require only a simple majority of those voting, rather than three-fifths of the full Senate, to invoke cloture on all presidential nominations except those to the U.S. Supreme Court. The precedent does not eliminate the potential need for a cloture process for the Senate to reach a vote on a contested nomination. The time required to invoke cloture on a pending nomination remains as it was before the precedent. Specifically, nominations are still subject to Rule XXII's requirement that (1) a cloture motion filed on a pending nomination lie over for two days of Senate session prior to the cloture vote, and (2) the nomination be subject to an additional 30 hours of post-cloture consideration prior to a vote on confirmation. For the 113th Congress only (pursuant to S.Res. 15), this post-cloture time limit is eight hours for most nominations and two hours for U.S. District Court judges; the limit is still 30 hours for high level executive nominations and the top judicial positions (see Table 1). The only direct effect of the new precedent is to change the vote threshold by which the Senate can invoke cloture (and thereby eventually reach a vote) on these nominations from three-fifths of the Senate to a numerical majority of Senators voting (with a quorum present). However, to the extent that the change may effectively limit the floor leverage of Senators opposing a nomination, there may be implications for the pre-floor stages during which nominations are vetted. In addition, the parliamentary circumstances under which the November 21 precedent was set will likely be examined for their implications for future attempts to change Senate procedures. A key element of the feasibility of such action is whether a Senate majority in favor of change can reach a vote to establish new procedures in the face of opposition. Reaching a vote to reinterpret existing rules, in a contested situation, might rely on steps that are novel or potentially are in contravention of existing rules and precedents; in addition, the effects of such actions could also undermine the existing procedural prerogatives available to Senators. Such proceedings have sometimes been called the "nuclear option." In this context, an important feature of the proceedings of November 21 was the inability of opponents to extend debate on the appeal of the chair's ruling. This report explains the procedural context within which the precedent was set and addresses the precedent's effects on floor consideration of nominations (as well as noting other potential effects on the nominations process). In addition, since the parliamentary circumstances under which the precedent was set fall within proceedings often called the "nuclear option," the report concludes by briefly noting the precedent's relevance for future proposals to alter or reinterpret Senate rules through the establishment of new precedent. An Appendix details the key procedural steps by which the precedent was set. This report will be updated if events warrant, or to add citations to additional CRS reports that address related issues. |
This report provides background information and identifies issues for Congress on Department of Defense (DOD) energy initiatives. DOD spends billions of dollars per year on fuel, and is pursuing numerous initiatives for reducing its fuel needs and changing the mix of energy sources that it uses. DOD's energy initiatives pose several potential policy and oversight issues for Congress, and have been topics of discussion and debate at hearings on DOD's proposed FY2013 budget. Congress's decisions on DOD energy initiatives could substantially affect DOD capabilities, funding requirements, and U.S. energy industries. This report supplements earlier CRS reports on DOD fuel use and conservation. Another CRS report discusses DOD's facilities energy conservation policies. This report focuses primarily on DOD's use of liquid fuels. It does not discuss in detail DOD's use of other energy, such as natural gas or electrical power, or the use of nuclear power by some Navy ships. From fueling jets, ships, and tactical vehicles to powering domestic installations and forward operating bases, DOD consumes large amounts of energy to conduct its various operations. Points that help describe DOD's use of energy include the following: DOD is by some accounts the largest organizational user of petroleum in the world. DOD consumed about 117 million barrels of oil in FY2011. Even so, DOD's share of total U.S. energy consumption is fairly small. DOD's use of energy in FY2010 accounted for almost 1% of all U.S. energy consumption, DOD's use of petroleum in FY2010 accounted for about 1.9% of U.S. petroleum use. DOD is by far the largest U.S. government user of energy. DOD's use of energy in FY2010 accounted for about 80% of the federal government's use of energy. The amount of money that DOD spends on petrol eum-based fuels is large in absolute terms , but relatively small as a percentage of DOD's overall budget. In FY2011, DOD spent about $17.3 billion on petroleum-based fuels, accounting for about 2.5% of DOD's total outlays in FY2011 and about 6% of total operations and maintenance outlays in FY2011. DOD's petroleum costs have increased substantially over the last seven years even as DOD petroleum use has declined slightly over the same period . Between FY2005 and FY2011, DOD's petroleum use decreased 4%. Over the same period, DOD spending on petroleum rose 381% in real (i.e., inflation-adjusted) terms, from $4.5 billion in FY2005 (in FY2011 dollars) to about $17.3 billion in FY2011. Petroleum-based liquid fuels are by far DOD's largest source of energy . Petroleum use accounted for 71% of DOD energy use in FY2010. By comparison, electricity accounted for 11%; natural gas 8%; nuclear power in Navy ships 7%; coal 2%; and all other sources 1%. When divided by platform t ype, aircraft are DOD's largest user s of petroleum. According to a 2006 Navy report, in 2003 aircraft accounted for 73% of DOD's petroleum use, ground vehicles accounted for 15%, while ships accounted for 8%. DOD installations accounted for 4%. When DOD's fuel use is divided by service, the Air Force is the largest user, accounting for 53% of total DOD's fuel use, compared to 28% for the Department of the Navy (which includes the Navy and Marine Corps), and 18% for the Army (see Figure 1 ). Between 85% and 95% of the fuel used by the Air Force is aviation fuel. In FY2011, the Air Force used nearly 62 million barrels of petroleum fuel, including about 58 million barrels of aviation fuel. In FY2011, 64% of Air Force aviation fuel was used for mobility and logistics air operations, 31% for combat air operations, and 3% for training operations. In FY2009, the Air Force's Air Mobility Command, which provides airlift and refueling services to joint forces, consumed more than half of Air Force fuel use and a quarter of DOD total fuel use. The Department of the Navy is less dependent on petroleum than the Air Force and Army for meeting its energy needs, in part because all of the Navy's aircraft carriers and submarines are nuclear-powered. In FY2010, the Department of the Navy met 59% of its overall energy needs from petroleum, 22% from nuclear-powered ships, and 19% from electricity. Aircraft operations account for 54% of the Navy's use of petroleum fuels, ships account for 43%, and non-tactical uses account for 3%. The Marine Corps accounted for about 4.7 million barrels of the 30 million barrels of petroleum used by the Department of the Navy in FY2010. About 90% of the Marine Corps' fuel use is operational fuel, with aircraft accounting for about 85% and ground forces accounting for about 15% of operational fuel use. The Army, despite being the service with the greatest number of personnel, consumes less fuel than the Air Force or Navy. In FY2011, the Army used about 21 million barrels of petroleum fuel. The Army does not operate large numbers of airplanes, which are fuel-intensive platforms, and relies on the Air Force and the Military Sealift Command for transporting and sustaining troops. DOD's energy use can be divided into two broad categories—operational energy and installation energy. Section 2821(a) of the FY2012 National Defense Authorization Act ( H.R. 1540 / P.L. 112-81 of December 31, 2011) defines operational energy as "the energy required for training, moving, and sustaining military forces and weapons platforms for military operations. The term includes energy used by tactical power systems and generators and weapons platforms." The definition is codified at 10 U.S.C. 2924. DOD's use of operational energy can vary over time, depending on the number, location, scale, and tempo of DOD's military operations around the world. Installation energy is not defined in law, but in practice refers to energy used at installations, including by non-tactical vehicles, that does not fall under the definition of operational energy. Installation energy is sometimes referred to as facilities energy. Under the definition of operational energy in P.L. 112-81 , energy used at an installation to train military personnel is considered operational energy. The distinction between what is operational or installation energy is not always clear. For example, at a domestic base that serves as the home of remote drone operations, energy used at the base for drone operations could be viewed as operational energy. DOD is working to develop rules for allocating various activities to operational or installation energy. According to DOD, currently about 75% of DOD's energy use is operational energy and about 25% is installation energy. Officials state current DOD energy use reflects recent operations in Afghanistan and Iraq: the split between operational and installation energy would likely be much different during peacetime. About 80% of installation energy used in FY2010 was electricity and natural gas, about 15% was fuel oil and coal, and the remainder was renewable energy and other sources. Energy used to directly support ongoing expeditionary operations, including logistics support throughout the supply chain, and in-theatre energy consumption, can be considered a subset of operational energy. According to DOD officials, the military is more reliant on fuel during expeditionary operations. The Defense Logistics Agency (DLA) is DOD's logistics support agency. DLA-Energy (DLA-E) is the part of DLA that is responsible for acquiring, storing, distributing and selling energy, including petroleum, natural gas, and coal. DLA-E buys petroleum from suppliers around the world and resells it to customers within DOD, acting as a clearinghouse for filling DOD's petroleum needs. DLA-E stores and sells fuel at more than 600 fuel depots worldwide, and also sells fuel to foreign governments and other federal agencies. To reduce costs for transporting fuel, DLA-E generally purchases fuel from sources close to where it is to be used. Fuel to support operations in Afghanistan, for example, is generally purchased from sources within the Central Command (CENTCOM) area of responsibility, while fuel to support operations in the Pacific is generally purchased from sources within the Pacific Command. DLA-E incurs varying costs for obtaining fuels at different locations around the world, depending on regional fuel prices and logistic costs. Despite these differing costs, DLA-E establishes a "global leveled set price" for each fuel type—a single price for a gallon of that fuel type, regardless of where it is purchased. For example, DLA-E charges DOD customers the same price for a gallon of JP-8 (military jet fuel) purchased in Northern Afghanistan, Japan, or Fort Benning, Georgia. To calculate the global leveled set price, DLA-E averages the worldwide cost of fuel purchased, and then adds an operating surcharge to cover its worldwide operating expenses (such as expenses for storing and distributing fuel). Section 332(g) of the FY2009 Duncan Hunter National Defense Authorization Act ( S. 3001 / P.L. 110-417 of October 14, 2008) defines the fully burdened cost of fuel as "the commodity price for fuel plus the total cost of all personnel and assets required to move and, when necessary, protect the fuel from the point at which the fuel is received from the commercial supplier to the point of use." The price for fuel that DLA-E charges to DOD customers is less than the fully burdened cost of fuel—it covers the commodity cost of fuel and DLA-E's fuel handling and overhead costs, but it does not cover costs associated with transporting, storing, or protecting fuel beyond the DLA-E point of delivery. Calculating the fully burdened cost of fuel requires adding these other costs to DLA-E's set fuel price. The fully burdened cost of fuel varies widely, depending on where and under what circumstances fuel is used. The fully burdened cost of fuel that is used near a DLA-E delivery point in the United States is generally close to the DLA-E set price. In contrast, in rare cases, the fully burdened cost of fuel delivered by helicopter to a remote and isolated location can run into the hundreds of dollars per gallon. Costs for supplying fuel during overseas contingency operations, particularly costs for logistics and force protection, generally increase the fully burdened cost of fuel. A DOD analysis concluded that the "hidden costs" associated with the fully burdened cost of fuel have led DOD to "systematically undervalue the true cost of supplying fuel to its battlespace forces." A number of studies have attempted to calculate the fully burdened cost of fuel in Iraq and Afghanistan. In 2010, the Marine Corps estimated the fully burdened cost of fuel in Afghanistan at between $9 to $16 per gallon if delivered by land, and between $29 to $31 per gallon if delivered by air. An Army study estimated the fully burdened cost of fuel in Iraq at $9 to $45 per gallon, depending on the type of force protection used to and the delivery distance, while an Air Force study estimated the fully burdened cost of fuel delivered by land at $3 to $5 per gallon and $35 to $40 per gallon for aerial refueling. A 2008 report by the Army Environmental Policy Institute estimated that the fully burdened cost of fuel for a Stryker brigade in Iraq ranged from $14.13 to $17.44 per gallon. While the fully burdened cost of fuel illustrates the "hidden costs" of supplying fuel to forces in the field, it is not a record of actual costs and is not used for budgeting purposes. Rather, it is intended to be used in the acquisitions process as a factor in selecting new equipment, and to illustrate potential systems' logistical footprints. Section 332(c) of P.L. 110-417 states that "The Secretary of Defense shall require that the life-cycle cost analysis for new capabilities include the fully burdened cost of fuel during analysis of alternatives and evaluation of alternatives and acquisition program design trades." The provision is codified at 10 U.S.C. 2911 note. The military relies on thousands of contractors to support military operations both domestically and abroad. These contractors depend on fuel to perform many of their activities. The cost of fuel used by contractors is often embedded in contracts and consequently not included in DOD's data on fuel. As a result, total DOD expenditures for fuel are higher than what is reflected in DOD data. DOD's reliance on fuel can lead to certain financial, operational, and strategic challenges and risks. In recent years, rising fuel costs and operations in Iraq and Afghanistan have highlighted some of these challenges and risks. DOD discusses these challenges and risks in some of its strategic guidance documents, and takes them into account in its operational plans and in developing its future force structure. This section focuses on challenges and risks associated with DOD's use of operational energy. Financial challenges and risks associated with DOD's reliance on fuel relate to the possibility of a longer-term trend of increasing costs for fuel, and to shorter-term volatility in fuel prices. Each of these is discussed below. DOD's petroleum costs have increased substantially over the last seven years even as DOD petroleum use has declined slightly over the same period. Between FY2005 and FY2011, DOD's petroleum use decreased 4%, from 122 million barrels to 117 million barrels (see Figure 2 ). Over the same period, DOD spending on petroleum rose 381% in real (i.e., inflation-adjusted) terms, from $4.5 billion in FY2005 (in FY2011 dollars) to about $17.3 billion in FY2011. A longer-term trend of increasing fuel costs could require DOD to devote an increasing share of its budget to fuel, which in turn could make it more difficult for DOD to fund other priorities, such as personnel pay and benefits or equipment acquisition programs. Since the early 1990s, the cost of buying fuel has increased faster than any other major DOD budget category, including health care and military personnel. Since FY2005, the share of DOD's spending dedicated to fuel increased from about 1.6% to about 2.5% of total spending. Although that change appears small, in a DOD budget of roughly $700 billion per year, the increase of about 0.9% equates to about $6 billion per year that otherwise might be available for funding other DOD priorities. Some DLA-E officials and other analysts expect the price of oil to continue to rise as a result of increasing demands for oil from developing countries. DOD projects that fuel costs will decline 13% from FY2013 to FY2014 and then remain roughly at that lower price through FY2017, primarily because DOD projects the price of refined oil products to decline, even as it expects the price of crude oil to remain relatively flat. Fuel appears to be the only category for which DOD projects costs to decrease over the next four years (see Appendix A ). Shorter-term volatility in fuel costs complicates DOD budgeting and can cause funding shortfalls in the current-year budget. Because DOD fuel is funded primarily through DOD's Operations and Maintenance (O&M) account, unexpected increases in fuel prices can lead to significant O&M funding shortfalls. In DOD's FY2012 budget, for example, the cost of oil was forecast to be $130 per barrel, but oil prices in FY2012 rose to $156 per barrel, reportedly leading to an unfunded obligation of more than $3 billion across DOD. Secretary of the Navy Ray Mabus stated in April 2012 that the Navy is facing nearly a billion dollars in unfunded fuel costs, while U.S. Pacific Command, to cite another example, is facing a $200 million shortfall in FY2012 O&M funding due to higher-than-expected fuel costs. Even slight unexpected increases in costs for fuel can have a substantial effect on DOD's current-year budget. Navy officials state that a one-dollar increase in the price of a barrel of petroleum costs the Navy alone about $30 million annually. (By extension, since DOD in FY2011 used about 117 million barrels of oil, a one-dollar increase in the price of a barrel of petroleum would cost DOD as a whole about $117 million.) A 10% increase from the FY2011 price of fuel would cost DOD as a whole an additional $1.7 billion per year—the price of about 14 F-35s. Responding to O&M funding shortfalls caused by unexpected increases in fuel costs can require either submitting supplemental funding requests (such as the $5 billion supplemental funding request to cover unexpectedly high fuel costs in FY2008), or reducing funding for other O&M-funded activities. Then-Secretary of Defense Robert Gates testified in 2011 that unbudgeted fuel costs could force cuts in Air Force flying hours, Navy steaming days, and training for home-stationed Army troops. By some measures, petroleum prices have become increasingly volatile in recent years. DOD's petroleum costs, for example, increased by nearly 90% between FY2004 and FY2005, and then declined by about 50% between FY2008 and FY2009. Volatility in prices prompted DLA-E in FY2005 to shift from a practice of setting fuel prices once a year to adjusting prices as needed within a given fiscal year (see Appendix B ). Many analysts expect future oil prices to continue to be volatile in coming years. Operational challenges and risks associated with DOD's reliance on fuel relate to the diversion of resources to the task of moving fuel to the battlefield; the negative impact of fuel requirements on the mobility of U.S. forces and the combat effectiveness of U.S. equipment; and the vulnerability of fuel supply lines to disruption. Maintaining a logistics capability for an overseas military operation requires substantial personnel and materiel resources. The logistic network for an overseas military operation can be so extensive that reportedly as much as 1.4 gallons of petroleum fuel can be consumed to deliver 1 gallon to forces on the battlefield. The use of personnel and material for getting fuel to the battlefield diverts resources that could otherwise be used for meeting other military requirements. A 2008 DOD analysis found that moving and protecting fuel "add[s] to sustainment costs and divert[s] and endanger[s] in-theatre force capability." In addition, maintaining an extensive logistic network can result in increased numbers of contractors on the battlefield. In Iraq and Afghanistan, the extensive use of contractors has in some cases caused problems and undermined U.S. efforts. Fuel requirements can slow down the rate at which U.S. forces can be deployed and assembled in an overseas theater, can limit the rate of advance or the battlefield maneuverability of U.S. forces engaged in combat operations, and can affect the weight, speed, range, and lethality of U.S. weapon systems. A 2001 DOD study estimated that if the Abrams tanks used by the Army and Marine Corps were 50% more fuel efficient, and consequently if a smaller amount of fuel for those tanks needed to be moved to the battlefield, the build-up for Operation Desert Shield/Desert Storm (i.e., the 1990-1991 U.S.-led military operation against Iraq) could have been completed in about five months instead of six (i.e., about 15% more quickly). During the 2003 U.S. advance on Baghdad, then-Major General James Mattis, commander of the 1st Marine Division, noted that U.S. forces were outpacing their logistics support. General James Amos, Marine Corps Commandant, stated in 2001 that fuel dependency "constrains our tactical options for executing missions in complex battlespaces, across long distances, and against hybrid threats." The 2011 National Military Strategy states that U.S. forces in the future must become more "expeditionary in nature" and "require a smaller logistical footprint in part by reducing large fuel and energy demands." Fuel supply lines are vulnerable to disruption from enemy attack or from natural events—such as poor weather, floods, or earthquakes—that can damage, destroy, or limit the use of roads, ports, and airfields. Protecting fuel-supply lines against enemy attack can lead to the assignment of additional personnel and other resources to the task of moving fuel through the battlefield, increasing the above-discussed diversion of resources away from other military requirements. DOD stated in 2011 that "attacks on fuel convoys and fixed energy supplies in Afghanistan, Iraq, and surrounding countries already demonstrate the vulnerability of our current supply networks." Secretary of the Navy Ray Mabus testified in 2011 that "Future adversaries [can] target our operational dependence on petroleum, as we see in attacks on fuel convoys in Afghanistan." U.S. Transportation Command estimated that ground convoys in Afghanistan suffered more than 1,100 attacks in 2010, including attacks from improvised explosive devices. The Marine Corps estimated in 2010 that there was one Marine casualty for each 50 Marine Corps fuel or water convoys in Afghanistan, and an Army analysis of the period 2003-2007 that included both Army and contractor personnel estimated one casualty per 24 fuel convoys in Afghanistan. The Marine Corps estimates that about 10% of battlefield casualties in Iraq and Afghanistan are related to convoy operations, while the Army estimated that 18% of casualties in Iraq and Afghanistan are related to ground resupply operations. A 2009 study by the Army Environmental Policy Institute reported that between 2003 and 2007, more than 3,000 U.S. troop and contractor deaths or injuries were attributable to fuel supply convoys in Iraq and Afghanistan. Strategic challenges and risks associated with DOD's reliance on fuel relate to getting fuel to the overseas operating area, and ensuring the global free flow of oil. Supply lines supporting overseas missions may cross international borders, giving other countries the ability to disrupt or otherwise influence the flow of supplies. Operations in Afghanistan highlight challenges associated with operating a logistic network that is dependent on the assent of other countries. Since Afghanistan is a landlocked country, fuel and supplies must run through the territory or airspace of one or more neighboring countries. Vice Admiral Mark Harnitchek, deputy commander of U.S. Transportation Command, reflecting on the task of keeping open U.S. supply lines to Afghanistan, described the U.S. military operation in Afghanistan as "the logistics challenge of our generation." Until November 2011, routes running through Pakistan were the primary ones for bringing fuel into Afghanistan, accounting for approximately 70% of fuel (and also 29% of supplies) delivered to U.S. forces in Afghanistan. DLA-E officials attribute hijackings and theft of supplies being transported along routes in Pakistan in part to Pakistan's prohibition on using U.S. military or private security contractors to protect convoys. Following a U.S. airstrike on November 26, 2011, that killed 24 Pakistani soldiers, Pakistan closed its supply routes to Afghanistan. This closure forced DOD to shift to using the Northern Distribution Network, a longer, more costly, and more complex logistics route stretching from Latvia or Azerbaijan across Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. DLA-E is currently moving all fuel through these northern routes. There have been allegations of corruption tied to DLA-E fuel contracts in Kyrgyzstan, jeopardizing continued U.S. use of the Manas Transit Center, a key logistics hub. Using northern routes reportedly has increased DOD's costs for transporting fuel and supplies to Afghanistan to a reported $104 million per month—$87 million per month more than when routes through Pakistan were used. Shipping a 20-foot cargo container to Afghanistan costs $10,000 more if transported on northern routes, according to the U.S. Transportation Command. In addition to being more expensive, the northern route cannot be used to transport lethal cargo, can only be used one way, and, according to DLA-E officials was operating at fully capacity in March 2012. Air Force General William M. Fraser III of the Air Force, Commander of U.S. Transportation Command testified that both the northern and Pakistani routes are necessary to support the U.S. drawdown in Afghanistan. Oil is critical to the U.S. economy. It is the United States' largest source of energy, providing 37% of the total energy the nation consumes and 94% of the energy used for transportation. Every U.S. recession in the last 40 years has been preceded by an increase in oil prices. Any disruption in the global free flow of oil could result in an increase in oil prices and pose a serious risk to the U.S. and international economies. DOD officials state that protecting shipping lanes and the free flow of oil is a fundamental mission of the U.S. Navy, and is vital to U.S. national and economic interests. Global petroleum distribution networks pass through a number of "chokepoints" that are vulnerable to disruption, including in particular the Strait of Hormuz leading into and out of the Persian Gulf. Securing Persian Gulf shipping lanes, particularly through Straight of Hormuz, is one of the primary missions of the Navy's Fifth Fleet, headquartered in Bahrain. Although exact figures are difficult to calculate (because many U.S. forces have multiple mission responsibilities), observers believe that DOD spends billions or tens of billions of dollars annually protecting global oil transit routes and chokepoints. A 2009 RAND report estimated the cost to DOD of protecting the supply and transit of oil from the Persian Gulf at between $86 billion and $104 billion per year—figures that equate to a substantial fraction of DOD's total budget. DOD's role in protecting the global free flow of oil can lead to U.S. combat operations, such as those in the Persian Gulf against Iranian forces that occurred during Operation Earnest Will, the 1987-1988 U.S. military operation to protect oil tankers and other commercial ships operating in the Persian Gulf from Iranian attack during the so-called Tanker War (i.e., the at-sea component of the Iran-Iraq War of the 1980s). In December 2011, in response to threats by Iran to close the Strait of Hormuz, Secretary of Defense Leon Panetta stated that a closure of the strait would be considered a "redline" by the United States; a spokeswoman from the 5 th Fleet similarly stated that "any disruption will not be tolerated." DOD is pursuing numerous initiatives for reducing its fuel needs and changing the mix of fuels that it uses. Some of DOD's energy initiatives respond to statutory requirements (see " Past Legislation on DOD Energy Use " below). More generally, DOD justifies its energy initiative in connection with reducing the challenges and risks associated with DOD's reliance on fuel that are discussed in the previous section of this report. Several DOD strategy documents discuss the need to decrease logistic footprints and reduce energy demands. A 2008 DOD report states "the payoff to DOD from reduced fuel demand in terms of mission effectiveness and human lives is probably greater than for any other energy user in the world." As part of its FY2013 budget submission, DOD is requesting more than $1.4 billion for operational energy initiatives in FY2013. Most of these initiatives are aimed at reducing the amount of energy DOD needs to conduct operations. DOD's five year (FY2013-FY2017) Future Years Defense Plan (FYDP) includes a total of about $8.6 billion for operational energy initiatives. DOD as a whole faces certain challenges in decreasing its reliance on fuel. One of these relates to equipment service lives: aircraft and ships, which together account for more than half of DOD fuel use, have long service lives, so the composition of the inventory of aircraft and ships tends to change slowly over time. Another challenge relates to gathering reliable data on energy use for developing clear metrics to evaluate the effectiveness of the initiatives, and making informed decisions. The following sections summarize energy initiatives being pursued by DOD's Office of Operational Energy Plans and Programs (OEPP), and by each of the military services. DOD's office of Operational Energy Plans and Programs was established by statute as set forth in the FY2009 Duncan Hunter National Defense Authorization Act ( P.L. 110-417 , as amended). The office is headed by the Assistant Secretary of Defense, Operational Energy Plans and Programs (ASD(OEPP)), and is responsible for developing DOD policy for operational energy and alternative fuels, and for coordinating operational energy efforts across the services. OEPP states that its efforts focus on promoting institutional change, supporting current operations, and building energy awareness into the requirements of future systems. Table 1 lists what OEPP describes as its major operational energy initiatives. Air Force officials state that the Air Force's energy initiatives are aimed at reducing the service's energy costs (which accounted for 8.4% of the Air Force's budget in FY2011) and at reducing the budgetary impact of volatility in fuel prices. More specifically, the Air Force states that its operational energy goals are the following: Reduce consumption of aviation fuel 10% by 2015. Be prepared to acquire 50% of the Air Force's domestic aviation fuel requirement via an alternative fuel blend by 2016. Test and certify all aircraft and systems on a 50:50 alternative fuel blend by 2012. The Air Force's FY2013 budget submission requests $655 million for operational energy initiatives in FY2013, and programs a total of about $2.6 billion for energy initiatives across the FYDP. Table 2 lists what the Air Force describes as its major operational energy initiatives. The Department of the Navy has identified six major objectives for FY2013, of which the third is to Lead the Nation in Sustainable Energy. The Navy and Marine Corps are pioneering DoD's efforts to reduce energy consumption. Our investments in alternative fuels/biofuels have led to success in both aircraft and ships supporting our path to a green fleet. Our hybrid-drive system has already produced fuel savings on the [amphibious assault ship] USS Makin Island (LHD 8). Energy saving efforts have also drastically cut energy usage on bases, with new solar and geothermal technologies providing electricity. As the use of alternative energy increases across the Department, DON will be protecting the environment with clean energy and lessening our dependence on foreign oil. Secretary of the Navy Ray Mabus testified on February 16, 2012, that "we would be irresponsible if we did not reduce our dependence on foreign oil." Secretary Mabus stated in April 2012 that the Navy's biofuel efforts will increase the security of the Navy's energy supply and reduce the service's vulnerability to price shocks. Accordingly, the Navy's operational energy initiatives focus on reducing the service's energy consumption and its reliance on fossil fuels. The Navy's operational energy goals are to Require consideration of life-cycle energy costs as a factor in developing and awarding contracts for systems and buildings. Demonstrate a "Green Strike Group" of ships and aircraft powered by biofuels by 2012, and deploy it overseas by 2016. Ensure that at least 50% of the Navy's total energy consumption is from alternative sources by 2020. Increase energy efficiency and/or reduce fuel consumption afloat by 15% by 2020. The Navy's FY2013 budget submission requests $338 million for operational energy initiatives in FY2013, and programs a total of about $1.9 billion for operational energy initiatives across the FYDP. Of the $338 million requested for FY2013, $186.3 million is for maritime energy (i.e., ships), $121.3 million is for aviation energy, $13.4 million is for expeditionary energy, and $17.1 million is for alternative fuels procurement and testing. One of the most controversial of DOD's energy initiatives is the Navy's proposal to invest $170 million over the next several years to jumpstart a domestic advanced biofuels industry, using authority provided by the Defense Production Act. An August 2011 MOU between the Navy, and the Departments of Agriculture and Energy formalizes this intention. Each agency has pledged up to $170 million with substantial cost-sharing from industry, to construct or retrofit commercial scale (at least 10 million gallons) advanced drop-in biofuel plants and refineries. The Navy's alternative fuel purchases for testing and certification purposes and $170 million commitment to support construction of biofuel production facilities add up to slightly more than $200 million (a more in-depth discussion on the Navy's role in developing biofuels is discussed later in this report: see " Navy Role in Developing Advanced Biofuels "). Table 3 lists what the Navy describes as its major operational energy initiatives. The last item in the table—alternative fuels testing and certification—includes Navy testing of equipment performance and reliability on non-petroleum fuel, but does not include Navy efforts to promote the development of advanced biofuels. The Marine Corps' operational energy efforts focus primarily on increasing combat effectiveness through reducing energy challenges and risks (such as the vulnerability of fuel supply lines) for Marine Corps forces operating in the field. In support of this goal, the Marine Corps' energy goals are to increase the service's overall efficiency by 50% by 2025, and to be able by 2025 to deploy a Marine Corps expeditionary force from the sea that can operate self-sufficiently in terms of energy, except for vehicle fuel. The Marine Corps' FY2013 submission requests $64.5 million for operational energy efforts in FY2013 and programs a total of $352 million for operational energy initiatives over the FYDP. About 58% of the funding requested for FY2013 is for procurement of new equipment with improved energy characteristics. The Marine Corps' proposed FY2013 programs are intended to reduce the fuel used by a Marine Expeditionary Brigade by 9%, allowing them to operate for 15 days from an initial assault without a fuel resupply, up from the current 14 days. Table 4 lists what the Marine Corps describes as its major operational energy initiatives. The Army's operational energy efforts focus on reducing energy demand, increasing fuel efficiency, and increasing the use of alternative and renewable energy. The Army's FY2013 budget submission requests $560 million for operational energy initiatives, and programs a total of about $4.1 billion across the FYDP, of which $3.3 billion is for procurement of new equipment and $832 million is for science and technology research. In April 2012 the Army opened the Ground Systems Power and Energy Laboratory to conduct research and development on mobility power and energy. The Base Camp Integration Laboratory is where the Army tests and evaluates new technologies/systems for basing during contingency operations, including smart micro-grid prototypes, more efficient environmental control units, rigid-wall shelters, and re-locatable buildings. Many of the Army's energy initiatives are intended to increase the Army's ability to operate remotely and in a broader variety of terrain. Table 5 lists what the Army describes as its major operational energy initiatives. Congress has been concerned with energy policy since the 1970s, and has passed legislation relating to federal government energy use, including DOD installation energy use. Congress has set specific energy-reduction targets for DOD installation energy, but not for operational energy. Congress has set targets for reducing federal (including DOD) government energy use and for increasing renewable power. Section 203 of the Energy Policy Act of 2005 ( H.R. 6 / P.L. 109-58 of August 8, 2005) states that "The President, acting through the Secretary, shall seek to ensure that, to the extent economically feasible and technically practicable, of the total amount of electric energy the Federal Government consumes during any fiscal year," not less than 7.5% in FY2013 and each fiscal year thereafter shall be renewable energy. Section 431 of the Energy Independence and Security Act of 2007 ( H.R. 6 / P.L. 110-140 of December 19, 2007) requires federal building energy use to be reduced 30% by FY2015. Section 142 of the law mandates a 20% reduction in annual non-tactical vehicle petroleum use, and a 10% increase in annual non-tactical alternative fuel use, by the start of FY2015, as measured from an FY2005 baseline. Section 433 of the law requires certain new and significantly renovated federal buildings to reduce energy usage. Congress has also enacted DOD-specific installation energy requirements. Section 2852 of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) "to produce or procure not less than 25 percent of the total quantity of electric energy it consumes within its facilities and in its activities during fiscal year 2025 and each fiscal year thereafter from renewable energy sources." Section 2823 of the FY2012 National Defense Authorization Act ( H.R. 1540 / P.L. 112-81 of December 31, 2011) directed DOD to set an interim goal for 2018. These provisions are codified at 10 U.S.C. 2911(e). Section 902 of the FY2009 Duncan Hunter National Defense Authorization Act established the DOD position of Director of Operational Energy Plans and Programs (OEPP). The FY2011 Ike Skelton National Defense Authorization Act redesignated the position as an Assistant Secretary of Defense. The position is now codified at 10 U.S.C. 138c, which states in subsection (b) that the Assistant Secretary of Defense for Operational Energy Plans and Programs shall: (1) provide leadership and facilitate communication regarding, and conduct oversight to manage and be accountable for, operational energy plans and programs within the Department of Defense and the Army, Navy, Air Force, and Marine Corps; (2) establish the operational energy strategy; (3) coordinate and oversee planning and program activities of the Department of Defense and the Army, Navy, Air Force, and the Marine Corps related to - (A) implementation of the operational energy strategy; (B) the consideration of operational energy demands in defense planning, requirements, and acquisition processes; and (C) research and development investments related to operational energy demand and supply technologies; and (4) monitor and review all operational energy initiatives in the Department of Defense. Section 526 of the Energy Independence and Security Act of 2007 ( H.R. 6 / P.L. 110-140 of December 19, 2007) prohibits federal agencies from entering into a contract for procurement of an alternative or synthetic fuel, including a fuel produced from nonconventional petroleum sources, for any mobility-related use, other than for research or testing, unless the contract specifies that the lifecycle greenhouse gas emissions associated with the production and combustion of the fuel supplied under the contract must, on an ongoing basis, be less than or equal to such emissions from the equivalent conventional fuel produced from conventional petroleum sources. Section 360(a) of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) states that it "shall be the policy of the Department of Defense to improve the fuel efficiency of weapons platforms, consistent with mission requirements, in order to—(1) enhance platform performance; (2) reduce the size of the fuel logistics systems; (3) reduce the burden high fuel consumption places on agility; (4) reduce operating costs; and (5) dampen the financial impact of volatile oil prices." As mentioned earlier, Section 332(c) of P.L. 110-417 states that "The Secretary of Defense shall require that the life-cycle cost analysis for new capabilities include the fully burdened cost of fuel during analysis of alternatives and evaluation of alternatives and acquisition program design trades." The provision is codified at 10 U.S.C. 2911 note. Congress has required DOD to provide a number of reports related to operational energy. Among these are the annual Energy Performance Master Plan and Report Related to Operational Energy. The requirement for an annual Energy Performance Master Plan was created by Section 2851 of the FY2007 John Warner National Defense Authorization Act and amended in subsequent legislation, including Section 2832 of the FY2011 Ike Skelton National Defense Authorization Act. The provision is codified at 10 U.S.C. 2911(b), which states that the document is to be "a comprehensive master plan for the achievement of the energy performance goals of the Department of Defense, as set forth in laws, executive orders, and Department of Defense policies." The requirement for an annual Report Related to Operational Energy was created by Section 331(a) of the FY2009 Duncan Hunter National Defense Authorization Act. The provision is codified at 10 U.S.C. 10 U.S.C. 2925(b), which states that the document is to be a "report on operational energy management and the implementation of the operational energy strategy.... " Under 10 U.S.C. 138c(e)(3), the Assistant Secretary of Defense for Operational Energy Plans and Programs is required to annually review the budgets for operational energy activities of the military departments and defense agencies and certify that the budgets are adequate to implement the operational energy strategy. Other required annual reports relating to DOD energy include the following: a list of DOD energy performance goals regarding transportation systems, support systems, utilities, and infrastructure and facilities (10 U.S.C. 2911(a)); a report on installations energy management detailing the fulfillment during the previous fiscal year of DOD's energy performance goals for that fiscal year as set forth under the above provision (10 U.S.C. 2925(a)); and a report on mitigation of power outage risks for DOD facilities and activities (10 U.S.C. 2911 note). For a list of one-time reports that Congress has required on various DOD energy-related issues, see Appendix D . For an expanded review of legislative activity relating to DOD energy, see Appendix E . DOD's energy initiatives pose several potential policy and oversight issues for Congress. The sections below briefly review several of these issues. As discussed above, the various services have different energy goals and are pursuing different energy initiatives. One potential oversight issue for Congress concerns DOD coordination of the operational energy initiatives being pursued by the individual military services. As mentioned in the previous section, one of the responsibilities of the Assistant Secretary of Defense for Operational Energy Plans and Programs (ASD(OEPP)), which is codified by statute, is to coordinate and oversee planning and program activities relating to operational energy. Potential oversight questions for Congress include the following: How well is ASD(OEPP) coordinating the operational energy initiatives of the various services? Have ASD(OEPP)'s coordination activities resulted in any changes to the services' proposed operational energy initiatives, and if so, what have been these changes? How much latitude should the services have in developing their service-specific operational energy strategies? Does ASD(OEPP) believe it makes sense, in terms of having a coordinated DOD approach to operational energy, for DOD's second-largest user of fuel—the Department of the Navy—to attempt to spur a domestic advanced biofuels industry, while DOD's largest user of fuel—the Air Force—is not attempting to do this, and has instead adopted an approach of not purchasing biofuels until they are cost competitive with petroleum-based fuels? What formal evaluation did ASD(OEPP) conduct to inform or validate its belief? Are the operational energy initiatives of the services sufficiently coordinated? What actions has ASD(OEPP) taken to ensure that there is no unnecessary duplication or overlap in the operational energy initiatives of the services? What process do the services have for consulting with one another on their operational energy initiatives, and what changes in the two services' initiatives have occurred as a result of such consultations? Another potential oversight issue for Congress concerns the status of DOD's efforts to gather data and develop metrics for evaluating DOD energy initiatives. Absent reliable data, DOD lacks the information upon which to make sound policy decisions. Without clear metrics, it is difficult to measure the effectiveness of the various energy initiatives currently underway. As mentioned earlier, DOD has acknowledged that it faces a challenge in gathering reliable data on DOD energy use for developing clear metrics to evaluate the effectiveness of DOD energy initiatives. Potential oversight questions for Congress include the following: What specific challenges does DOD currently face in gathering reliable data on DOD energy use? What actions has DOD taken, or what actions does DOD plan to take, to address these challenges? When does DOD anticipate having reasonably comprehensive data on DOD energy use? If DOD currently faces challenges in gathering reliable data on DOD energy use, how confident can it be in decisions it has already made regarding current DOD energy initiatives? How do current challenges in gathering reliable data on DOD energy use affect ASD(OEPP)'s ability to coordinate DOD operational energy initiatives across the services? What are DOD's current metrics for evaluating DOD energy initiatives, and how were they developed? What assumptions underpin these metrics? If addressing challenges in gathering reliable data on DOD energy use leads to a revision of these metrics, when and how does DOD anticipate reporting these revised metrics to Congress? In developing metrics for evaluating DOD energy initiatives, how much weight does DOD give to the various financial, operational, and strategic challenges and risks discussed earlier (see " Challenges and Risks Associated with DOD's Use of Fuels ")? To what extent are factors such as potential climate effects (e.g., greenhouse gas emissions) or environmental degradation (e.g., pollution) used by DOD as metrics for evaluating DOD energy initiatives? As mentioned earlier, DOD in its FY2013 budget submission projects that fuel costs will decline 13% from FY2013 to FY2014 and then remain at that lower price through FY2017, primarily because DOD is projecting lower costs for refined products. Fuel appears to be the only category for which DOD projects costs to decrease over the next four years. While some analysts expect crude oil prices to decline, at least some of those analysts have said that DOD's projected declines may be overly optimistic. Underestimating future fuel costs can complicate DOD budget planning and execution, and can lead to inaccurate evaluations of the potential cost-effectiveness of DOD energy initiatives. The Office of Management and Budget (OMB) provides the cost of crude oil to be used by federal government departments in preparing their departmental budgets. DOD takes the OMB-provided cost of crude oil and then adds a percentage markup to account for the difference between crude oil costs and the costs of refined petroleum products. DOD calculates this refining markup using actual figures from past years. DOD states that the actual markup in FY2011 varied between 45% and 60%, and that the assumed markup in FY2012 is about 55%. In estimating future fuel costs, DOD is assuming a 50% markup for FY2013 and 30% for FY2014-FY2017, "consistent with standard practice between FY2007-FY2011." A potential oversight question for Congress is whether these markup rates are too high, too low, or about right. Another oversight issue for Congress concerns what role DOD should play in federal government energy initiatives. DOD is requesting substantial funding for an array of energy initiatives. In some cases, DOD is partnering with other federal government agencies in energy initiatives. In July 2010, for example, DOD and the Department of Energy (DOE) signed a Memorandum of Understanding (MOU) to coordinate efforts to enhance national energy security and "demonstrate federal government leadership in transitioning America to a low carbon economy." The MOU covers the development and testing of a wide range of energy efficiency and renewable energy technologies to meet DOD energy needs or address national security, and "speed innovative energy and conservation technologies from laboratories to military end users." As a second example, the Navy in August 2011 announced an MOU with Department of Agriculture (USDA) and DOE agreeing to invest in developing a domestic advanced biofuels industry, with each agency contributing $170 million. Potential oversight questions for Congress regarding DOD's role in federal energy initiatives include the following: Are DOD's energy initiatives adequately coordinated with those of other federal agencies? How much overlap or duplication, if any, is there between DOD's energy initiatives and those being pursued by other federal agencies? What process does the executive branch use to coordinate energy initiatives across all federal agencies? What criteria are used in this process to determine whether an initiative should be pursued by DOD or some other federal agency? What changes, if any, in DOD energy initiatives have been made as a result of the executive branch's process for coordinating federal energy initiatives? Under the July 2010 MOU between DOD and DOE, what role does DOD anticipate having in "demonstrating federal government leadership in transitioning America to a low carbon economy?" Given the wide range of technologies included in the MOU, what technologies does DOD see as priority areas? How will these "innovative energy and conservation technologies" move from development to military end users, and what is DOD's role in this process? Is the division in costs between the Navy, USDA, and DOE in the August 2011 MOU for developing a domestic advanced biofuels agency appropriate? How was this division determined? Within the broader issue of DOD's role in federal energy initiatives, a more specific oversight issue for Congress concerns the Navy's role in attempting to jumpstart a domestic advanced biofuels industry. This issue has been the topic of substantial discussion and debate during Congress's review of DOD's proposed FY2013 budget. The Navy and other supporters of the initiative argue or might argue the following, among other things: Developing a domestic advanced biofuels industry will improve the Navy's (and the nation's) energy security by diversifying the Navy's (and the nation's) sources of energy. Developing a domestic advanced biofuels industry will reduce the Navy's (and the nation's) exposure to financial shocks caused by short-term volatility in petroleum fuel costs. The $200 million or so that the Navy plans to spend on advanced biofuels—including $170 million in costs to develop the fuels and about $20 million between FY2009-FY2012 for early purchases of advanced biofuels—is a small fraction of the Navy's annual cost for petroleum based fuel (which was about $4.5 billion in FY2011), and an even smaller fraction of the Department of the Navy's total budget (which was about $173.0 billion in FY2012, including about $15.7 billion for overseas contingency operations). In addition, the Navy's planned $170-million investment in developing a domestic advanced biofuels industry will leverage equal investments being made by USDA and DOE. Early purchases by the Navy of advanced biofuels will help create production economies of scale in the domestic advanced biofuels industry, causing the cost of advanced biofuels to come down over time. The Navy over the longer run anticipates that the cost of advanced biofuels will come down to a price competitive with that of petroleum-based fuels. Skeptics of the initiative argue or might argue the following, among other things: Given that about 90% of the fuel used by a Navy carrier strike group during a typical overseas deployment lasting several months is obtained overseas, from sources close to where the strike group is operating, it is not clear whether developing a domestic advanced biofuels industry would do much in practical terms to diversify the Navy's fuel sources. There are alternatives that the Navy could pursue to reduce its dependence on petroleum-based fuels, such as nuclear-propulsion for surface combatants other than aircraft carriers or kite-assisted propulsion for Navy auxiliary ships. It is not clear whether developing advanced biofuels would provide the Navy (and the nation) with much protection against volatility in petroleum-based fuel prices. Since advanced biofuels are intended to be drop-in substitutes for petroleum-based fuels, providers of cost-competitive advanced biofuels might simply adjust their prices up and down to match changes in prices for petroleum-based fuels. An alternative way to insulate the Navy (and DOD) from short-term volatility in petroleum-based fuel costs would be to purchase fuel through multiyear contracts that lock in prices over the term of the contract—an approach that has long been used by commercial airlines and other firms to insulate themselves from volatility in energy prices. The Navy's decision to expend funding in an attempt to jumpstart a domestic advanced biofuels industry, and to pay a cost premium for early biofuel purchases, is not consistent with the decision by the Air Force—a service that uses even more petroleum-based fuel than the Department of the Navy—to not do these things. Given the current high cost of advanced biofuels, and technical challenges involved in developing cost-competitive advanced biofuels, it is not clear whether the Navy's initiative, even with the added efforts of USDA and DOE, will succeed in establishing a commercially viable domestic advanced biofuels industry or in reducing the costs of advanced biofuels to levels competitive with those of petroleum-based fuels. Particularly in light of current and future constraints on the Navy's budget, funding that the Navy is proposing to spend on advanced biofuels could be better spent on other Navy program priorities, such as platform acquisition. The $200 million or so that the Navy has spent and plans to spend on this initiative is roughly equivalent, for example, to the cost of a Joint High Speed Vessel (JHSV). Potential oversight questions for Congress include the following: Why is the DOD effort to jumpstart a domestic advanced biofuels industry being led by the Navy rather than the Air Force? If the Navy were not attempting to jumpstart a domestic advanced biofuels industry, would the Air Force decide to do it? To what degree does DOD currently use multiyear fuel-purchasing contracts as a means of insulating itself against short-term volatility in petroleum-based fuel costs? What impediments (legal or otherwise) are there to having DOD increase its use of such contracts, and could these impediments be mitigated through legislation? What is the Navy's specific projection for how quickly prices for advanced biofuels will drop to levels competitive with those for petroleum-based fuels? On what studies is the Navy relying for this projection, or for its confidence more generally that biofuels will at some point become cost-competitive with petroleum-based fuels? Do the Air Force, ASD(OEPP), and private industry agree with the Navy's interpretation of these studies? What studies did the Navy or DOD conduct to evaluate the cost-effectiveness of developing a domestic advanced biofuels industry against the cost-effectiveness of other options for diversifying the Navy's fuel sources or for insulating the Navy against volatility in prices of petroleum-based fuels? Another potential oversight issue for Congress concerns the potential implications for DOD energy initiatives of shifts in U.S. military strategy, such as the new strategic guidance issued by the Obama Administration in 2012, which, among other things, features an increased emphasis on operations in the Asia-Pacific region. Shifts in strategy can have implications for how and where the U.S. military will use fuel, as well as for risks that DOD could face as a result of its reliance on liquid fuel. DOD officials, for example, project that, as a result of the new strategic guidance, Army operational energy use will decline, while its installation energy use will remain high. Potential oversight questions for Congress include the following: Are DOD energy initiatives aligned with DOD's projected operational patterns under the January 2012 strategic guidance? What changes in DOD's energy initiatives have been made as a result of this new strategic guidance? Section 253 of the FY2013 National Defense Authorization Act ( H.R. 4310 of the 112 th Congress) as reported by the House Armed Services Committee ( H.Rept. 112-479 of May 11, 2012) states: SEC. 253. BRIEFING ON POWER AND ENERGY RESEARCH CONDUCTED AT UNIVERSITY AFFILIATED RESEARCH CENTER. Not later than February 28, 2013, the Secretary of Defense shall brief the Committees on Armed Services of the Senate and House of Representatives on power and energy research conducted at the University Affiliated Research Centers. The briefing shall include— (1) a description of research conducted with other university based energy centers; and (2) a description of collaboration efforts with university-based research centers on energy research and development activities, particularly with centers that have an expertise in energy efficiency and renewable energy, including— (A) lighting; (B) heating; (C) ventilation and air-conditioning systems; and (D) renewable energy integration. Section 313 states: SEC. 313. EXEMPTION OF DEPARTMENT OF DEFENSE FROM ALTERNATIVE FUEL PROCUREMENT REQUIREMENT. Section 526 of the Energy Independence and Security Act of 2007 ( P.L. 110-140 ; 42 U.S.C. 17142) is amended by adding at the end the following: `This section shall not apply to the Department of Defense.' Section 314 states: SEC. 314. LIMITATION ON AVAILABILITY OF FUNDS FOR PROCUREMENT OF ALTERNATIVE FUEL. (a) Limitation- Except as provided in subsection (b), none of the funds authorized to be appropriated by this Act or otherwise made available during fiscal year 2013 for the Department of Defense may be obligated or expended for the production or purchase of any alternative fuel if the cost of producing or purchasing the alternative fuel exceeds the cost of producing or purchasing a traditional fossil fuel that would be used for the same purpose as the alternative fuel. (b) Exception- Notwithstanding subsection (a), the Secretary of Defense may purchase such limited quantities of alternative fuels as are necessary to complete fleet certification for 50/50 blends. In such instances, the Secretary shall purchase such alternative fuel using competitive procedures and ensure the best purchase price for the fuel. Section 2402 of the bill authorizes energy conservation projects at various locations inside and outside the United States. Section 2821 of the bill states: SEC. 2821. CONGRESSIONAL NOTIFICATION FOR CONTRACTS FOR THE PROVISION AND OPERATION OF ENERGY PRODUCTION FACILITIES AUTHORIZED TO BE LOCATED ON REAL PROPERTY UNDER THE JURISDICTION OF A MILITARY DEPARTMENT. Section 2662(a)(1) of title 10, Untied States Code, is amended by adding at the end the following new subparagraph: `(H) Any transaction or contract action for the provision and operation of energy production facilities on real property under the jurisdiction of the Secretary of a military department, as authorized by section 2922a(a)(2) of this title, if the term of the transaction or contract exceeds 20 years.'. H.Rept. 112-479 states that Section 2821 "would require the Department of Defense to notify Congress when entering into contracts for the provision and operation of energy production facilities on real property owned by the United States if the contract is longer than 20 years." (Page 317) Section 2822 states: SEC. 2822. CONTINUATION OF LIMITATION ON USE OF FUNDS FOR LEADERSHIP IN ENERGY AND ENVIRONMENTAL DESIGN (LEED) GOLD OR PLATINUM CERTIFICATION AND EXPANSION TO INCLUDE IMPLEMENTATION OF ASHRAE BUILDING STANDARD 189.1. Section 2830(b) of the Military Construction Authorization Act for Fiscal Year 2012 (division B of P.L. 112-81 ; 125 Stat. 1695) is amended— (1) in the subsection heading, by inserting after `and ASHRAE Implementation' after `Certification'; and (2) in paragraph (1)— (A) by striking `authorized to be'; (B) by striking `by this Act'; (C) by inserting `or 2013' after `fiscal year 2012'; and (D) by inserting before the period at the end the following: `and implementing ASHRAE building standard 189.1'. Regarding Section 2822, H.Rept. 112-479 states: This section would continue the prohibition on the use of funds for Leadership in Energy and Environmental Design gold or platinum certifications for fiscal year 2013 set forth in the National Defense Authorization Act for Fiscal Year 2012 ( P.L. 112-81 ). This section would also limit the use of funds for implementation of ASHRAE building standard 189.1. The committee remains concerned that the Department of Defense is investing significant funding for more aggressive certifications without demonstrating the appropriate return on investment. The committee looks forward to receiving the Department's report required in section 2830 of P.L. 112-81 by June 30, 2012. (Page 317) Section 2823 of the bill states: SEC. 2823. AVAILABILITY AND USE OF DEPARTMENT OF DEFENSE ENERGY COST SAVINGS TO PROMOTE ENERGY SECURITY. Section 2912(b)(1) of title 10, United States Code, is amended by inserting after `additional energy conservation' the following: `and energy security'. H.Rept. 112-479 states that Section 2823 "would amend section 2912(b)(1) of title 10, United States Code, to allow the Department of Defense to also use the energy cost savings resulting from shared energy savings contracts for energy security." (Pages 317-318) Section 3104 authorizes funds for FY2013 energy security and assurance programs necessary for national security. H.Rept. 112-479 also states: ENERGY ISSUES Energy and Fuel Budget Justification The committee commends the Department of Defense for its emphasis on energy reductions, investments in renewable projects that result in long-term savings, and more efficient processes that reduce demand for fuel consumption. The committee is, however, concerned by the lack of visibility into the annual investments in energy and expenditures on fuel. The committee notes that the Department of Defense spent $19.4 billion in fiscal year 2011 on energy, an increase from the total expenditure of $15.2 billion in fiscal year 2010. The committee is concerned about fluctuating fuel prices, and the resulting shortfalls and impacts on the operation and maintenance accounts. Therefore the committee directs the Secretary of Defense to submit to the congressional defense committees in conjunction with the annual President's Budget request, a separate budget justification material on energy and fuel budget justification. The material should include details of energy costs by account, energy investments by account, and details of fuel expenditures. The committee recognizes that there are a variety of funding accounts and mechanisms being leveraged for energy investments that result in reductions in long-term sustainment costs. Therefore, the energy and fuel justification should include the details regarding the total energy expenditures by account and investments being made for energy by account and type of funds across the Future Years Defense Program to ensure that the committee can exercise the necessary oversight for the investment in funds. Regarding fuel expenditures, the committee seeks information regarding budgeted fuel prices, adjustments to the account, resulting shortfalls or excesses, and details regarding the accounts that funded any such shortfalls and the impact to those accounts. The committee notes that in the fiscal year 2013 budget request, the projected price for fuel is $157 per barrel, whereas the average price in fiscal year 2012 is $162 per barrel. The committee also notes that the price for fuel projected across the FYDP is $137 per barrel. Recognizing the volatility in the fuel market, the committee further directs the Secretary of Defense to more accurately project fuel prices and to seek opportunities to enter into longer-term bulk fuel contracts or identify other options that would stabilize the fuel accounts for the military services. Marine Energy Technologies The committee is aware of the Navy's efforts to develop and test wave marine and hydrokinetic energy technologies as one of many technology solutions helping the Navy meet its shore energy goals and mandates, as well as to potentially power maritime security systems, and support at-sea surveillance and communications systems. The committee directs the Secretary of Defense to provide a briefing to the congressional defense committees by October 31, 2012, on the current and future investments in test wave marine and hydrokinetic energy technologies, the payback associated with this investment, the future of the program, and a map of possible locations in proximity to military installations for employing this technology. Navy Hybrid Electric Technology The committee is aware of the Navy's efforts to incorporate hybrid electric engines into its fleet to reduce fuel consumption, and to help meet its energy goals. The committee directs the Secretary of the Navy to provide a briefing to the Senate Committee on Armed Services and the House Committee on Armed Services by October 31, 2012, on the current and long-term employment of hybrid electric engine technology. The briefing should include details on the potential long-term savings that may be achieved, the projected cost for incorporating such technology in the initial design of engines, the cost to retrofit a platform with the technology, and future plans to incorporate this technology into additional classes of ships in the fleet. Procurement Procedures to Incorporate the Use of Fuel Cells The Defense Logistics Agency sponsored report, "Beyond Demonstration: The Role of Fuel Cells in DOD's Energy Strategy," published on October 19, 2011, offers recommendations with respect to the Department of Defense's use of fuel cell technology for distributed generation, backup power, unmanned vehicles, and non-tactical material handling equipment. The committee is very interested in the Department's use of fuel cells in defense energy applications. The committee directs the Department to Defense to brief the congressional defense committees no later than June 1, 2013, on the implementation of the report's recommendations. This brief should address how the Department is addressing the following report recommendations: (1) Develop and implement procurement models, which enable more efficient acquisition of fuel cell systems, including through third-party financing mechanisms, such as power purchase agreements; (2) Require consideration of natural gas as well as renewable-fueled fuel cells for meeting electric power, heating, cooling and back-up power requirements for new and major renovations of DOD facilities and include evaluation of fuel cell options in all A/E design contracts; (3) Require that solicitations for energy services/electric power include consideration of natural gas and renewable fueled stationary fuel cells and fuel cells for back-up power; (4) Require that designers of unmanned vehicles evaluate fuel cells as an option for providing power; and (5) Encourage the incorporation of fuel cell power in material handling applications. (Pages 121-123) The report also states: Army Energy Initiatives Task Force The committee recognizes the work the Army Energy Initiative Task Force has undertaken to improve and expand opportunities with the private sector to execute large scale renewable energy projects on Army bases. The committee encourages the Energy Initiative Task Force to also consider alternative energy efficiency and other sustainability proposals that could also assist the Army in meeting its energy goals. Briefing on Alternative Power Applications on Military Installations The committee recognizes that there may be merit to the development of small modular reactors (SMR), that produce under 300 Megawatts, to support the electricity consumption on military installations. The Center for Naval Analysis (CNA) report, entitled Feasibility of Nuclear Power on US Military Installations, indicated that an SMR could be a viable option for a military installation provided the Department does not assume First Of a Kind (FOAK) expenses. If the Department was required or assumed FOAK expenses SMR was not determined to be a viable option for military installations. The committee is interested, however, in the Department's assessment of the CNA report, and whether the Department has assessed the practicality of partnering with interested parties that would undertake the FOAK expenses in order to assess the viability of SMR on a military installation. The committee, therefore, directs the Secretary of Defense to brief the House Committee on Armed Services by December 31, 2012, on any actions the Department has undertaken to date on this issue. If action has been taken to move forward on the deployment of SMR, the briefing should include the current and potential budget for such an undertaking, including any personnel costs associated with such projects, a timeline for the proposed projects, a plan for storing the resulting nuclear waste, if necessary, the additional security requirement that may be required, and any other factors that are pertinent to the successful execution of establishing a SMR on a military installation. Briefing on Direct Solar and other Energy Efficient Technologies Applications on Military Installations The committee recognizes direct solar as one technology available to reduce Department of Defense energy consumption and enhance energy security on military installations. The committee also recognizes that direct solar devices such as daylighting systems and direct solar pipe technology can have broader application across military installations and may reduce demand load while providing light for facilities. In the committee report ( H.Rept. 112-78 ) accompanying the National Defense Authorization Act for Fiscal Year 2012, direct solar was listed as one of several possible technologies for the Department of Defense to consider jointly with Department of Energy when generating its list of energy efficient technologies. The committee, therefore, directs the Secretary of Energy in consultation with the Secretary of Defense to brief the congressional defense committees no later than December 31, 2012 about existing projects where direct solar devices as well as other energy efficiency technologies listed in the Energy Performance Master Plan have been employed across military installations. The briefing shall include a description of the most promising technologies, the savings achieved, and details regarding the impact of such technologies on the Department of Defense efforts to meet its energy goals and mandates. Building Conversions The committee is aware that the Department of Defense is contemplating facility standards to support sustainable design features and has generally adopted Leadership in Energy and Environment Design (LEED) standards to meet these requirements. The committee supports sustainable design and building reuse standards that value existing and historic facilities as integral elements of the overall installation. The committee believes that the adoption of sustainable design and building reuse standards concurrently reduces the one time construction and renovation costs. For example, the Department of the Army has indicated their intent to reuse an existing building at Aberdeen Proving Ground, Maryland, and upgrade the facility for the purpose of conducting high performance computing. The committees urges the Secretary of Defense to adopt a comprehensive set of sustainable design and reuse standards that values building reuse and provides facility savings. Decentralized Steam Generation In fiscal year 2013, the committee recommends authorization of over $180.0 million in military construction projects to support rapid energy savings in decentralizing steam utilities at three locations. In addition to the quick payback period, these investments are expected to reduce steam lost in the transmission lines and provide a more reliable utility. While the Department of Defense has proposed additional energy projects in the budget request for fiscal year 2013, the Department has elected to not prioritize any further decentralized steam systems. The committee supports investments in projects that provide a rapid return on investment and believes the payback period associated with these facilities makes them ideal candidates for future military construction projects. Therefore, the committee directs the Secretary of Defense to brief the congressional defense committees by March 1, 2013, on the current inventory of centralized steam systems. The briefing should include an assessment of the costs to decentralize these steam systems, the payback associated with decentralizing these assets, the current locations of decentralized steam systems, the potential location of additional decentralized steam systems, and funding options available to support these decentralized efforts. Department of Defense Energy Demonstration and Validation The committee recognizes the services' efforts to reduce energy consumption, increase use of renewable energy, conserve water and utilize sustainability building practices for new construction, and implement energy efficiency initiatives. In this resource constrained environment, the committee commends the services' for their efforts to ensure that energy demonstration and validation programs continue to demonstrate an acceptable return on investment. The committee urges the services to continue their efforts to transition demonstration and validation energy programs into operational and installation initiatives and ensure there continues to be a sufficient payback. Departments of Defense and Energy Collaboration and Technology Transition The committee notes that in July 2010, the Department of Defense and the Department of Energy signed a memorandum of understanding (MOU) to encourage innovative energy and conservation technologies, from research and development to end user applications within the Department of Defense. The committee commends both agencies for working together to maximize both of their technical expertise in emerging energy technology. The committee is aware that the Department of Energy has made significant investment in the development of alternative energy sources, and the committee urges the Department of Defense to leverage those investments in its alternative energy initiatives. The committee is also aware that the Department of Defense's Environmental Security and Technology Certification program funds an installation energy test bed to demonstrate energy efficiencies and renewable energy technologies to validate performance, cost, and environmental impacts, and to determine which technologies would be applicable for broader application across the Department of Defense's inventory of installations. The committee directs the Secretary of Defense to provide a briefing to the congressional defense committees by October 31, 2012, on the current status of activities under the MOU, details regarding the installation energy technology selection process, the list of companies and technologies that received awards in fiscal years 2011–12, a description of how the technologies were transitioned, and the installations where they were employed. Department of Defense Energy Technologies The committee is aware of efforts by the Department of Defense to reduce energy consumption and improve energy efficiency. The committee is aware of a variety of technologies, to include waste-to-energy systems and other new technologies, which can help the Department meet its energy goals and mandates. The committee encourages the Department to leverage these technologies where appropriate and continue its efforts to improve operational and installation energy programs.... Inclusion of Cost-Benefit Analysis for Energy Security The committee recognizes the importance of energy security on military installations to ensure access to reliable supplies of energy sufficient to meet mission essential requirements. The National Defense Authorization Act for Fiscal Year 2012 ( P.L. 112-81 ) required the Secretary of Defense to establish a policy for military installations to include favorable consideration for energy security in the design and development of energy projects on military installations using renewable energy sources, and to provide guidance to commanders in order to minimize the effects of a disruption of services by a utility. The committee believes that energy security projects are vital to the operational requirements that support national security. Therefore, the committee directs the Secretary of Defense to ensure that any installation energy project that excludes energy security in its design due to excessive costs provide details of the factors used to value energy security within the required cost-benefit analysis. Increased Utilization of Third Party Financing for Energy Efficiency Projects The committee recognizes that the Department of Defense has very aggressive goals and mandates to reduce energy consumption on military installations and to enhance energy security. A critical component of this effort includes large-scale energy efficiency and conservation efforts at military installations, particularly through partnerships with the private sector. The committee urges the Department and the service secretaries to partner with third parties through energy savings performance contracts, enhanced use leases, and other third party authorities to achieve their goals, maximize savings, and achieve a demonstrated return on these investments. The committee also encourages the Department of Defense to consider the best complement of technologies that provide energy security to include consideration for those that provide continuous power at a cost-competitive price. (Pages 309-313) The report also states: Turbo Fuel Cell Advanced Technology Development The budget request contained $69.0 million in PE 62601A for combat vehicle and automotive technology. Of this amount, $24.4 million was requested for ground vehicle technology. The committee believes the integration of mature, advanced fuel cell technologies into an engine that could effectively meet military logistic requirements should be adequately resourced. The committee is encouraged by the work being done at the Army's Research, Development and Engineering Command-Tank Automotive Research, Development and Engineering Center (RDECOM–TARDEC), where engineers are developing a turbo fuel cell engine for the Heavy Expanded Mobility Tactical Truck, which is the primary logistics vehicle being used in support of Operation New Dawn and Operation Enduring Freedom. The committee notes that funding at RDECOM–TARDEC has been used to manufacture tubular air electrodes for stable, high-performance solid oxide fuel cells. The committee encourages RDECOM–TARDEC to continue its work in the development of the turbo fuel cell engine and supports its efforts to increase energy efficiency utilizing renewable and alternative sources of energy. The committee recommends $69.0 million, the full amount requested, in PE 62601A for combat vehicle and automotive technology. (Pages 63-64) On May 17, 2012, as part of its consideration of H.R. 4310 of the 112 th Congress, the House passed H.Amdt. 1111 , an en bloc amendment that contained several amendments printed in the report ( H.Rept. 112-485 of May 17 [legislative day May 16], 2012) on H.Res. 661 , providing for the consideration of H.R. 4310 , including amendment number 98, which became Section 834 of H.R. 4310 . The text of Section 834 is as follows: SEC. 834. ENERGY SAVINGS PERFORMANCE CONTRACT REPORT. Not later than June 30, 2013, the Secretary of the Army, the Secretary of the Navy, and the Secretary of the Air Force shall each submit to the congressional defense committees a report on the use of energy savings performance contracts by the Department of the Army, the Department of the Navy, and the Department of the Air Force, respectively, including each of the following: (1) The amount of appropriated funds that have been obligated or expended and that are expected to be obligated or expended for energy savings performance contracts. (2) The amount of such funds that have been used for comprehensive retrofits. (3) The amount of such funds that have been used to leverage private sector capital, including the amount of such capital. On May 18, 2012, as part of its consideration of H.R. 4310 , the House passed H.Amdt. 1133 , which was amendment Number 52 in the report ( H.Rept. 112-485 of May 17 [legislative day May 16], 2012) on H.Res. 661 , providing for the consideration of H.R. 4310 . H.Amdt. 1133 became Section 2824 of H.R. 4310 . The text of Section 2824 is as follows: SEC. 2824. DEFINITION OF RENEWABLE ENERGY SOURCE FOR DEPARTMENT OF DEFENSE ENERGY SECURITY. Section 2924(7)(A) of title 10, United States Code, is amended by inserting before the period at the end the following: `and direct solar renewable energy'. The purpose of the amendment is to clarify that direct use solar energy technology is considered a renewable energy source for the purposes of the requirement that DOD obtain 25% of its facility energy from renewable sources by 2025. On May 18, 2012, as part of its consideration of H.R. 4310 , the House passed H.Amdt. 1137 , an en bloc amendment that contained several amendments printed in the report ( H.Rept. 112-485 of May 17 [legislative day May 16], 2012) on H.Res. 661 , providing for the consideration of H.R. 4310 , including amendment number 68, which became Section 349 of H.R. 4310 . The text of Section 349 is as follows: SEC. 349. REPORT ON STATUS OF TARGETS IN OPERATIONAL ENERGY STRATEGY IMPLEMENTATION PLAN. (a) In General- The Secretary of Defense shall submit annually to the relevant congressional committees a report on the status of the targets listed in the document entitled `Operational Energy Strategy: Implementation Plan, Department of Defense, March 2012', including— (1) the status of each of the targets listed in the implementation plan; (2) the steps being taken to meet the targets; (3) the expected date of completion for each target if such date is different from the date indicated in the report; and (4) the reason for any delays in meeting the targets. (b) Relevant Congressional Committees Defined- In this section, the term `relevant congressional committees' means— (1) the Committee on Armed Services of the Senate and the House of Representatives; (2) the Committee on Oversight and Government Reform of the House of Representatives; (3) the Committee on Homeland Security and Governmental Affairs of the Senate; (4) the Committee on Foreign Affairs of the House of Representatives; and (5) the Committee on Foreign Relations of the Senate. Section 313 of the FY2013 National Defense Authorization Act ( S. 3254 of the 112 th Congress) as reported by the Senate Armed Services Committee ( S.Rept. 112-173 of June 4, 2012) states: SEC. 313. LIMITATION ON AVAILABILITY OF FUNDS FOR PROCUREMENT OF ALTERNATIVE FUEL. (a) Limitation- Except as provided in subsection (b), none of the funds authorized to be appropriated by this Act or otherwise made available during fiscal year 2013 for the Department of Defense may be obligated or expended for the production or sole purchase of an alternative fuel if the cost of producing or purchasing the alternative fuel exceeds the cost of producing or purchasing a traditional fossil fuel that would be used for the same purpose as the alternative fuel. (b) Exception- Notwithstanding subsection (a), the Secretary of Defense may purchase such limited quantities of alternative fuels as are necessary to complete engine or fleet certification for 50/50 blends. In such instances, the Secretary shall purchase such alternative fuel using amounts authorized for research, development, test, and evaluation using competitive procedures and shall ensure the best purchase price for the fuel. Regarding Section 313, S.Rept. 112-173 states: Limitation on availability of funds for procurement of alternative fuel (sec. 313) The committee recommends a provision that would prohibit the use of funds authorized to be appropriated to the Department of Defense in fiscal year 2013 from being obligated or expended for the production or sole purchase of an alternative fuel if the cost exceeds the cost of traditional fossil fuels used for the same purpose, except for continued testing purposes. The committee notes that in December 2011, the Defense Logistics Agency, on behalf of the Department of the Navy, purchased 450,000 gallons of biofuels for $12.0 million, which equates to $26.66 a gallon. According to the Department of the Navy it was the single largest purchase of biofuel in government history and was carried out in order to "demonstrate the capability of a Carrier Strike Group and its air wing to burn alternative fuels." The Department of the Navy noted that, despite the use of operation and maintenance funds for the purchase, the demonstration is deemed a research, development, test, and evaluation (RDTE) initiative as justification for the higher cost per gallon. The committee also notes that the Vice Chief of Naval Operations testified before the Subcommittee on Readiness and Management Support on May 10, 2012, regarding pressure on readiness accounts from increased fuel prices that "every $1 increase in the price per barrel of fuel results in approximately $31M of additional cost annually above our budgeted level." Therefore, the high cost of fuel has direct and detrimental impact on other readiness accounts. The committee strongly supports initiatives undertaken by the Department of Defense to reduce the fuel demand of the operational forces through affordable new technologies that increase fuel efficiency and offer alternative sources of power. But given the pressure placed on current and future defense budgets, the committee is concerned about the use of operation and maintenance funds to pay significantly higher costs for biofuels being used for RDTE efforts. Therefore, the committee directs the Secretary of Defense to develop and promulgate guidance to the military services and defense agencies on the difference between the operational use of alternative fuels versus continued RDTE initiatives. (Pages 80-81) Section 2821 states: SEC. 2821. GUIDANCE ON FINANCING FOR RENEWABLE ENERGY PROJECTS. (a) Guidance on Use of Available Financing Approaches- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense, in consultation with the Under Secretary of Defense for Acquisition, Technology, and Logistics and the Deputy Under Secretary of Defense for Installations and Environment, shall issue guidance about the use of available financing approaches for financing renewable energy projects and direct the Secretaries of the military departments to update their guidance accordingly. The guidance should describe the requirements and restrictions applicable to the underlying authorities and any Department of Defense-specific guidelines for using appropriated funds and alternative-financing approaches for renewable energy projects. (b) Guidance on Use of Business Case Analyses- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense, in consultation with the Under Secretary of Defense for Acquisition, Technology, and Logistics, the Deputy Under Secretary of Defense for Installations and Environment, and the Secretaries of the military departments, shall issue guidance that establishes and clearly describes the processes used by the military departments to select financing approaches for renewable energy projects to ensure that business case analyses are completed to maximize benefits and mitigate drawbacks and risks associated with different financing approaches. (c) Information Sharing- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense, in consultation with the Under Secretary of Defense for Acquisition, Technology, and Logistics and the Deputy Under Secretary of Defense for Installations and Environment, shall develop a formalized communications process, such as a shared Internet website, that will enable officials at military installations to have timely access on an ongoing basis to information related to financing renewable energy projects on other installations, including best practices and lessons that officials at other installations have learned from their experiences in financing renewable energy projects. Section 2822 states: SEC. 2822. CONTINUATION OF LIMITATION ON USE OF FUNDS FOR LEADERSHIP IN ENERGY AND ENVIRONMENTAL DESIGN (LEED) GOLD OR PLATINUM CERTIFICATION. Section 2830(b)(1) of the Military Construction Authorization Act for Fiscal Year 2012 (division B of P.L. 112-81 ; 125 Stat. 1695) is amended— (1) by striking `authorized to be appropriated by this Act' and inserting `authorized to be appropriated'; and (2) by inserting before the period at the end the following: `until the date that is six months after the date of the submittal to the congressional defense committees of the report required by subsection (a)'. Section 2823 states: SEC. 2823. PROHIBITION ON BIOFUEL REFINERY CONSTRUCTION. Notwithstanding any other provision of law, neither the Secretary of Defense nor any other official of the Department of Defense may enter into a contract to plan, design, refurbish, or construct a biofuels refinery or any other facility or infrastructure used to refine biofuels unless such planning, design, refurbishment, or construction is specifically authorized by law. S.Rept. 112-173 states: Energy efficiency research and development coordination and transition The committee is encouraged by the Defense Department's efforts to coordinate with the Department of Energy in pursuing and evaluating energy efficient technologies. The wide variety of investments made by the Defense Department towards reducing energy usage has already illustrated savings; however, the numerous organizations pursuing these initiatives within the Defense Department and other federal agencies also presents increasing potential for duplicative research and development as well as successful technologies not identified and effectively transitioned. The continued cooperation and combination of technical expertise as coordinated in the July 2010, memorandum of understanding (MOU) between the Departments of Defense and Energy is important in maximizing the return on these investments. The committee encourages the Defense Department to continue both internal efforts and coordination with other agencies to manage ongoing and planned energy efficiency research and development as well as continuing to establish processes for effectively transitioning technologies for broader application across the Department of Defense. (Pages 70-71) The report also states: Consideration of fuel cell systems The committee is encouraged by many of the findings and recommendations included in the Defense Logistics Agency (DLA) sponsored report, "Beyond Demonstration: The Role of Fuel Cells in DoD's Energy Strategy," published on October 19, 2011. Among other things, this report recommended that Department of Defense (DOD) headquarters organizations and the military services: (1) develop and implement procurement models that enable more efficient acquisition of fuel cell systems; (2) consider fuel cell systems for meeting electric power, heating, and cooling demands whenever new facilities and major renovations are planned and designed; (3) consider fuel cell systems when planning and designing backup power capability for DOD sites; and (4) consider fuel cell power for material handling equipment. The committee directs the DOD to report back to the congressional defense committees no later than June 1, 2013, on the steps being taken to implement the recommendations of the DLA report, or if the DOD does not intend to implement any of the recommendations, to explain the reasons behind those decisions. (Page 89) The report also states: Energy performance savings contracts The committee understands that the Department of Defense (DOD) spends billions of dollars on energy costs each year and that financing large-scale energy projects can be cost-prohibitive for the DOD. Energy Performance Savings Contracts (ESPC) enable the DOD to finance energy efficiency upgrades on military installations by funding various Energy Conservation Measures, through private investments, and receive a guarantee that the energy savings will pay for the project. The committee directs the Secretary of Defense to review the potential applicability of ESPC authority to construct power generating plants, and to acquire mobile sources, including electric and natural gas-powered vehicles and their associated charging stations on military installations, and to make recommendations to the congressional defense committees if changes in law or regulation are needed for the Department to pursue efficient and effective initiatives using ESPC authorities. (Page 92) The report also states: Solar power units The budget request included $98.2 million in Other Procurement, Army (OPA), Overseas Contingency Operations (OCO), for rapid equipping soldier support equipment (RESSE). The committee notes that the Army's Rapid Equipping Force has initiated the procurement of solar power units that significantly increase the operational energy effectiveness and sustainability of remotely located units in Afghanistan. These solar power units will be deployed to support Village Stability Operations, and will substantially reduce the requirement for fuel delivery by ground convoy or by air. These units provide sustainable power for U.S. forces and the Afghan people. The committee recommends an increase of $30.0 million in OPA OCO for RESSE solar power units. (Page 235) On November 28, 2012, as part of its consideration of S. 3254 of the 112 th Congress, the Senate agreed, 62-37, to S.Amdt. 2985 , striking Section 313 of S. 3254 as reported by the Senate Armed Services Committee, which limited the availability of funds for the procurement of alternative fuel (see previous section for the text of Section 313). On November 29, 2012, as part of its consideration of S. 3254 , the Senate agreed, 54-41, to S.Amdt. 3095 , striking Section 2823 of S. 3254 as reported by the Senate Armed Services Committee, which prohibited the construction of a biofuel refinery (see previous section for the text of Section 2823). Section 314 of the conference report ( H.Rept. 112-705 , filed December 18, 2012) on the FY2013 National Defense Authorization Act ( H.R. 4310 / P.L. 112-239 of January 2, 2013) states: SEC. 314. REPORT ON STATUS OF TARGETS IN IMPLEMENTATION PLAN FOR OPERATIONAL ENERGY STRATEGY. (a) REPORT REQUIRED.—If the annual report for fiscal year 2011 required by section 2925(b) of title 10, United States Code, is not submitted to the congressional defense committees by December 31, 2012, the Secretary of Defense shall submit, not later than June 30, 2013, to the congressional defense committees a report on the status of the targets established in the implementation plan for the operational energy strategy established pursuant to section 139b of such title, as contained in the document entitled ''Operational Energy Strategy: Implementation Plan, Department of Defense, March 2012''. (b) ELEMENTS OF REPORT.—The report required by subsection (a) shall describe, at a minimum, the following: (1) The status of each of the targets listed in the implementation plan. (2) The steps being taken to meet the targets. (3) The expected date of completion for each target, if the date is different from the date indicated in the implementation plan. (4) The reason for any delays in meeting the targets. Section 315 states: SEC. 315. LIMITATION ON OBLIGATION OF DEPARTMENT OF DEFENSE FUNDS FROM DEFENSE PRODUCTION ACT OF 1950 FOR BIOFUEL REFINERY CONSTRUCTION. Amounts made available to the Department of Defense pursuant to the Defense Production Act of 1950 (50 U.S.C. App. 2061 et seq.) for fiscal year 2013 for biofuels production may not be obligated or expended for the construction of a biofuel refinery until the Department of Defense receives matching contributions from the Department of Energy and equivalent contributions from the Department of Agriculture for the same purpose. Section 2821 states: SEC. 2821. CONGRESSIONAL NOTIFICATION FOR CONTRACTS FOR THE PROVISION AND OPERATION OF ENERGY PRODUCTION FACILITIES AUTHORIZED TO BE LOCATED ON REAL PROPERTY UNDER THE JURISDICTION OF A MILITARY DEPARTMENT. Section 2662(a)(1) of title 10, United States Code, is amended by adding at the end the following new subparagraph: ''(H) Any transaction or contract action for the provision and operation of energy production facilities on real property under the jurisdiction of the Secretary of a military department, as authorized by section 2922a(a)(2) of this title, if the term of the transaction or contract exceeds 20 years.''. This provision requires DOD to notify Congress when entering into contracts for the provision and operation of energy production facilities on real property owned by the United States if the contract is longer than 20 years. Section 2822 states: SEC. 2822. AVAILABILITY AND USE OF DEPARTMENT OF DEFENSE ENERGY COST SAVINGS TO PROMOTE ENERGY SECURITY. Section 2912(b)(1) of title 10, United States Code, is amended by inserting after ''additional energy conservation'' the following: ''and energy security''. Section 2823 states: SEC. 2823. CONTINUATION OF LIMITATION ON USE OF FUNDS FOR LEADERSHIP IN ENERGY AND ENVIRONMENTAL DESIGN (LEED) GOLD OR PLATINUM CERTIFICATION. (a) ADDITIONAL REQUIREMENTS FOR REPORT ON ENERGY-EFFICIENCY STANDARDS.—Subsection (a) of section 2830 of the Military Construction Authorization Act for Fiscal Year 2012 (division B of Public Law 112–81; 125 Stat. 1695) is amended— (1) in paragraph (1), by striking ''Not later than June 30, 2012, the'' and inserting ''The''; and (2) by striking paragraph (3) and inserting the following new paragraph (3): ''(3) DEPARTMENT OF DEFENSE UNIFIED FA CILITIES CRITERIA AND RELATED POLICIES.—The report shall also include the Department of Defense Unified Facilities Criteria and related Department of Defense policies, which shall be updated— ''(A) to reflect comprehensive guidance for the pursuit of design and building standards throughout the Department of Defense that specifically address energy- and water-efficient standards and sustainable design attributes for military construction based on the cost-benefit analysis, return on investment, total ownership costs, and demonstrated payback of the design standards specified in subparagraphs (A), (B), (C), and (D) of paragraph (2); and ''(B) to ensure that the building design and certification standards are applied to each military construction project based on geographic location and local circumstances to ensure maximum savings.''. (b) PROHIBITION ON USE OF FUNDS FOR LEED GOLD OR PLATINUM CERTIFICATION PENDING REPORT.—Subsection (b)(1) of such section is amended— (1) by striking ''for fiscal year 2012'' and inserting ''for fiscal year 2012 or 2013''; and (2) by inserting before the period at the end the following: ''until the report required by subsection (a) is submitted to the congressional defense committees''. Regarding Section 2823, the Joint Explanatory Statement for H.Rept. 112-705 states: The House bill contained a provision (sec. 2822) that would continue the prohibition on the use of funds for Leadership in Energy and Environmental Design gold or platinum certifications for fiscal year 2013 set forth in the National Defense Authorization Act for Fiscal Year 2012 (Public Law 112–81). This section would also limit the use of funds for implementation of the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) building standard 189.1. The Senate amendment contained a similar provision (sec. 2822). The Senate recedes with a clarifying amendment. The amendment would limit the prohibition on the use of funds to Leadership in Energy and Environmental Design gold or platinum certifications for fiscal year 2013 until the submission of a required report and updated policy guidance from the Department of Defense (DOD). The conferees note that while there is no prohibition limiting the use of funds for implementation of ASHRAE building standard 189.1, they expect DOD to not provide broad, sweeping policy guidance on the use of ASHRAE building standard 189.1 but rather utilize this standard on a project by project basis to maximize savings based on geographic locations and returns on investment through water and energy efficiencies, among other considerations. (Pages 351-352) Section 2824 states: SEC. 2824. GUIDANCE ON FINANCING FOR RENEWABLE ENERGY PROJECTS. (a) GUIDANCE ON USE OF AVAILABLE FINANCING APPROACHES.— (1) ISSUANCE.—Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall— (A) issue guidance about the use of available financing approaches for financing renewable energy projects; and (B) direct the Secretaries of the military departments to update their military department-wide guidance accordingly. (2) ELEMENTS.—The guidance issued pursuant to paragraph (1) should describe the requirements and restrictions applicable to the underlying authorities and any Department of Defense-specific guidelines for using appropriated funds and alternative-financing approaches for renewable energy projects to maximize cost savings and energy efficiency for the Department of Defense. (b) GUIDANCE ON USE OF BUSINESS CASE ANALYSES.—Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall issue guidance that establishes and clearly describes the processes used by the military departments to select financing approaches for renewable energy projects to ensure that business case analyses are completed to maximize cost savings and energy efficiency and mitigate drawbacks and risks associated with different financing approaches. (c) INFORMATION SHARING.—Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall develop a formalized communications process, such as a shared Internet website, that will enable officials at military installations to have timely access on an ongoing basis to information related to financing renewable energy projects on other installations, including best practices and lessons that officials at other installations have learned from their experiences in financing renewable energy projects. (d) CONSULTATION.—The Secretary of Defense shall issue the guidance under subsections (a) and (b) and develop the communications process under subsection (c) in consultation with the Under Secretary of Defense for Acquisition, Technology, and Logistics and the Deputy Under Secretary of Defense for Installations and Environment. The Secretary of Defense shall also issue the guidance under subsection (b) in consultation with the Secretaries of the military departments. Section 2825 states: SEC. 2825. ENERGY SAVINGS PERFORMANCE CONTRACT REPORT. (a) REPORT REQUIRED.—Not later than June 30, 2013, the Secretary of Defense shall submit to the congressional defense committees a report on the use of energy savings performance contracts awarded by the Department of Defense during calendar years 2010, 2011, and 2012. (b) ELEMENTS OF REPORT.—The report shall include the following (identified for each military department separately): (1) The amount of appropriated funds that were obligated or expended during calendar years 2010, 2011, and 2012 for energy savings performance contracts and any funds remaining to be obligated or expended for such energy savings performance contracts. (2) The amount of such funds that have been used for comprehensive retrofits. (3) The amount of such funds that have been used to leverage private sector capital, including the amount of such capital. (4) The amount of savings that have been achieved, or that are expected to be achieved, as a result of such energy savings performance contracts. Regarding Section 2825, the Joint Explanatory Statement for H.Rept. 112-705 states: The House bill contained a provision (sec. 834) that would require the military departments to submit reports to the congressional defense committees on the use of energy savings performance contracts (ESPCs). The Senate amendment contained no similar provision. The Senate recedes with an amendment requiring a single report by the Department of Defense (DOD), and clarifying the content of the required report. The conferees note that DOD has encouraged the military services to increase the use of ESPCs to meet energy savings goals. Under section 8287 of title 42, United States Code, ESPC contracts provide for the contractor to incur the costs of implementing energy savings measures, including at least the costs (if any) incurred in making energy audits, acquiring and installing equipment, and training personnel, in exchange for a share of any energy savings directly resulting from the implementation of such measures. Section 8287 provides for the use of ESPCs "solely for the purpose of achieving energy savings and benefits ancillary to that purpose." While ESPCs are not available for the purpose of the construction of new buildings or facilities, the conferees note that in some cases, the installation of equipment meeting the standard of section 8287 requires the modification or repair of existing facilities, or the construction of ancillary facilities or infrastructure, to accommodate the equipment. In such cases, ESPCs may be used for the construction, repair, maintenance, or modification of facilities or infrastructure ancillary to the qualifying equipment. The conferees expect a detailed description of any facility work required to carry out an ESPC to be included in the report required by this section. (Pages 352-353) H.R. 933 of the 113 th Congress as passed by the House on March 6, 2013, includes the FY2013 DOD appropriations act as Division A, and the FY2013 Military Construction, Veterans Affairs, and Related Agencies Appropriations Act as Division B. In the explanatory statement for H.R. 933 , the part for Division A does the following: reduces by $10 million DOD's FY2013 Defense Production Act Purchases funding request for advanced drop-in biofuel production, with the decrease being for "Ahead of need" (pdf page 195 of 394); increases by $20 million the Army's FY2013 funding request for research and development work on electronics and electronic devices, with the increase being for "Program increase—energy efficiency" (pdf page 208 of 394, line 18); increases by $37 million the Army's FY2013 funding request for research and development work on combat vehicle and automotive advanced technology, with the increase being for "Alternative energy research" (pdf page 208 of 394, line 33); increases by $40 million the Navy's FY2013 funding request for research and development work on force projection applied research, with the increase being for "Alternative energy research" (pdf page 22 of 394, line 5); increases by $40 million the Navy's Fy2013 funding request for research and development work on the Navy energy program, with the increase being for "Program increase-alternative energy initiatives" (pdf page 223 of 394, line 60); and increases by $57 million the Air Force's Fy2013 funding request for research and development work on support systems development, with the increase being for "Alternative energy research" ($37 million) and "Coal to liquid fuel only for lower emission research." ($20 million) (pdf page 240 of 394, line 238). The part of the explanatory statement for Division A states: PROMOTING ENERGY SECURITY The conferees do not include a provision as proposed by the House regarding the Energy Independence and Security Act. However, the conferees provide $20,000,000 in Research, Development, Test and Evaluation, Air Force only for research that will improve emissions of coal to liquid fuel to enable this technology to be a competitive alternative energy resource to meet the goals established in the Department of Defense's Operational Energy Strategy and its Implementation Plan. The conferees direct the Secretary of the Air Force, in consultation with the Assistant Secretary of Defense for Operational Energy Plans and Programs, to inform the congressional defense committees 30 days prior to any obligation or expenditure of these funds. (pdf page 242 of 394) The part of the explanatory statement for Division B increases by $10 million the FY2013 request for defense-wide military construction planning and design funding, with the increase being for "Energy conservation investment program" (pdf page 17 of 44, line for worldwide unspecified, defense-wide funding). The part of the explanatory statement for Division B states: Energy Conservation Investment Program (ECIP ). —The conference agreement provides $150,000,000 for ECIP. Additionally, the conference agreement provides $10,000,000 in dedicated funding for ECIP planning and design. The conferees strongly support the efforts of the Department of Defense to promote energy conservation, green building initiatives, energy security, and investment in renewable energy resources, and commend the leadership of the Department and the services for making energy efficiency a key component of construction on military installations. The conferees urge the Department to use the dedicated planning and design funds to invest in innovative renewable energy projects as well as projects that enhance energy security at military installations. The conferees also encourage the Department to request dedicated planning and design funding for ECIP in future budget submissions. (pdf page 339 of 394) H.R. 933 of the 113 th Congress as passed by the Senate on March 20, 2013, and the House on March 21, 2013, includes the FY2013 DOD appropriations act as Division C and the FY2013 Military Construction, Veterans Affairs, and Related Agencies Appropriations Act as Division E. The bill was signed into law as P.L. 113-6 on March 26, 2013. The explanatory statement for Division C of H.R. 933 as passed by the Senate on March 20, 2013, and the House on March 21, 2013, is the essentially the same as the explanatory statement for Division A of H.R. 933 as passed by the House on March 6, 2013 (see above). The explanatory report for Division E increases by $10 million the FY2013 request for defense-wide military construction planning and design funding, with the increase being for "Energy conservation investment program" (pdf page 357 of 394, line for defense-wide funding). The explanatory report for Division E states: Energy Conservation Investment Program (ECIP). —The bill provides $150,000,000 for ECIP. Additionally, the bill provides $10,000,000 in dedicated funding for ECIP planning and design. The Committees strongly support the efforts of the Department of Defense to promote energy conservation, green building initiatives, energy security, and investment in renewable energy resources, and commend the leadership of the Department and the services for making energy efficiency a key component of construction on military installations. The Department is urged to use the dedicated planning and design funds to invest in innovative renewable energy projects as well as projects that enhance energy security at military installations. The Department is also encouraged to request dedicated planning and design funding for ECIP in future budget submissions. (pdf page 4 off 44) The House Appropriations Committee, in its report ( H.Rept. 112-493 of May 25, 2012) on H.R. 5856 of the 112 th Congress, states: ADVANCED DROP-IN BIOFUEL PRODUCTION The request [for Defense Production Act purchases] includes $70,000,000 for the construction or retrofit of domestic commercial (or pre-commercial) scale advanced drop-in biofuel plants and refineries. The Committee understands that the Department has allocated $100,000,000 of the $150,000,000 program addition to the fiscal year 2012 Defense Production Act account for this effort and that $70,000,000 of this funding likely will not execute until well into fiscal year 2013 or even into fiscal year 2014. While the Committee is supportive of alternative energy development, in these times of decreasing budgets, it does not seem prudent to stockpile funds so far ahead of need. Accordingly the recommendation provides no funding for this effort in fiscal year 2013. The Committee urges the Secretary of Defense to request this funding in future years when it can execute in a timely manner. (Page 203) On July 19, 2012, as part of its consideration of H.R. 5856 of the 112 th Congress, the House agreed to by voice vote H.Amdt. 1428 , an amendment to prohibit the use of funds to enforce Section 526 of the Energy Independence and Security Act of 2007 ( H.R. 6 / P.L. 110-140 of December 19, 2007). The Senate Appropriations Committee, in its report ( S.Rept. 112-196 of August 2, 2012) on H.R. 5856 of the 112 th Congress, recommends: increasing the Army's FY2013 funding request for research and development work on combat vehicle and automotive advanced technology by $40 million, with the additional funding being for alternative energy research (page 174, line 33); increasing the Navy's FY2013 funding request for research and development work on force protection applied research by $40 million, with the additional funding being for alternative energy research (page 189, line 5); and increasing the Air Force's FY2013 funding request for research and development work on support systems development by $40 million, with the additional funding being for alternative energy research (page 203, line 238). The report states (emphasis added): The Committee has included funding above the President's budget request for several programmatic initiatives which the Committee believes are of inherent value for national defense. In several cases, funds are restored for programs which were included in previous Department of Defense budget requests, and several are for programs that the Committee believes are necessary to improve defense even though they have not been included under the request formulated by the Department of Defense. For instance, the Committee provides additional research funding in the following areas: alternative energy , space situational awareness, unexploded ordnance and landmine detection, nanotechnology, advanced metals and materials, military burn treatment, and traumatic brain injury and psychological health. The Committee believes additional research funding is warranted in these and other areas to ensure that the Department of Defense continues to pursue technological advances that are critical to our national defense. (Page 9) The report also states: Solar Energy Development .—The Committee directs the Secretary of Defense and the Secretary of the Interior to jointly prepare a plan to facilitate solar energy development on military installations. The plan should be consistent with the military mission and habitat conservation needs of disturbed lands on military bases that have been withdrawn from the public domain. The Committee directs the Secretaries to submit to the congressional defense and interior committees a joint report that includes the proposed plan within 120 days of enactment of this act. If legislation is necessary to implement the plan, the Committee directs the Secretaries to submit to Congress a legislative proposal to accompany the plan. Furthermore, the Committee directs the Deputy Under Secretary of Defense for Installations and Environment to provide a report to the congressional defense committees not later than 180 days after enactment of this act on the viability or incompatibility of solar energy for Nellis and Creech Air Force Bases. (Page 14) The report also states: Microtechnology Energy .—The Committee understands that the Department of Defense continues its focus on developing sustainable energy technologies that provide strategic effectiveness and energy security in the areas of energy supply, demand and assured distribution. The Committee believes that continued research into these technologies is necessary to develop a wide range of micro- and nanotechnology-enabled mobile military energy technologies. Therefore, the Committee encourages the Department to continue research related to micro technology energy. (Page 180) The report also states: Ocean Renewable Energy .—The Committee commends the Navy's efforts to support ocean renewable energy testing, research, development, and deployment for maritime security systems, support at-sea surveillance and communications systems, and further opportunities to reduce the cost of energy and increase energy security at coastal Department of Defense facilities. The Committee encourages the Navy to continue its investments in developing ocean renewable energy technologies and to coordinate with the Department of Energy and designated National Marine Renewable Energy Centers for ocean renewable energy demonstration activities at or near Department of Defense facilities. The Committee understands the Navy's goal is to produce 50 percent of its shore-based energy requirements from alternative sources by 2020 and notes that deepwater offshore wind and other renewable energy sources could offer advantages as an electricity source for Navy facilities. Not later than 90 days after enactment of this act, the Department shall provide a briefing to the congressional defense committees on current and future programs related to ocean renewable energy research and development activities and provide an analysis of the locations within the United States that such activities would be viable. (Pages 190-191) For further action on the FY2013 DOD Appropriations Act, see H.R. 933 / P.L. 113-6 above. The House Appropriations Committee, in its report ( H.Rept. 112-491 of May 23, 2012) on H.R. 5854 of the 112 th Congress, states: Rebates.— The Department of Defense has been increasing the use of green technology to reduce energy consumption on military installations. The Committee commends this policy but is concerned that the Department of Defense is not fully utilizing the potential savings and rebates that may be available from the use of certain technologies or utilities. The Committee directs the Deputy Under Secretary of Defense for Installations and Environment to report to the congressional defense committees on the amount of rebates the Department has been able to capture. (Page 16) H.Rept. 112-491 also states: Increased Fuel and Training Efficiency.— The Committee is aware of proposals by the Department of Defense to use military construction funding to construct specialized training runways near existing aircraft locations. By constructing these specialized runways, the Department of Defense will save taxpayer dollars by decreasing the amount of transient flight hours required for aircraft to reach their training locations. Therefore, the Committee urges the Deputy Under Secretary for Installations and Environment to conduct a cost-benefit analysis regarding the construction of specialized training runways near existing aircraft locations and report back to the Committee within 180 days of enactment of this Act. (Page 17) The report also states: LED lighting technologies.— The Committee understands that the use of LED lighting technology at military facilities has demonstrated substantial energy efficiencies and cost savings. However, the Committee is aware that LED lighting products of inferior quality were used at some facilities and installations and has resulted in those locations failing to achieve expected efficiencies. In some instances, this has led to policies prohibiting the use of this technology. Accordingly, the Committee directs the Deputy Under Secretary of Defense for Installations and Environment to establish minimum quality standards for the use of LED lighting products at Department of Defense installations and facilities. The standards should take into consideration Energy Star ratings and/or the Design Light Consortium lighting product recommendations. (Page 17) The report also states: Sustainable Buildings Policy.— The Committee supports the Department of Defense's commitment to green buildings, and its goal to promote cost-effective sustainability. However the Committee is concerned that the Department of Defense's current approach to sustainable construction appears to select one green building certification system over others, particularly for wood products. The Committee expects the Department to ensure equal acceptance of forestry certification systems, and that systems designated as American National Standards are allowed to compete equally for use in the Department of Defense's building construction and major renovations while continuing to follow existing Buy America requirements. The Committee also strongly urges the Department of Defense to incorporate in its Sustainable Buildings Policy energy efficiency standards that are cost-effective, incorporate Energy Star components, and the results of life cycle assessments. The Committee directs the Deputy Under Secretary of Defense for Installations and Environment to provide a report to the congressional defense committees on the Department's efforts not later than 90 days after enactment of this Act. Energy security.— The Committee strongly supports Department of Defense efforts to reduce costs and increase energy security through their investments in alternative energy sources. The reliance on oil for forward-deployed operations leaves the military vulnerable to supply shortages, attacks on fuel convoys, and volatile swings in the cost of petroleum. The Committee recognizes that investments in clean alternative energy sources will make our nation more secure and result in significant long term energy savings. Therefore, the Committee directs the Department of Defense, as a follow up to the Operational Energy Strategy Implementation Plan released on March 6, 2012, to report to the congressional defense committees on how energy efficient construction on military installations will lower operation and maintenance costs. This report shall be submitted within 90 days of enactment of this Act. (Page 18) The report also states: Energy Conservation Investment Program.— The Committee believes that as new construction and retrofit projects are undertaken at facilities to improve building energy efficiency and achieve the objectives prescribed in statutes, executive orders, and initiatives, the Department of Defense is encouraged to utilize new and underutilized, low-cost energy efficient technologies that provide the best value to taxpayers through minimal lifecycle costs. The Deputy Under Secretary for Installations and Environment shall report to the congressional defense committees on the Department's plan to implement these technologies across the Department of Defense within 60 days of enactment of this Act. (Pages 20-21) The report also states: The Committee recommends a total appropriation of $1,650,781,000 for family housing construction, family housing operation and maintenance, and the homeowners assistance program, a decrease of $32,165,000 below the fiscal year 2012 enacted level and the same as the budget request. The decrease below the 2012 enacted level is due partly to the Department of Defense's success in implementing the Military Housing Privatization Initiative on military installations and the reduced requirement for appropriated construction and operating costs. The Committee encourages the Department, where feasible, to utilize energy efficient, environmentally friendly, and easily deployable composite building materials in new family housing construction. (Page 23) On May 31, 2012, as part of its consideration of H.R. 5854 of the 112 th Congress, the House passed H.Amdt. 1166 , which added Section 5 22 to the bill. Section 522 states: Sec. 522. None of the funds made available by this Act shall be available to enforce section 526 of the Energy Independence and Security Act of 2007 ( P.L. 110-140 ; 42 U.S.C. 17142). The Senate Appropriations Committee, in its report ( S.Rept. 112-168 of May 22, 2012) on S. 3215 of the 112 th Congress, states: ENERGY POLICY The Department of Defense is the largest consumer of energy in the Federal Government, accounting for nearly 80 percent of the government's total energy consumption. DOD spends nearly $4,000,000,000 annually on facility energy alone, nearly a quarter of its total energy costs. However, installation energy consumption accounts for nearly 40 percent of the Department's greenhouse gas emissions. The Committee commends the Department for its aggressive efforts to improve the energy efficiency of its buildings and installations, reduce consumption, mitigate its carbon footprint, invest in renewable energy projects, and enhance energy security on its installations. The Committee also supports the efforts of the Department to incorporate green building technologies into both new construction and renovations of buildings. As noted in the past, the Committee believes that the use of these technologies should be a fundamental consideration in the design or retrofit of all military construction projects. In particular, the Committee believes that the Department should maximize the use of energy efficient, eco-friendly roofing technologies for new construction and renovations, including family housing construction and renovation. These technologies include, but are not limited to, photovoltaic panels, solar thermal roof coatings, rooftop direct use solar lighting technology, green roofs, and cool roofs. In an effort to capture the most innovative of these technologies, the Committee encourages the Department and the services to monitor new technologies emerging from government, industry, or university research and development programs. Although federally mandated sustainable design policies and energy efficiency goals are standard elements of military construction design, the Committee encourages the Department and the services to incorporate additional leading-edge technologies into the construction program and to utilize new and underutilized, low-cost energy-efficient technologies that provide the best value to taxpayers through minimal life-cycle costs. While strongly supportive of DOD's commitment to green buildings, and its goal to promote cost-effective sustainability, the Committee is concerned that the Department's current approach to sustainable construction could result in giving preference to one green building certification system to the exclusion of others, particularly wood products. The Committee expects DOD to ensure equal acceptance of forestry certification systems, and to allow systems designated as American National Standards to compete equally for use in the Department's building construction and major renovations, subject to Buy America requirements. Cybersecure Microgrids at Military Installations.— The Committee is impressed with the progress the Department has made in deploying microgrids to mitigate risk to mission critical assets and promote energy independence at military installations through the Smart Power Infrastructure Demonstration for Energy Reliability and Security [SPIDERS] program. However, the Committee remains concerned that most installations across the country are dependent on commercial grids, which could potentially compromise the security and access to reliable supplies of energy necessary to meet mission essential requirements. The Committee believes the Department should study and evaluate using cybersecure microgrid technologies to promote energy security. Therefore, the Secretary of Defense shall submit a report to the congressional defense committees, no later than 180 days from the enactment of this act, regarding: (1) the status of microgrid demonstrations currently deployed domestically; (2) the Department's plan to secure energy supplied to military installations to meet mission essential requirements; and (3) the potential benefits of the wide-spread use of secure microgrid technology on domestic military installations. (Pages 8-9; material in brackets as in original) S.Rept. 112-168 also states: ENERGY CONSERVATION INVESTMENT PROGRAM The Committee recommends the requested level of $150,000,000 for the Energy Conservation Investment Program [ECIP]. The Committee also recommends a transfer of $10,000,000 from unspecified Defense-Wide planning and design into a separate line item for ECIP planning and design to ensure that adequate funds are available for future ECIP project planning. ECIP is the only dedicated stream of funding for energy projects within DOD. Historically, ECIP has funded small projects with rapid payback. As DOD moves more aggressively to develop renewable energy resources and improve energy security, ECIP is emerging as a major tool to leverage investment in larger projects, such as net-zero energy facilities or smart grid technologies, that are intended to produce significant improvements in energy consumption, costs, and security at single or multiple installations. The Committee encourages the Department to continue using ECIP funds to leverage investments in game-changing major energy projects, particularly renewable energy initiatives. The Committee notes that, in addition to ECIP funding, the fiscal year 2013 budget request includes two projects in the major construction program intended primarily to improve energy efficiency and security (an Army-funded ground source heat transfer system at Fort Benning, Georgia, and a Navy-funded remotely controlled electrical distribution system at Diego Garcia). The Committee believes that energy efficiency, energy security, and renewable energy investments are mission-critical requirements to reduce DOD's dependence on costly and potentially unreliable sources of commercial energy, and encourages the services and the defense agencies to aggressively pursue opportunities to include projects designed to improve installation energy efficiency and security in their major construction programs as well as through ECIP. (Page 20; material in brackets as in original; see also the table on page 88) For further action on the FY2013 Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, see H.R. 933 / P.L. 113-6 above. Appendix A. DOD Budget Deflation Factors Appendix B. DLA-E Price Adjustments Figure B -1 shows how DLA-E in recent years has adjusted the price for a barrel of fuel multiple times within individual years. Appendix C. Fuel Use in Afghanistan This appendix presents some additional information on DOD fuel use for conducting operations in Afghanistan. In Afghanistan, fuel purchased by U.S. forces increased from 48 million gallons in FY2003 to 489 million gallons in FY2011, an increase of 920%. Total fuel purchases in Afghanistan over this period exceeded 1.5 billion gallons (over $5.6 billion). This increase in fuel use tracked the increase in troop strength: between FY2003-FY2011, the number of U.S. uniformed personnel in Afghanistan increased from 10,400 to 97,000, an increase of approximately 830%. These figures do not include fuel purchased outside of Afghanistan to support Operation Enduring Freedom. While aircraft account for the largest amount of fuel used to support operations in Afghanistan, many aircraft are fueled outside of the country, where the logistics challenges are less pressing. By contrast, generators are one of the largest consumers of energy on the ground in Afghanistan. In August 2009, the Marine Energy Assessment team found that electrical power generation accounted for 32% of the fuel used by the Marine Expeditionary Brigade – Afghanistan. Other analyses estimate that climate control and air conditioning account for between 57% and 70% of generator power demand. Army officials have also commented on the growing use of personal electronic devices at bases in Afghanistan, which increase demand for electric power. Fuel and water, the most commonly transported supplies, make up approximately 70% of total supplies shipped into Afghanistan. On a single day in Afghanistan, DLA-E and CENTCOM counted approximately 5,396 trucks moving supplies for U.S. forces in Afghanistan, in addition to an estimated 1,306 NATO and DLA-E fuel trucks. DLA-E provides about 1 million gallons of JP-8, 7,000 gallons of diesel fuel, and 9,000 gallons of motor gasoline to U.S. forces in Afghanistan daily. Appendix D. One-Time Reports on DOD Energy-Related Issues Table D -1 shows a list of one-time reports that Congress in recent years has required DOD to submit on various energy-related issues. Appendix E. Expanded Review of Past Legislation from 2005 Through FY2012 This appendix presents a more detailed review of past legislation on DOD energy-related issues from 2005 through FY2012. Energy Policy Act of 2005 ( P.L. 109-58 ) Section 203 of this act required federal agencies to procure 7.5% of their power from renewable sources by FY2013. This section also defined renewable power sources. FY2006 National Defense Authorization Act Section 357 required a report on DOD use of biofuel and ethanol fuel, including potential DOD requirements for increased biofuel and ethanol use and an assessment of current and future availability of alternative fuels. FY2007 John Warner National Defense Authorization Act ( P.L. 109-364 ) The FY2007 NDAA represented a major expansion of DOD interest in energy security issues, most notably Section 2851, which added Chapter 173 "Energy Security" to Title 10 of the U.S. code. Section 2851 required DOD to establish energy performance goals, as well as reports on the plan to meet these goals and on DOD's annual energy use and progress towards meeting the installation energy goals set by the Energy Policy Act of 2005. Policy Changes Fuel Efficiency in Weapons Platforms Section 360 required DOD to improve the fuel efficiency of weapons platforms as DOD in order to "(1) enhance platform performance; (2) reduce the size of the fuel logistics systems; (3) reduce the burden high fuel consumption places on agility; (4) reduce operating costs; and (5) dampen the financial impact of volatile oil prices." This section did not require a specific target for improvements in fuel efficiency. DOD was required to submit a report on the how improvements in the fuel efficiency of weapons platforms will be implemented. E nergy Performance Goals, Plan and Progress Section 2851 required DOD to establish energy performance goals, including "transportation systems, support systems, utilities and infrastructure and facilities." These goals must be submitted to the congressional defense committees annually by the date of the President's submittal of the defense budget to Congress. The Secretary was required to develop an energy performance plan to meet these energy goals. This section also required an annual energy report on the progress made on the Department's energy performance goals and the goals of the Energy Policy Act of 2005. This report must include a description of actions taken and energy savings realized. The report was also required to include a breakdown of energy used by military installations, including energy types, costs, and quantities consumed. Installation Energy Section 2851 added several sections to the new Chapter 173, "Energy Security" dealing with energy costs, savings, and contracts. The inserted section 2913 required a simplified method of contracting for shared energy savings at military installations, while Section 2912 required DOD to spend half the funds saved on additional energy conservation measures, leaving half of the savings to be spent by the commanding officer of the installation on improvements to military family housing, small construction, or morale, welfare or recreation facilities or services. Section 2914 authorized military construction for energy conservation, using available funds, with congressional notification. Section 2854 further amended the new Chapter 173, "Energy Security," to require energy efficient products in military construction as inserted Section 2915. Renewable Power Section 2852 required DOD to procure 25% of its electricity from renewable energy by FY2025, and directed DOD to procure power from renewable sources whenever it is consistent with DOD's energy performance goals and plan established in Section 2851. Fuel Cells as Back-Up Power DOD was required by Section 358 to consider using fuel cells for current back-up power systems to increase the longevity of the systems. Energy Independence and Security Act of 2007 ( P.L. 110-140 ) Policy Changes Alternative Fuels Section 526 prohibited any federal agency, including DOD, from contracting for alternative or synthetic fuels that have a lifecycle greenhouse gas emission greater than conventional petroleum fuel. This prohibition is for all mobility fuels, with the exception of fuel for testing and research. Installation Energy For all federal agencies, EISA 2007 required building energy use to be reduced by 3% annually through 2015 for a total reduction of 30% from a FY2003 baseline. It also mandated reductions in non-tactical vehicle petroleum use by 20% and increases in alternative fuel use by 10% annually by FY2015 from a FY2005 baseline. EISA 2007 also required new and majorly renovated federal buildings to reduce energy usage by set percentages. FY2008 National Defense Authorization Act ( P.L. 110-181 ) Energy Efficient Lighting Section 2863 required DOD to use energy efficient lighting fixtures in DOD facilities. Renewable Energy Report DOD was required by Section 2864 to submit a report discussing the extent of renewable energy use, their financing via appropriated funds or alternative financing, and a graph of renewable power as a percentage of total facility electricity use from FY2000 through FY2025, including projected future trends. Following the initial report, this information was required to be included in the Annual Energy Management Report, created by Section 2851 of the FY2007 NDAA. FY2009 Duncan Hunter National Defense Authorization Act ( P.L. 110-417 ) The 2009 NDAA established an operational energy office, defined operational energy, and required an operational energy implementation strategy The NDAA for FY2009 also required acquisitions planning and analyses to consider energy, including lifecycle costs and fuel logistics, as important factors. It also broadened the scope of the energy performance master plan required by Section 2851 of the FY2007 NDAA to require separate master plans for each department or agency and specific requirements and metrics to enable measurements of progress towards achieving energy performance goals. Section 2832 added the progress made towards achieving the goals of EISA 2007 to the annual energy management report. The act required several reports on alternative energy topics, including the viability of onsite solar and wind energy to power expeditionary forces and the lifecycle emissions of alternative and synthetic fuels. Policy Changes Fuel in Acquisitions Energy was highlighted as a required consideration in capacity analyses, force planning processes, and the acquisitions process. Section 332 required: Analyses and force planning to consider "requirements for, and vulnerability of, fuel logistics." Fuel efficiency to be included as a Key Performance Parameter (KPP) in the requirements process. This requirement puts energy on par with other KPPs, such as lethality, protection and reliability, during the requirements development phase. In acquisitions, the lifecycle cost analysis for new capabilities must include the fully burdened cost of fuel. DOD must prepare an implementation plan for these requirements within 180 days of enactment, and submit a progress report within 2 years. DOD must be in compliance within 3 years or provide an explanation. Definitions "Operational energy" and the "fully burdened cost of fuel" are both defined in the 2009 NDAA. Operational energy is defined in Section 331 as, "operational energy" means the energy required for training, moving, and sustaining military forces and weapons platforms for military operations. The term includes energy used by tactical power systems and generators and weapons platforms. The fully burdened cost of fuel is defined in Section 322 as, the commodity price for fuel plus the total cost of all personnel and assets required to move and, when necessary, protect the fuel from the point at which the fuel is received from the commercial supplier to the point of use. Organizational Changes Operational Energy Plans and Programs Office The FY2009 NDAA established the Director of Operational Energy Plans and Programs office, charged with drafting an operational energy strategy with "near-term, mid-term, and long-term goals, and a plan for implementation of the strategy." The two major responsibilities of the appointed Director of Operational Energy Plans and Programs are the creation of a department-wide operational energy strategy and implementation plan and the Director's certification of the adequacy of the services' budgets for implementing the operational energy strategy. Each service must also designate a senior official to be responsible for operational for energy plans and programs for that armed force within 90 days after the appointment of the Director of Operational Energy Plans and Programs. Operational Energy Strategy & Implementation Plan The operational energy strategy will establish DOD goals for operational energy, performance metrics to measure progress, while the implementation plan will create a plan for implementing the strategy. This strategy was required within 180 days after the appointment of a Director. Budget Certification Authority Section 902 also required the Director of Operational Energy Plans and Programs to review the budgets of the military departments and defense agencies in regard to their efforts under the operational energy strategy. These proposed budgets must be submitted to the Director of Operational Energy Plans and Programs for review before being submitted to the Under Secretary for Defense (Comptroller). The Director must review the proposed budgets, and certify whether the proposed budget is adequate to implement the operational energy strategy. Not later than January 31 of the preceding fiscal year, the Director must submit a report containing commentary on the proposed budgets, together with the budget certification. If the proposed budget is not found to be adequate to achieve the operational energy implementation plan, the Director may decline to certify it. In this case, DOD is required to submit a report to Congress proposing remedies for the inadequacy of the budget within 10 days of when the budget for the upcoming fiscal year is submitted to Congress. Installation Energy Section 2831 required DOD to certify to the defense committees that enhanced use leases (Section 2667(h) of Title 10) longer than 20 years are consistent with the DOD energy performance goals and plan of Section 2911 of Title 10. The Annual Energy Report of Section 2925(a) of Title 10 was broadened to include DOD progress in meeting the EISA 2007 installation energy requirements, and an estimate of progress made by DOD to meet the certification requires regarding green building standards in construction and major renovation, as required by Section 433 of EISA 2007. Reports Required Operational Energy Section 331 required an annual report addressing operational energy to be submitted by the Director of the Operational Energy Plans and Programs to the congressional committees concurrently with the annual DOD energy management reports. The annual operational energy report must include extensive data about operational energy demands, expenditures, and efforts to date and an evaluation of progress made in implementing the operational energy strategy. Solar and Wind Energy for Use by Expeditionary Forces This report, due from the Secretary of Defense 120 days after the enactment of the NDAA for FY2009, must consider "the potential for solar and wind energy to reduce the fuel supply needed to provide electricity for expeditionary forces and the extent to which such reductions will decrease the risk of casualties by reducing the number of convoys needed to supply fuel to forward operating locations." The report must also address the cost, potential savings, environmental benefits, and sustainability and operating requirements of solar and wind electricity generation for expeditionary forces, as well as potential opportunities for experimentation and training. Alternative and Synthetic Fuels Section 334 required a report on ways to reduce the total lifecycle emissions of alternative and synthetic fuels, including coal-to-liquid fuels. For military operations and expeditionary forces, it must consider the usefulness of domestically produced alternative and synthetic fuels to the military utility and lifecycle emission of alternative fuels produced in-theatre. This report must also evaluate DOD's progress in research, testing and certification of alternative and synthetic fuels for military vehicles and aircraft, and evaluate the ability of the alternative and synthetic fuel industries to meet DOD fuel requirements, considering broad trends, levels of investment, and development of refining capacity. This report was required by March 1, 2009. Mitigation of Power Outage Risks Section 335 required a technical and operational risk assessment of the risks posed to "mission critical installations, facilities and activities ... by extended power outages" from a failure of the grid or commercial electricity supply. DOD was required to develop plans to eliminate, reduce or mitigate risks identified, prioritizing the mission critical installations, facilities and activities that are at the greatest risk, considering the cost effectiveness various options. These prioritized plans and progress made must be described in annual report as part of the budget justification materials submitted to Congress for FY2010 and thereafter. FY2010 National Defense Authorization Act ( P.L. 111-84 ) The Director of Operational Energy Plans and Programs office received authorization of $5 million by Section 331, to be made available on the confirmation of a Director for the office. Reports Required Annual Energy Management Report Section 332 expanded the Annual Energy Management report, dealing principally with installation energy, to discuss the feasibility and financing of renewable energy projects, detailed funding information, and steps taken to ensure best practices for measuring energy consumption in DOD installations. The first revised report must also address the adequacy of current funding mechanisms to meet DOD installation energy goals, the cost and feasibility of requiring new power generation projects to go off the grid during a grid outage, the feasibility of net-zero installations, analysis of whether new DOD construction projects adhere to sustainable design standards, and assessments of costs, obstacles, and other considerations of renewable power generation on base. On Implementation of Comptroller General Recommendations of Fuel Demand Management at Forward-Deployed Locations Section 333 required a report by February 1, 2010, on specific actions that DOD has taken on three of the recommendations in a GAO report. Use of Renewable Fuels to Meet DOD Energy Requirements Section 333 required a report considering the use of renewable fuels as alternative fuels for all DOD aviation, maritime and ground fleets, including both tactical and non-tactical vehicles and applications. Required by February 1, 2010, this assessment must consider domestically produced algae-based, biodiesel and biomass-derived alternative fuels and cover technical, logistical and policy considerations. The report must also assess potential benefits of establishing a renewable fuel commodity class distinct from petroleum-based products. Energy Security on DOD Installations Similar to Section 335 of the FY2009 NDAA, Section 335 of the FY2010 NDAA required the Secretary of Defense to develop a plan to identify and address vulnerabilities to critical military missions as a result of electricity disruptions. FY2011 Ike Skelton National Defense Authorization Act ( P.L. 111-383 ) Policy Changes Energy Performance Master Plan The energy performance plan of Section 2851 of the FY2007 NDAA was expanded by Section 2832 to a "master plan" to achieve the energy performance goals of "laws, executive orders and Department of Defense policies." This revised master plan must include: (a) separate master plans for each Department and Defense Agency (b) the use of a baseline standard for energy consumption that is consistent across departments, (c) a method for measuring energy conservation (d) "Metrics to track annual progress in meeting energy performance goals," and (e) a description of specific requirements and proposed investments. The current master plan must be submitted to Congress annually no later than 30 days after the President submits his budget to Congress. The revised master plan must also consider hybrid electric drives, high performance buildings and high efficiency vehicles. Section 2832 also required adding hybrid-electric drive and alterative fuels and high-performance buildings as special consideration in the plan. Use of Energy Efficient Products in Facilities In addition to amending the required reports, Section 2832 created a minimum list of energy-efficient technologies, including roof-top solar, energy management systems, energy efficient HVAC systems, thermal windows and insulation systems, electric meters, lighting and equipment designed to use less electricity, hybrid vehicle charging stations, solar power vehicle shade structures, and insulation and weatherproofing. Pilot Study of Smart Microgrids for Deployment Section 242 allowed DOD (with coordination from the Department of Energy) to carry out a pilot program to evaluate and validate microgrids for deployment. This pilot program would be intended to inform key performance parameters and "validat[e] energy components and designs that could be implemented ... at forward operating bases." DOD Policy on Acquisition and Performance of Sustainable Products and Services Executive Order No. 13514, dated October 5, 2009, directed DOD and the federal agencies to establish a strategy to procure sustainable products and services. DOD's Strategic Sustainability Performance Plan responds to this executive order. Section 842 requires DOD to submit a report to the congressional defense committees on the status and achievements of DOD regarding these sustainable procurement goals. Organizational Changes: Operational Energy Plans and Programs Office Section 901 redesignated the Director of Operational Energy Plans and Programs as the Assistant Secretary of Defense for Operational Energy Plans and Programs. This section also required the Secretary of Defense to consider merging the positions of Deputy Undersecretary of Defense (Installations and Environment) and Assistant Secretary of Defense for Operational Energy Plans and Programs into a single Assistant Secretary position by January 1, 2015, and report the feasibility of this merger to the Committees on Armed Services of the Senate and House by September 15, 2013. FY2012 National Defense Authorization Act ( P.L. 112-81 ) The FY2012 NDAA continued the focus on operational energy and the logistics burden of fuel evident in the FY2009 NDAA. Among other provisions, the FY2012 NDAA added alternative fuels to the portfolio of the Assistant Secretary of Defense for Operational Energy Plans and Programs and requires energy technologies and practices from contractors providing logistical support for contingency operations. Policy Changes Alternative Fuels Section 314 added oversight of DOD's alternative fuel efforts to the responsibilities of the Assistant Secretary of Defense for Operational Energy Plans and Programs. The Assistant Secretary shall lead the alternative fuel activities and oversee alternative fuel investments, make recommendations regarding the development of alternative fuels, encourage collaboration with other federal agencies, and issue guidelines and policy to streamline alternative fuels investments. The budget certification authority of the Assistant Secretary of Defense for Operational Energy Plans and Programs will also include investment in alternative fuel activities. The annual operational energy report initially required by Section 331 of the NDAA for FY2009 must now include alternative fuels initiatives, including descriptions, funding and expenditures. Energy Efficiency in Contingency Operations Section 315 required the energy performance master plan (amended by Section 2832 of the FY2011 NDAA, discussed above) to address requiring energy efficiency or energy conservation measures in logistics support contracts for contingency operations. The energy performance master plan must now include "goals metrics and incentives for achieving energy efficiency in such contracts." Any energy efficiency or conservation measures would be required to (1) "achieve long-term savings for the Government by reducing overall demand for fuel and other sources of energy in contingency operations," (2) ... "not disrupt the mission, the logistics, or the core requirements in the contingency operation concerned," and (3) be "able to integrate seamlessly into the existing infrastructure in the contingency operation concerned." Any guidance or regulations must consider the lifecycle costs savings of a technology or process and require logistics support contractors to demonstrate savings over traditional technologies. The energy performance master plan report must discuss the implementation of Section 315, including savings achieved by the department. The operational energy report must also discuss progress on applying energy efficiency measures to logistics support contracts for contingency operations, per Section 315, while Section 342 requires the operational energy report to evaluate practices used in contingency operations to reduce vulnerabilities related to fuel convoys, including improvements in tent and structure efficiency, generator efficiency, and displacement of liquid fuels with on-site renewable generation. Energy Efficiency in Tents Section 368 required including the total life-cycle costs for tents, including heating and cooling, in calculating the best value of tents. Definitions Section 2821 provided a comprehensive set of definitions for energy terms used by DOD. Among other terms, "energy security" is defined as "assured access to reliable supplies of energy and the ability to protect and deliver sufficient energy to meet mission essential requirements." "Defense logistics support contract," discussed above, is defined in Section 315 as, "a contract for services, or a task order under such a contract, awarded by the Department of Defense to provide logistics support during times of military mobilization, including contingency operations, in any amount greater than the simplified acquisitions threshold." Installation Energy : Renewable Energy and Energy Security The FY2012 NDAA also contained a number of provisions related to installation energy. Section 2823 requires DOD to choose an interim goal for the amount of renewable power used in FY2018, prior to the FY2025 goal of 25%. DOD was also required by Section 2822 to favorably consider energy security in the design and development of renewable energy projects on military installations. DOD must also issue guidance for commanders of installations on planning measures to minimize the effects of disruptions in natural gas, water or electric utility services. This section also adds energy security of renewable energy projects to the required considerations of the energy performance goals and plans, as well as geothermal energy. The Annual Energy Management Report was also amended by Section 2822 to include details of energy security provisions and details of the total number, frequency, financial impact of and mitigation strategies for utility outages. Section 2826 sets the deadline for this report of no later than 120 days after the end of each fiscal year. Energy Data from Meters DOD was required to capture and track data on energy usage from installation energy meters in order to determine baseline consumption and help reduce energy consumption by Section 2827. Section 2828 requires the Navy to meter its piers to allow the energy consumption of navy vessels in port to be tracked. The progress of this effort must be included in the Annual Energy Management Report. DOD Energy Manager Training Following Section 2829, DOD must establish a training policy for military installation energy managers, focusing on improving their knowledge of current laws, mandates, regulations and alternative energy options, improve consistency, and create opportunities for knowledge exchange among departments and across DOD. Organizational Changes Section 311 added a senior official for operational energy plans and programs for the Joint Chiefs of Staff and the Joint Staff, in coordination with the Assistant Secretary of Defense for Operational Energy Plans and Programs. | The Department of Defense (DOD) spends billions of dollars per year on fuel, and is pursuing numerous initiatives for reducing its fuel needs and changing the mix of energy sources that it uses. DOD's energy initiatives pose several potential oversight issues for Congress, and have been topics of discussion and debate at hearings on DOD's proposed FY2013 budget. By some accounts, DOD is the largest organizational user of petroleum in the world. Even so, DOD's share of total U.S. energy consumption is fairly small. DOD is by far the largest U.S. government user of energy. The amount of money that DOD spends on petroleum-based fuels is large in absolute terms, but relatively small as a percentage of DOD's overall budget. DOD's fuel costs have increased substantially over the last decade, to about $17 billion in FY2011. Petroleum-based liquid fuels are by far DOD's largest source of energy, accounting for approximately two-thirds of DOD energy consumption. When DOD's fuel use is divided by service, the Air Force is the largest user; when divided by platform type, aircraft are the largest user. According to DOD, currently about 75% of DOD's energy use is operational energy and about 25% is installation energy. Operational energy is defined in law as "the energy required for training, moving, and sustaining military forces and weapons platforms for military operations." Installation energy is not defined in law, but in practice refers to energy used at installations, including non-tactical vehicles, that does not fall under the definition of operational energy. DOD's reliance on fuel can lead to financial, operational, and strategic challenges and risks. Financial challenges and risks relate to the possibility of a longer-term trend of increasing costs for fuel, and to shorter-term volatility in fuel prices. Operational challenges and risks relate to (1) the diversion of resources to the task of moving fuel to the battlefield; (2) the negative impact of fuel requirements on the mobility of U.S. forces and the combat effectiveness of U.S. equipment, and (3) the vulnerability of fuel supply lines to disruption. Strategic challenges and risks relate to getting fuel to the overseas operating area, and ensuring the global free flow of oil. As part of its FY2013 budget submission, DOD has requested more than $1.4 billion for operational energy initiatives in FY2013. DOD's office of Operational Energy Plans and Programs, headed by the Assistant Secretary of Defense, Operational Energy Plans and Programs (ASD (OEPP)), is responsible for developing DOD policy for operational energy and alternative fuels, and for coordinating operational energy efforts across the services. Congress has been concerned with energy policy since the 1970s, and has passed legislation relating to federal government energy use, including DOD installation energy use. Congress has set specific energy-reduction targets for DOD installation energy, but not for operational energy. Potential oversight issues for Congress regarding DOD's energy initiatives include: DOD's coordination of operational energy initiatives being pursued by the military services. DOD's efforts to gather reliable data and develop metrics for evaluating DOD's energy initiatives. DOD's estimates of future fuel costs. DOD's role in federal energy initiatives. The Navy's initiative to help jumpstart a domestic advanced biofuels industry. The potential implications for DOD energy initiatives of shifts in U.S. military strategy. |
As Congress perform oversight in the 110 th Congress, biodefense research, biosecurity, and the activities of the Department of Homeland Security (DHS) in this area may become of interest. As DHS continues its activities in biological threat assessment, the 110 th Congress may have a unique perspective into these federal forensics and research programs. Transparency and oversight of research and development in biodefense is an area of international interest, as development of biological weapons is prohibited under the Biological and Toxin Weapons Convention. Congressional oversight of federal programs, especially those performed in federal facilities for homeland security purposes, is considered to play a key role in ensuring transparency. The DHS and the Department of Health and Human Services (HHS) have leading roles in protecting civilians against biological weapons. The National Biodefense Analysis and Countermeasures Center (NBACC) is a program office within the DHS Science and Technology Directorate that funds biodefense research and other activities. The mission of the NBACC program is to understand current and future biological threats; assess vulnerabilities and determine potential consequences; and provide a national capability for conducting forensic analysis of evidence from bio-crimes and terrorism. DHS has requested and received appropriated funding for the construction of a biodefense facility dedicated to homeland security activities and overseen by the NBACC program. This facility, the first DHS laboratory focused on biodefense, has drawn the attention of Congress, arms control experts, local community groups, and others. This report will outline the organizational structure of NBACC, describe its mission, and report the funding DHS has received for construction of its facility. It will then discuss select policy issues, such as funding for NBACC facility construction, oversight of NBACC research, and the potential for duplication of federal effort between NBACC and other agencies. Funds for NBACC programs are provided through the DHS Science and Technology Directorate. Activities funded include both intramural and extramural efforts. The programs within NBACC, as well as the construction of the NBACC facility, have been reported as part of the Science and Technology Directorate's Biological Countermeasures portfolio. The NBACC program currently conducts research through partnerships and agreements with federal and private institutes. To provide a unique home for research overseen by the NBACC program, DHS is constructing an NBACC laboratory at Fort Detrick, MD as part of the National Interagency Biodefense Campus. Funds for the laboratory, estimated to cost $128 million, have been appropriated over FY2003-2005. Construction commenced on the NBACC facility in June 2006. The NBACC facility is operated as a federally funded research and development center (FFRDC). The U.S. Army Medical Research Acquisition Activity, acting as the contracting authority for DHS in this instance, released a Request for Proposals (RFP) for the operation of the NBACC facility. On December 20, 2006, DHS announced that Battelle National Biodefense Institute had been awarded the NBACC management contract. Similar to the Department of Energy National Laboratories, the NBACC facility is a government-owned, contractor-operated facility where the contract operator manages the facility and provides the technical expertise and program execution to support DHS's needs. The identity of the NBACC facility component centers has evolved since the facility's conception. Different information has been presented to Congress through various DHS testimony and documentation over the course of this evolution. In 2003, the FY2004 DHS budget justification and testimony by DHS Assistant Under Secretary for Science and Technology Albright stated that four centers would comprise NBACC: the Biodefense Knowledge Center (BKC), the Bioforensics Analysis Center, the Biothreat Assessment Support Center, and the Bio-Countermeasures Testing and Evaluation Center. In 2004, the FY2005 DHS budget justification and testimony by Assistant Under Secretary Albright stated that NBACC consisted of three organizational units: the Biodefense Knowledge Center, the National Bioforensic Analysis Center (NBFAC), and the Biological Threat Characterization Center (BTCC). In 2005, the FY2006 DHS budget justification and testimony by DHS Under Secretary for Science and Technology McQueary refer to the NBACC facility as having two component parts: the National Bioforensic Analysis Center and the Biological Threat Characterization Center. This two center configuration is reportedly the final configuration for the NBACC facility. The two NBACC component centers identified in the FY2006 DHS budget, the Biological Threat Characterization Center and the National Bioforensic Analysis Center, are operating in interim facilities pending construction of the NBACC laboratory building. The BTCC has ongoing activities in a number of government and private laboratories. The NBFAC is housed at the United States Army Medical Research Institute for Infectious Disease (USAMRIID), located in Fort Detrick, MD, and operates as a joint federal effort, including representatives of DHS, the Federal Bureau of Investigation, and the Army. The NBFAC is currently receiving, handling, and performing forensic analysis on biological samples. Apparently conceived as part of the NBACC facility, the Biodefense Knowledge Center was dedicated on September 10, 2004, and is located at the Department of Energy's Lawrence Livermore National Laboratory. This center operates as an independent center though its work is closely coordinated with that of the NBACC facility centers. While funding for the BKC originates from within the Biological Countermeasures portfolio, the BKC is funded independently, not as a component of the NBACC program. The BKC draws on the expertise of scientists at Lawrence Livermore National Laboratory and three additional national laboratories: the Pacific Northwest National Laboratory, Sandia National Laboratories, and Oak Ridge National Laboratory. Three Department of Homeland Security University Centers of Excellence, located at the University of Minnesota, the University of Southern California, and Texas A&M University, also collaborate with the Biodefense Knowledge Center. The NBACC facility is to be part of the federal biodefense research and development network. As such, its activities are to be coordinated with those of other network members, including the Plum Island Animal Disease Center, the National Institutes of Health (NIH), and USAMRIID. The mission of the NBACC program is to understand current and future biological threats; assess vulnerabilities and determine potential consequences; and provide a national capability for conducting forensic analysis of evidence from bio-crimes and terrorism. Each of the NBACC facility component centers executes a piece of this overall program mission. Also, the Biodefense Knowledge Center appears to collaborate with these centers to assist them in meeting mission goals. The Biological Threat Characterization Center is to conduct studies and laboratory experiments designed to find and address critical gaps in understanding current and future biological threats, assess vulnerabilities, conduct risk assessments, and determine potential impacts. An apparent goal of this program is to provide a science-based assessment of possible biological threats, focusing on those pathogens deemed by the Centers for Disease Control and Prevention to have the potential for high consequence. Types of research to be performed in characterizing biological threats include, but are not limited to, investigating potential biothreat pathogens, studying pathogen stability and viability, and assessing lethality through dose/response studies. An earlier presentation on NBACC program activities also included developing strategies for defeating genetically engineered pathogens, and expanding current capabilities in testing non-human primates exposed to biological aerosols. The National Bioforensic Analysis Center was designated in Homeland Security Presidential Directive 10 (HSPD-10), Biodefense for the 21 st Century , as the lead federal facility to conduct and facilitate the technical forensic analysis and interpretation of materials recovered following a biological attack. The NBFAC conducts analysis of evidence from a bio-crime or terrorist attack to obtain a "biological fingerprint" in order to identify perpetrators and determine the origin and method of attack. Consequently, when housed in the NBACC facility, the NBFAC would provide the federal government with a centrally coordinated, validated bioforensic analysis facility. To meet this mission, NBFAC is developing forensic tools, methods, and strain repositories for pathogens of concern. The Biodefense Knowledge Center supports NBACC facility component centers and has its own functions and missions. One is to provide scientific assessments and information to the Homeland Security Operations Center regarding potential bioterrorism events. Another is to be a repository of biodefense information, including genomic sequences for pathogens of concern, the existence and location of vaccines, bioforensics information, and information about individuals, groups, or organizations that might be developing these pathogens. Finally, the BKC aids in assessing potential bioterrorism agents as "material threats" for the purpose of the Project Bioshield countermeasure procurement process. The BTCC and the BKC jointly make these assessments. The total construction cost for the NBACC facility has been determined by DHS to be $141 million, a $13 million increase from the initially requested $128 million. Original funds for the construction were appropriated in FY2003âFY2005. The additional $13 million were reprogrammed from other portfolios. Construction began in June 2006 and is projected to be finished in FY2008. Community response to the NBACC facility construction has been mixed. The construction of the NBACC facility, along with new laboratory space for other federal agencies, at the Fort Detrick site has been identified as beneficially spurring investment and development in the surrounding area. Some local advocates and citizen groups have protested the construction of the NBACC facility though. They cite concerns regarding security, safety, and secrecy surrounding the facility. The DHS operates the NBACC facility as an FFRDC, overseen in a manner akin to the Department of Energy National Laboratories. The NBACC FFRDC contractor has the responsibility for enacting the projects and program developed by the NBACC program office. This includes bringing the existing interim centers into the new NBACC facility, when constructed, and continuing those activities currently ongoing, such as the biological risk assessment process. The degree to which the research programs of the NBACC program and component centers are transparent and actively overseen may become an area of Congressional interest. Two factors have contributed to an increased focus by biosecurity advocates on NBACC research activities: the degree to which classified research may be performed by the NBACC program and the extent and quality of review for compliance with the Biological and Toxin Weapons Convention (BWC). Because of the potential for classified research to be performed at the NBACC facility, some biodefense experts have identified the lack of transparency as problematic for international relations and treaty compliance. Other experts assert that such issues of transparency can be dealt with so long as a process for review and compliance with applicable treaties is developed and maintained. These issues and the Department's efforts to address these factors are described below. Some research activities performed by the BTCC and the NBFAC, either in interim facilities or at the to-be-constructed NBACC facility, may be classified in nature. The NBACC facility is being constructed in such a manner that the entire building can be certified as a Sensitive Compartmented Information Facility (SCIF). The FFRDC contractor operating the NBACC facility must be capable of providing employees cleared at the Top Secret/Sensitive Compartmented Information (TS/SCI) level. The balance of classified and unclassified activities will change depending on agency need and future planning. Thus, the extent to which the capability to perform classified research will be utilized is undetermined. Initially, only a portion of the NBACC facility may operate under classified circumstances, with this amount increasing or decreasing depending on evolving research priorities. The NBACC FFRDC RFP provides some expectations for the FFRDC contractor's future capabilities though, stating: The Government has estimated final operations work force at 120 people, with virtually all of them (>95%) requiring TS/SCI clearance. The offerors are expected to propose a strategy and commensurate workforce for initial operations and transition. The Government estimates that 20-25% of the Contractor's workforce during initial operations will require TS/SCI clearances. The Government estimates that >40-60% of the Contractor's workforce during transition will require TS/SCI clearances. Requiring that virtually all of the NBACC FFRDC workforce be eligible for, and eventually possess, clearance for classified information may provide advantages over requiring only a sub-section of the workforce to obtain requisite clearance. One advantage may be increased flexibility in workforce management given changing workload. Another may be an increased ability to generate synergy between research skills and knowledge due to a larger pool of qualified researchers able to converse about a particular problem. Conversely, some experts are concerned about the potential proliferation of dual-use research results and biological techniques specific to such sensitive research topics. They argue that as more scientists are trained and brought into biological threat assessment studies, the risk of diversion of material, information, or scientific technique to others may increase. While acknowledging that the use of security background checks can reduce this risk, they assert that this risk can not be eliminated. Some arms control experts and other stakeholders have raised concerns about the research to be performed by NBACC at the Fort Detrick facility. They assert that the research being undertaken might violate or might be interpreted as violating the Biological and Toxin Weapons Convention. While research activities may uphold both the letter and the spirit of the BWC, international observers may lack confidence in, or harbor suspicions about, those research activities being performed. Strong internal oversight and review of these research activities may allay some of these concerns or suspicions. As put by Petro and Carus, Thus, any federal program that focuses on threat characterization research will likely require strict administrative guidelines and procedures to ensure that all activities are legally compliant. The DHS asserts such a strong review process exists, as an internal process to the Department. The DHS has developed and implemented a management directive regarding compliance with arms control agreements. Adhering to this directive, DHS has established both a compliance assurance program office and a Compliance Review Group to determine whether the NBACC research activities are in compliance with the BWC, among other duties. , The Compliance Review Group is composed of senior DHS officials, including those with oversight of pertinent research areas. The compliance assurance program office has been established separately from the research program offices, so that reseach management and compliance oversight activities do not become conflated. Currently, all NBACC research activities are reviewed, and compliance determinations are made, before the research activities begin. If questions persist about whether a research activity may pose a compliance concern, the compliance assurance program office and the Compliance Review Group are empowered to require additional, clarifying information be presented before a compliance determination is made. Should the Compliance Review Group not reach consensus regarding a particular research activity, the final judgement is reportedly made by the DHS Secretary, who is obligated to ensure DHS activities are in compliance. While such an internal compliance review process may be robust, some arms control experts have been critical of compliance processes that remain entirely internal to a single agency. Such critics assert that interagency review, or review performed or coordinated through the White House, for example through the National Security Council or the Homeland Security Council, would provide greater expert input and further divorce the compliance review from the programmatic and budgetary aspects of a research program. Other possible mechanisms for review of potentially contentious research exist outside of the Department. To assess federal research and development programs that may have potential dual-use capabilities, the Department of Health and Human Services has established the National Science Advisory Board for Biosecurity. This board's duties include providing expert advice on ways to minimize potential misuse of dual-use research. The NSABB is expected to generate guidance on assessing dual-use research through local oversight at research institutions. The NSABB was not given responsibility to view or assess classified research programs, so might be of limited utility in overseeing such research. Selective transparency in activities performed at the NBACC facility and funded by the NBACC program is considered both essential and difficult to enact. While the ability for outside observers to identify and understand the activities underway at the NBACC facility and funded through the NBACC program is deemed by some experts as key to maintaining international confidence in the US biodefense program, such openness must preserve the protection granted to information deleterious to national security. It is difficult to determine what an appropriate balance is when weighing the potential release of information relating to national vulnerabilities against assuring others of the munificent focus of biodefense research. How to best achieve needed transparency while preserving necessary information restriction is a matter of contention. Some arms control experts claim that openness in the US biodefense program should be held as the model for other countries. Other biosecurity experts assert that special care must be taken to assure that information that would disclose a potential vulnerability is not inadvertently released. Once possible mechanism is the inclusion of local community members into the oversight process for NBACC research. In other areas of contentious biological research, local review boards, such as institutional biosecurity boards, have been used to oversee research activities. Typically, the primary purpose of an IBC is to ensure that recombinant DNA research follows the NIH Guidelines for Research Involving Recombinant DNA Molecules . IBCs are required by NIH guidelines to seat community members on the committee, in addition to scientists and safety officials from the institution. IBCs have also been highlighted as possible mechanisms for implementation of NSABB recommendations. The DHS has stated that an IBC will be established at the NBACC facility, but it is unclear what role the IBC would have in assessing research programs. Inclusion of such persons may be problematic in light of the potential for classified or law-enforcement sensitive nature of some activities. The establishment of an IBC at NBACC may provide a potential public oversight mechanism, reassuring the local community and others with respect to the research being performed at NBACC. Some advocates have assailed the utility of the IBCs though, asserting that the IBCs often do not provide effective oversight of research facilities where they are established. Another possible mechanism might be developing independent, external oversight of research activities, using scientific experts, possibly using members of the National Academies, to assess research programs. The DHS has established an advisory committee through the National Academies to provide input into the NBACC research process. The advisory committee's suggestion and activities have not, as yet, been widely discussed or publicized. Formalizing the committee input mechanism or more widely disseminating the results of the advisory committee's activities may be considered by critics as sufficient to allay transparency concerns. The Department of Homeland Security states that research performed by the Department is solely for defensive purposes, will be in accord with treaty obligations, and will be published, to the maximum extent possible, in the open scientific literature. As such, they are committed to assessing and reducing biodefense vulnerabilities, adhering to scientific standards and practices, and exercising sufficient and appropriate levels of openness. The Department points to its robust internal compliance review process, the establishment of a standing advisory committee, and its plan to conduct much of its research in an unclassified manner as indicators that critics concerns are overstated. Another area of concern amongst the arms control community and increasingly within Congress is the lack of a clear research plan for NBACC programs or for the NBACC facility. The research performed through the NBACC program is designed to fill in knowledge gaps regarding pathogens, test the effectiveness of biological countermeasures, and to assess the risk posed by new and future activities in biological science. Such research will likely span both classified and unclassified areas. Arms control experts have expressed concern that the research being considered at the NBACC facility may not be properly based on risk, but instead might be based on other characteristics, such as potential consequence or the ability of a nation state to develop such a weapon. These experts suggest that a more proper prioritization would focus on the capabilities of terrorists, rather than rogue nations. They also suggest that improper prioritization of research activities may lead to an arms race in the biodefense community, as scientists engaged in biodefense attempt to develop countermeasures to more dangerous pathogens developed in their own laboratories. Since the NBACC program deals with matters of homeland security, public oversight of its research activities might compromise homeland security. If that is the case, some advocates argue that a robust, prioritization and planning mechanism should be developed, so that the mechanism itself can be reviewed. They argue that such an activity will bolster confidence that proper prioritization and planning activities will occur, even if the results of those activities are not available. Others might argue that such structures already exist and are in place, citing the array of advisory boards and committees available to DHS in developing strategic planning. Since the efficacy of planning and prioritization is open to interpretation, developing appropriate metrics to assess this process may pose a challenge. The NBACC facility is to include laboratory space at the highest level of biosafety containment, Biosafety Level 4 (BSL-4). Such laboratories are required for performing experiments using the most dangerous pathogens, like viral hemorrhagic fevers such as Ebola virus. The volume of BSL-4 laboratory space has historically been small, with federal facilities available at the Centers for Disease Control and Prevention in Atlanta, GA and at USAMRIID in Fort Detrick, MD. Federal efforts are increasing the available BSL-4 laboratory space. The National Institute of Allergy and Infectious Diseases (NIAID) has funded the construction of two new BSL-4 facilities, one at the University of Texas Medical Branch at Galveston and one at the Boston University Medical Center. Additional BSL-4 laboratory space is proposed for the National Bio- and Agro-defense Facility. The increase in BSL-4 laboratory space is likely to result in a corresponding increase in the number of scientists trained in the techniques required to handle contagious, deadly pathogens. Some posit that such an increase will lead to further dissemination of information regarding biothreat agents, possibly to scientists who oppose the United States. Others argue that the increase in BSL-4 laboratory facilities and trained scientists will lead to a more robust biodefense capability, providing more rapid breakthroughs in pathogen identification and countermeasure development. The construction of a DHS BSL-4 facility dedicated to threat characterization has raised community fears with regard to potential pathogen leakage, theft, or loss, and possible indirect health impacts. Similar concerns have been raised regarding the construction of the NIAID BSL-4 facilities. The DHS and DOD assert that such a release is unlikely, given the high safety requirements of a BSL-4 facility. How the NBACC program and NBACC facility coordinate their efforts with other federal agencies may attract Congressional interest. When the Department of Homeland Security was formed, most programs addressing medical countermeasures to biological threats remained under the authority of the Department of Health and Human Services (HHS). Most civilian programs addressing nonmedical countermeasures, such as those funded by the Department of Energy, were transferred to the Department of Homeland Security. With the establishment of the NBACC facility, research and development activities in some areas being pursued by the BTCC would be closely related to those supported by HHS. Results of such DHS research and development activities could also help inform and shape policy and research agenda in other departments. For example, the risk assessment activities undertaken by DHS could potentially aid in informing HHS strategic deliberations. The DHS Secretary is charged with coordinating homeland security research and development activities across the federal government. If coordination is well-managed, the effectiveness of research and development activities would be optimized. Results from DHS testing and evaluation of biological countermeasures, for example, might inform new research areas for HHS to support. On the other hand, if coordination is ineffective, significant overlap and duplication of effort may occur between agencies. Additionally, effective coordination between the NBFAC and the Federal Bureau of Investigation (FBI) would be necessary for a prompt forensics response following a bioterrorism incident. The NBFAC has, in its interim space, completed processing of thousands of forensic samples in support of bioterror/biocrime cases for the FBI, acting as the lead federal facility for bioforensic analysis. The FBI has entered into contracts with Department of Energy Laboratories to perform forensics and attribution activities for nuclear materials. Lessons learned from these activities may lower barriers to effective interagency actions following a biological attack. Some coordinative activities designed to leverage the NBACC facility capabilities are already underway. The DHS, acting through the Science and Technology Directorate, has entered into the Interagency Biomedical Research Confederation at Fort Detrick. This group consists of agencies and institutes engaged in medical or biotechnology research at Fort Detrick and also includes representatives from the National Institutes of Health, the Agricultural Research Service, the Centers for Disease Control and Prevention, and the Army Surgeon General. Through committees and subcommittees established under this interagency group, these participants attempt to coordinate work in scientific areas of mutual interest, so as to encourage efficient management, foster scientific interchange, and maximize research and development productivity. The feasibility study performed for NBACC identified several potential routes for the construction of NBACC. A phased approach, in which the BKC was initially formed outside of the Fort Detrick facility and then incorporated into the facility at a later date, was one route identified. Another was the construction of the NBACC facility with the BKC integrated within it. The BKC was, instead, established separately at Lawrence Livermore National Laboratory, and now appears to be a center independent of the NBACC facility and NBACC program. The BKC, in its data collection, analysis, and dissemination capabilities, appears to play a similar role to the NBACC program and facility. The degree to which information needs and gaps identified by one of the centers may be filled by the other center may rest heavily on internal communications and interactions. Efficient information sharing and planning may play a key role in maximizing the effectiveness of both centers. | The mission of the National Biodefense Analysis and Countermeasures Center (NBACC) is to understand current and future biological threats; assess vulnerabilities and determine potential consequences; and provide a national capability for conducting forensic analysis of evidence from bio-crimes and bio-terrorism. The NBACC is operational, with a program office and several component centers occupying interim facilities. A laboratory facility dedicated to executing the NBACC mission and to contain two NBACC component centers is being built at Fort Detrick, Maryland, as part of the National Interagency Biodefense Campus. The laboratory facility, with an estimated construction cost of $141 million, will be the first Department of Homeland Security laboratory specifically focused on biodefense. Its programmatic contents and component organization appear to be evolving, as conflicting information has been provided during previous budget cycles. Congressional oversight of programs, especially those performed in federal facilities for homeland security purposes, is considered key to maintaining transparency in biodefense. Policy issues that may interest Congress include the operation of the NBACC facility as a federally funded research and development center, transparency and oversight of research activities performed through the center, and the potential for duplication and coordination of research effort between the Department of Homeland Security and other federal agencies. This report will be updated as circumstances warrant. |
Countervailing duty laws attempt to provide relief to domestic industries that have been, or are threatened with, material injury as a result of imported goods sold in the U.S. market that have been found to be subsidized by a foreign government or public entity. The relief provided is an additional import duty placed on the subsidized imports that is equal to the estimated amount of subsidization. In order for an industry to obtain relief, two things must be determined: (1) the International Trade Commission must find that the domestic industry is materially injured or threatened with material injury due to the imports, and (2) the International Trade Administration (ITA) of the Department of Commerce must find that the targeted imports have been subsidized. Prior to a 2007 CVD investigation on coated free sheet (CFS) paper from China, the ITA determined that it would not apply CVD laws to nonmarket economy (NME) countries, including China, because the agency believed that there was no adequate way to measure market distortions caused by subsidies in an economy that is not based on market principles. However, in the context of the 2007 investigation, the ITA determined that it may be possible to identify subsidies in China because many industries in the China operate according to market principles. The ITA had previously reaffirmed that China was an NME country. The 2007 subsidy decision was a China-specific determination, and thus is not applicable to other NME countries. For purposes of the trade remedy laws, the ITA is also the agency responsible for designating countries as nonmarket economies, defined in U.S. law as "any foreign country that the administering authority [the ITA] determines does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise." NME designations are based on the extent to which (1) the country's currency is convertible; (2) its wage rates result from free bargaining between labor and management; (3) joint ventures or other foreign investment are permitted; (4) the government owns or controls the means of production; and (5) the government controls the allocation of resources and price and output decisions. The ITA may also consider other factors that it considers appropriate. ITA-designated NME countries as of this writing are Armenia, Azerbaijan, Belarus, China, Georgia, Kyrgyz Republic, Moldova, Tajikistan, Uzbekistan, and Vietnam. The ITA first made the determination not to apply CVD action to NME countries in 1983-1984 in connection with countervailing investigations of two cases of alleged subsidization, one dealing with carbon steel wire rod imported from Czechoslovakia and Poland, and the other with imports of potassium chloride (potash) from the German Democratic Republic (East Germany) and the Soviet Union. All of these countries were designated by the ITA as NME countries at the time of the investigation. China, designated an NME country in 1983, is the United States' second largest trading partner, the largest source of U.S. imports, and its third largest export market. The continuing U.S. trade deficit with China ($227 billion in 2009) and the alleged adverse impact of Chinese imports on competing U.S. industries and workers has led some in Congress to support increased use of U.S. trade remedy laws against Chinese products. One area of concern has been China's alleged use of "illegal" subsidy programs to bolster its industries and spur export growth. Many U.S. domestic producers alleged for years that they were adversely impacted by China's subsidizing its industries, but the 1984 ITA ruling meant that there was essentially no recourse to deal with the issue of subsidies. China is the chief target of U.S. antidumping action, however, with over 80 AD duty orders in place as of August 12, 2010. In addition, AD duty amounts tend to be higher for Chinese imports, due in part to the methodology employed by the ITA when calculating AD duties for NME countries. A related concern involves assertions by many U.S. policymakers, business people, and labor representatives that China's currency is significantly undervalued vis-à-vis the U.S. dollar, which, they allege, makes Chinese exports much cheaper than they would be if Chinese exchange rates were determined by market forces. In turn, they maintain that the undervalued currency has contributed to the U.S. trade deficit with China, and has injured U.S. production and employment in several manufacturing sectors (such as apparel and furniture) because U.S. companies must compete with "artificially" lower cost goods from China. The issue of alleged Chinese "currency manipulation" or "misalignment" is another factor that led to renewed congressional interest in applying countervailing action to imports from China, and in turn, to finding currency manipulation countervailable. For a discussion of recent legislation on currency misalignment issues, see CRS Report RS21625, China's Currency: An Analysis of the Economic Issues , by [author name scrubbed] and [author name scrubbed]. The applicability of NME classification with regard to China was determined in an ITA Preliminary Determination of Sales at Less than Fair Value, Greige Polyester Cotton Print Cloth from China (March 1983). On May 15, 2006, the ITA reaffirmed this determination (and more comprehensively in an August 30, 2006 memorandum) in the context of an investigation on certain lined paper from China. According to current U.S. law, any determination that a foreign country is a nonmarket economy country remains in effect until specifically revoked by the ITA. Therefore, since the ITA further determined (in December 1983), that subsidies could not be found in NME countries, the ITA had not initiated countervailing action against China since 1991—until the CFS paper investigation was presented in 2007. In China's case, the NME designation may only be used for a limited time, due to a provision in its World Trade Organization (WTO) accession package specifying that the "importing WTO member may use a methodology that is not based on a strict comparison with domestic prices or costs in China" for both antidumping and countervailing actions only for 15 years after the date of accession (or December 11, 2016). After that date, the United States and other World Trade Organization (WTO) members may no longer use nonmarket economy or "surrogate country" methodology when determining price comparability in CVD or AD investigations. At the time the 1983-1984 investigations were initiated, the United States had in force two countervailing duty laws. Both provided for the imposition of a countervailing duty equal to the amount of subsidization on dutiable (but not duty-free) products that had been subsidized in their country of origin. Both laws also required a determination of the existence and amount of subsidization to be countervailed, but one of the laws also required a finding that the subsidized imports have caused or threatened to cause injury to a U.S. domestic industry. The earlier of the two laws (Section 303 of the Tariff Act of 1930, repealed in January 1995) was a modified version of a countervailing law initially enacted by the Tariff Act of 1897. This law was applicable only to products of countries other than those "under the Agreement." Countries "under the Agreement" referred to (1) any country to which the General Agreement on Tariffs and Trade (GATT) Subsidies and Countervailing Code applied, or (2) had assumed Code-equivalent obligations with respect to the United States, or (3) the President determined the existence of an agreement with the United States containing certain relevant provisions specifically spelled out in the statute. Section 303—repealed effective January 1, 1995, by Section 261(a) of the Uruguay Round Agreements Act (URAA) ( P.L. 103-465 )—provided for the levying of a countervailing duty (CVD) equal to the net amount of public or private subsidization (defined as " any bounty or grant, however the same be paid or bestowed") without any need for injury determination. Countervailing legislation with much broader country applicability (i.e., to countries "under the Agreement") consisted of comprehensive provisions (including detailed procedural provisions) added by the Trade Agreements Act of 1979 ( P.L. 96-39 ) as Subtitle A of Title VII to the Tariff Act of 1930. That U.S. law implemented the provisions of the international Subsidies and Countervailing Code agreed to in multilateral trade negotiations under the auspices of the GATT meeting in Geneva in April 1979. Under this legislation, most of which is still in force in a somewhat amended language, the assessment of a countervailing duty required—in addition to a determination that a "country under the Agreement" or a private entity in such country was providing "directly or indirectly, a subsidy with respect to the manufacture, production, or exportation" of merchandise imported into the United States—a determination that such imports have caused, or threatened with, injury to an industry in the United States, or that the establishment of an industry in the United States is thereby materially retarded. The URAA, in addition to repealing section 303 and omitting subsidies from a private source as being countervailable, also amended the countervailing duty law of the 1979 Act by incorporating into it provisions comparable to those of section 303, which do not require injury determination in countervailing investigations of subsidized imports from countries other than "Subsidies Agreement countries." The latter have been defined in the same way—with appropriate updating technical changes—as the countries under the Agreement under the Trade Agreements Act of 1979. This version is still in effect. Parallel countervailing duty investigations of carbon steel wire rod imports from Czechoslovakia and Poland were initiated on December 13, 1983, pursuant to petitions filed with the ITA on November 23, 1983, by four U.S. steel manufacturers. The petitions alleged that manufacturers, producers, or exporters of the product in question in either country received public benefits within the meaning of the countervailing law. Specifically, the petitions for countervailing action alleged that "bounties or grants" were provided in both countries in the form of a multiple exchange rate system, and a partial hard-currency retention program for exporting firms. In addition, Czechoslovakia allegedly had in effect a system of industry-specific trade conversion coefficients for the official exchange rate, and tax exemption for foreign trade earnings, while Poland provided price equalization payments for losses incurred due to foreign sales below domestic prices. Both cases proceeded in parallel, and the determinations on issues they had in common were identical except for a few minor, country-specific differences. Therefore, page references to the Federal Register included in this report will be only those dealing with the Czechoslovak case, unless an issue specific to one country is discussed. In its notices of initiation of investigation, the ITA found both countries to be "countries not under the Agreement," and conducted the countervailing procedure according to provisions of Section 303, hence, without the need for determining injury. In addition, the ITA considered both of them nonmarket economy (NME) countries, but specifically pointed out that it had not yet resolved the question "whether the countervailing duty law [either Section 303 or the countervailing duty provision of Title VII] applies to nonmarket economy countries [as such]." Although this issue had arisen almost a year earlier in connection with a CVD investigation of textile imports from China, it was not resolved then because the CVD petition was withdrawn by the petitioners, meaning that the investigation terminated. The issue, however, was subsequently addressed in the preliminary determinations in the two carbon steel wire rod cases. In both cases, the ITA found that "nonmarket economy countries are not exempted per se from the countervailing duty law," since Section 303, by its statutory terms as well as based on its legislative history, applied to " any country..." Weighing its own tentative initial literal interpretation of the country applicability of the provision and the arguments introduced earlier in the consideration of the China textiles case—focusing on the difference in the effects of government intervention in a market and nonmarket economy—the ITA, however, was "dispose[d] to not exclude nonmarket ... economies from its application without further review in each particular case." The ITA, consequently, had its "first opportunity to determine preliminarily whether practices by a government of a so-called nonmarket economy country confer countervailable benefits." Focusing on prices as the key elements of subsidization, the ITA, in the ensuing detailed analysis of the situation in both countries, pointed out that [i]n nonmarket economies, central planners typically set the prices without any regard to their economic value. As such, these prices do not reflect scarcity or abundance. For example, when a product is scarce in a market economy, its price will increase. In a nonmarket economy, however, the price of a scarce good will not go up unless the central planners mandate a new, higher price. Even if we can identify an internally set price, that price does not have the same meaning as a price in a market economy (49 F.R. 6770). The ITA then analyzed in detail the alleged subsidization programs by determining, first, whether they would confer a subsidy in a market economy, and then whether the conclusion would be different for an NME country. The ITA concluded preliminarily that multiple exchange rates, currency retention schemes, trade conversion coefficients, and price equalization payments do not confer a bounty or grant either in market or in nonmarket economies; that the Polish adjustment coefficient program did not constitute a bounty or grant within the meaning of the law; and that the agency had not received sufficient timely information on the Czechoslovak tax exemption program to make a determination. On the basis of these findings, the ITA preliminarily determined that, while Congress did not exempt NME countries as such from the CVD law, the alleged Czechoslovak and Polish practices were not providing bounties or grants within the meaning of the CVD law. As the CVD law required, the ITA continued both investigations into their final phase. In the final phase of these two investigations, the ITA focused on the unresolved issue of the application of the CVD law to nonmarket economy countries. In its detailed and comprehensive final determinations in the two carbon steel wire rod cases, the ITA first concluded "that Congress never has confronted directly the question of whether the countervailing duty law applies to NME countries." It pointed out that Congress did not even debate, much less legislate on this issue, either in 1974 (when the concept of nonmarket economy countries was introduced into trade legislation and remedies were provided specifically with respect to imports from them, and Congress also amended the CVD law) or in 1979 (when the CVD law was thoroughly restructured, and the application of unfair-pricing remedial legislation was dealt with in detail, but only with respect to dumping by NME countries). The ITA found it significant that, in the Trade Act of 1974, Congress enacted remedial provisions dealing specifically with injurious imports from "State-controlled-economy" or "Communist" countries—both terms functionally equivalent to that of "nonmarket economy" countries used in another part of the same Act—in the context of antidumping and "market disruption" (NME-specific import-relief action) but not with respect to countervailing action. In this, pointed out the ITA, citing the Senate report on the 1974 Act (S.Rept. 93-1298), Congress recognized the need for special remedial legislation applicable to State-controlled-economy countries because traditional fair- or unfair-trade remedies were insufficient or have proven inappropriate or ineffective because in "State-controlled-economy countries ... supply and demand forces do not operate to produce prices" and "because of the difficulty of [the] application [of such remedies] to products from State-controlled economies" (cited at 49 F.R. 19373). Likewise, in the legislative history of the thorough restructuring of the CVD law by the Trade Agreements Act of 1979, there was nothing regarding any aspect of the application of the CVD law to NME countries, although the Subsidies and Countervailing Code of the General Agreement on Tariffs and Trade, implemented for the United States by that act, in Article 15 "explicitly permits [GATT] signatories to regulate unfairly priced imports from NME countries under either antidumping or countervailing duty legislation" (49 F.R. 19373). The ITA also consulted with other U.S. government and academic sources, which, briefly, concluded that "it is ... only 'remotely possible' to identify and quantify subsidies in NMEs;" "most of the analysis used thus far for ... subsidies, is entirely inapplicable.... Theoretically, any given sale may be subsidized or not, but since there is no market reference point, it is idle to speak in such terms." To one author, the countervailing duty law appears to require identification and measurement of a resource transfer from the state to the producer, but "this is simply not a measurable event in the typical nonmarket economy;" and "The extent to which a nonmarket system ... can be said to be subsidizing will always be unclear" (all cited at 49 F.R. 19374). Claiming broad discretion in this matter earlier recognized by the judiciary, the ITA concluded that a "bounty or grant," within the meaning of the countervailing duty law, cannot be found in an NME. The ITA also determined that Czechoslovakia and Poland were NMEs, since they operated "on principles of nonmarket cost or pricing structures so that sales or offers for sale of merchandise ... do not reflect the value of the merchandise." Accordingly, the ITA determined that manufacturers, producers, or exporters in Czechoslovakia and Poland did not receive bounties or grants, and issued, effective May 7, 1984, final negative countervailing duty determinations. Shortly before the completion of the countervailing duty investigations of carbon steel wire rod, two U.S. chemical manufacturers filed (on March 30, 1984) petitions alleging subsidization of potassium chloride (potash) imported from the German Democratic Republic and the Soviet Union, whereupon the respective investigations were initiated as of April 26, 1984. Because of the subsequent determination in the carbon steel wire rod cases that bounties or grants within the meaning of the countervailing duty law cannot be found in an NME (and both countries were determined to be NMEs), the ITA on June 6, 1984, rescinded the two potassium chloride (potash) investigations and dismissed the relevant petitions. Since the conclusion of the wire rod and potash countervailing duty cases (see next section) the ITA has not initiated any countervailing investigations of allegedly subsidized imports from NME countries, with one specialized exception. Based on a petition filed on October 1, 1991, the ITA, on November 13, 1991, initiated a countervailing duty investigation of Ceiling and Oscillating Fans Imported from China . The petitioner claimed that, while China was an NME country, "the PRC fan sector operates substantially pursuant to market principles and that the CVD law should apply." The petition was apparently based on the fact that ITA had, meanwhile, procedurally introduced into antidumping investigations of imports from NME countries the concept of market-oriented industry (MOI) as a means of determining whether an industry in an NME country is sufficiently market-oriented (i.e., free from state control) to enable the ITA to use the economic data provided by the industry itself (rather than those of a surrogate market-economy country) in determining fair market value of the imported product subject to the investigation. The petitioners in the Chinese fan CVD case claimed that the Chinese fan industry was an MOI with dependable self-provided data (including those relating to subsidization) and, hence, could objectively be subjected to a countervailing investigation. In its preliminary investigation, the ITA concluded that the prices of several inputs are not market-determined and, hence, the industry cannot be considered an MOI, but believed that the information used as the basis for the determination should be verified and did not rescind the investigation. In its final, more comprehensive phase of the investigation, the ITA concluded that "the prices of several significant inputs are not market-determined" and therefore "the PC fans industry is not an MOI." ... "As a result ... the CVD law cannot be applied to the PRC fan industry" and the ITA issued final negative determination in the case. Following the ITA's negative determinations in the carbon steel wire rod cases and the dismissal of the potassium chloride cases, the petitioners challenged those actions in the U.S. Court of International Trade (CIT). The court consolidated both suits and, on July 30, 1985, held that "countervailing duty law covers countries with nonmarket economies in light of fact that governmental subsidies that are target of law may be found in nonmarket economies as well as in market economies" (p. 548). The CIT reversed the carbon steel wire rod cases and remanded them to the ITA for determinations consistent with the court's opinion, and set aside the rescissions of the potash cases and ordered that their investigations be resumed (p. 557). The CIT, in its detailed opinion, addressed each of the four grounds on which the ITA had based its determination of nonapplicability of countervailing procedure to NME countries: (1) the view that a subsidy cannot be conferred in a nonmarket economy "because a subsidy, by definition , means an act which distorts the operation of a [free] market " (both italics in the original); (2) congressional "silence" on the issue and the apparent preference for other trade remedial procedures; (3) consensus of academic opinion as to nonapplicability of CVD law to NME countries; and (4) the ITA's asserted broad discretion to determine the existence or nonexistence of subsidies. The CIT held that the ITA had made a basic error in interpreting and administering the CVD law by concluding that, in its opinion, subsidies cannot be found in nonmarket economies. The court emphasized that, absent clear legislative intent to the contrary, the plain language of the CVD law must ordinarily be regarded as conclusive (p. 551). Hence, it applies to any country and, therefore, does not allow for any per se exemptions of any political entity, a fact that the ITA itself appears to have recognized in its determinations. The ITA, in the court's view, "institute[d], by administrative fiat, a major exemption for countries with nonmarket economies" by redefining the term "subsidy" as "a distortion of the operation [solely] of a market economy," thereby attempting to amend the CVD law (p. 552). Although the ITA had recognized that the CVD law did not allow for per se exemptions (see p. 3), it claimed that countries with nonmarket economies (i.e., political entities of a certain type ) were exempt because of their NME status, illogically contradicting the meaning of the CVD statute. The difficulties of the CVD law, said the CIT, are not those of its meaning , but rather problems of measurement , which are precisely within the expertise of the agency." The ITA "has the authority and ability to detect patterns of regularity and investigate beneficial deviations from those patterns—and it must do so regardless of the form of the economy" (p. 554). As to the ITA's argument that Congress' "silence" on the applicability of the CVD law to NME countries and its apparent preference for other remedial measures—among them antidumping law, which does contain specific provisions dealing with NME countries—the CIT pointed out that those measures have been established for remedying specific trade problems other than subsidization. Moreover, said the court. Article 15 of the GATT Subsidies and Countervailing Code, implemented for the United States by the Trade Agreements Act of 1979, "clearly gives a country the choice of using subsidy law or antidumping law for imports from a country with a state-controlled economy" (p. 556). The court summarily dismissed the ITA's recourse to the views of "economic academia" "that the government of a country with a nonmarket economy cannot show what amounts to favoritism towards the manufacture, production, or export of particular merchandise. The idea violates common sense and conflicts with a rational construction of the law" (p. 554-555). ITA's alleged assertion of its "broad discretion to determine the existence or nonexistence of subsidies" (p. 550) was not specifically addressed by the court; it was, however, implicitly challenged in the lengthy critique of administrative actions that, in the court's view, were contrary to law and, in effect, were attempts "to amend the countervailing law ... by administrative fiat" (p. 552). The U.S. government appealed the CIT decision to the U.S. Court of Appeals for the Federal Circuit, which—focusing on the potash cases—reviewed in detail the legislative history and development of relevant trade remedy laws and concluded that the CVD statute under which these investigations were conducted (Section 303 of the Tariff Act of 1930) had remained "substantially unchanged from the first general countervailing duty statute the Congress enacted [in 1897] ...." Since Congress had not "defined the terms 'bounty' and 'grant' as used in section 303," the appellate court concluded it could not "answer the question whether that section applies to nonmarket economies by reference to the language of the statute" nor could it, on the other hand, answer it by concluding that, on the basis of the statutory language, "Congress has not attempted to exclude nonmarket economies from what the court believed to be the sweeping reach of the section." Since "at the time of the original enactment there were no nonmarket economies; Congress ... had no occasion to address the issue ..." Hence, it remained for the court to "determine, as best [it could], whether when Congress enacted the countervailing duty law in 1897 it would have applied the statute to nonmarket economies, if they then had existed" (p. 1314). Based on the relevant aspects of the potash case, the appellate court concluded that the economic incentives and benefits provided by the Soviet Union and East Germany to their exports of potash to the United States did not constitute bounties or grants under the applicable CVD law (p. 1314). The court also said it followed a precedent which "recognized that the agency administering the countervailing duty law [i.e., the ITA] has broad discretion in determining the existence of a 'bounty' or 'grant' under that law" and, further, that it could not "say that the Administration's conclusion that the benefits the Soviet Union and the German Democratic Republic provided for the exports of potash to the United States were not bounties or grants under section 303 was unreasonable, not in accordance with the law or an abuse of discretion" (p. 1318). In conclusion, the Court of Appeals on September 18, 1986, vacated the CIT order insofar as it reversed the ITA's final CVD determinations in the two wire rod cases, and remanded them to the CIT with instructions to dismiss the complaint for lack of jurisdictions (because the complaint was not timely filed). It also reversed the CIT order insofar as it set aside the ITA's final actions in the potash cases (p. 1318). The decision of the U.S. Court of Appeals for the Federal Circuit in the wire rod and potash cases triggered immediate reaction in Congress. H.R. 3 of the 100 th Congress ("Trade and International Economic Policy Reform Act of 1987," introduced on January 6, 1987), as passed by the House, provided for the application of the countervailing duty law to nonmarket economy countries to the extent that a subsidy can reasonably be identified and measured by the administering authority (the ITA, see section 157). The proposed statute also contained detailed procedural provisions, including a requirement of injury determination by the U.S. International Trade Commission, whenever international obligations of the United States required it (H.Rept. 100-40, Part 1, p. 389). A comparable provision, however, was not included in the Senate version, and the House-passed language was dropped in conference (H.Rept. 100-576, p. 628; April 20, 1988). As H.R. 3 was being considered, companion bills S. 770 and H.R. 1687 were introduced on March 18 and 24, 1987, respectively, to apply CVD provisions to imports from a state-controlled economy country, but were not further considered. The application of CVD law to NME countries was addressed again in the 103 rd and 104 th Congresses. In the 103 rd Congress, Section 105 of S. 90 ("Trade Enforcement Act of 1993,"introduced on January 21, 1993) expanded the definition of "countervailable subsidy" in the Tariff Act of 1930, as amended by the Uruguay Round Agreements Act ( P.L. 103-465 ), by applying it to NME countries and prescribing the determination of its amount by using a surrogate market-economy country method (as used in antidumping investigations). An identical provision was included in the 104 th Congress as Section 103 in S. 1148 ("Economic Revitalization Act"), introduced on August 10, 1995. In the 106 th through 108 th Congresses, identical bills ( H.R. 3198 in the 106 th Congress; H.R. 784 in the 107 th Congress; and H.R. 3716 in the 108 th Congress) were introduced, applying the CVD duty law to NME countries and applicable to investigations of subsidies provided on or after the date of the enactment of the respective act. Virtually identical bills, but applicable to CVD investigations pursuant to petitions filed on or after the date of the enactment of the respective act, were introduced in the 108 th Congress ( H.R. 3716 and S. 2212 ). In the 109 th Congress, two free-standing bills with identical operative provisions were introduced on March 10, 2005: S. 593 (Collins, "Stopping the Overseas Subsidies Act of 2005") and H.R. 1216 (English), providing for application of CV duties to subsidized imports from NME countries, based on all petitions filed on or after the date of the enactment of the legislation. Provisions requiring application of CV action to imports from NME countries were subsequently included as Section 3 in broader trade-remedial legislation ("United States Trade Rights Enforcement Act"), introduced on July 14, 2005 ( H.R. 3283 , English) and July 19, 2005 ( S. 1421 , Collins). In somewhat simpler language, H.R. 3306 ("Fair Trade with China Act of 2005"), focused its findings exclusively on problems in trade with China, but in Section 3 subjected all (including China) NME countries to countervailing action, effective with respect to CVD petitions filed on or after the enactment date of the bill. The provision also specified that the application of CV action to nonmarket economy countries would have in no way affected the NME status of a country under antidumping provisions of the Tariff Act of l930 (several of which deal specifically with AD action against NME countries). Triggered by alleged foreign exchange-rate manipulation by China, Section 3 of H.R. 1498 ("Chinese Currency Act of 2005," introduced April 6, 2005) sought to define any such manipulation as a countervailable subsidy. In the 110 th Congress, several bills that sought to apply countervailing duty law to NME countries were introduced: S. 364 (Rockefeller, introduced January 23, 2007); H.R. 571 (Tancredo, introduced January 18, 2007); H.R. 708 (English, introduced January 29, 2007); H.R. 782 (Ryan/Hunter, introduced January 31, 2007), H.R. 2942 (Ryan/Hunter, introduced June 28, 2007), and related bill S. 796 (Bunning/Stabenow, introduced March 7, 2007); H.R. 1229 (Davis/English, introduced February 28, 2007) and related bill S. 974 (Collins/Bayh, introduced March 22, 2007); and S. 1919 (Baucus, introduced August 1, 2007). In the 111 th Congress, two bills, H.R. 496 , the "Trade Enforcement Act of 2009" (Rangel, introduced January 14, 2009 and H.R. 499 , the "Nonmarket Economy Trade Remedy Act of 2009"(Davis/Brown-Waite, introduced January 14, 2009) seek to specifically apply countervailing duties to nonmarket economies. The bills would also specify that the determination of the existence of a subsidy must be made without regard to whether the recipient (company or exporter) of the subsidy is publicly or privately owned; whether the subsidy is directly or indirectly provided "on the manufacture, production, or export of the merchandise; and whether the country is a nonmarket economy country or the level of economic reforms in the nonmarket economy at the time that the subsidy is provided. The administering authority is, further, not required to consider the effect of the subsidy in determining whether the subsidy exists. Both bills would also prevent the ITA from considering for market economy treatment of individual businesses in AD proceedings. This would end an ITA practice of assigning individual rates to companies in NME countries that have provided evidence that they are sufficiently independent of government control to be entitled a separate rate. Each of the bills also provides a China-specific alternate methodology for determining the amount of subsidy if special difficulties are found in identifying and calculating subsidy amounts. Whether or not China is designated as a nonmarket economy country, administrative authorities would be directed to use "methodologies to identify and calculate the amount of the benefit that take into account the possibility that terms and conditions prevailing in China may not be applicable as appropriate benchmarks." In these situations, authorities are directed take into account and adjust the terms and conditions prevailing in China, but if they determine that it is not practicable to determine the amount of subsidy under those conditions, the authority may use terms and conditions prevailing outside of China. However, if authorities have determined that China is an NME country, they are directed to "presume" that special difficulties do exist, that it is not practicable to consider and adjust for Chinese terms and conditions, and that "terms and conditions prevailing outside of China" (e.g., using surrogate market economy country or world market data) should be used to calculate the amount of subsidy. The bills also seek to amend current law to provide that a country's NME status may be revoked only if a joint resolution of Congress approves such a determination made by the administering authority. The bills provide specific language for the resolution and time limits and conditions for debate. Arguably in response to the concerns of domestic manufacturers of import-competing products and many in Congress, the Bush Administration took steps, beginning in late 2006, to deal with China's alleged subsidies of exports. First, the ITA initiated and completed a CVD investigation on a product from China. Second, consultations were initiated in the WTO on China's subsidy regime. On November 27, 2006, the ITA announced that it had initiated a CVD investigation on CFS paper against China. In the first phase of the investigation, the International Trade Commission (ITC) preliminarily determined on December 15, 2006, "that there was a reasonable indication that a U.S. domestic industry is materially injured or threatened with material injury" by reason of allegedly subsidized coated paper from China—thus referring the case back to the ITA for a preliminary determination on subsidization. If the ITC had made a negative determination, the investigation would have terminated at that point. On March 30, 2007, the ITA also announced an affirmative preliminary determination of subsidy in the CVD investigation. Preliminary estimates of net countervailable subsidy rates were set, ranging from 10.9% to 20.35%. The next phase of the CVD investigation continued at the ITA. In mid-October, the ITA made its final determination that "countervailable subsidies are being provided to producers and exporters of coated free sheet (CFS) paper from the People's Republic of China." Final subsidy amounts ranged from 7.40% to 44.25%. In the course of its preliminary investigation on CFS paper, the ITA concluded that "while China has enacted significant and sustained economic reforms, the PRC government has preserved a significant role for the state in the economy." Even though the ITA stood by its previous decision reaffirming China's status as an NME country, the agency also found that China's present-day economy is "significantly different" from the "Soviet-style economies" at issue in the Georgetown Steel case where (p)rices are set by central planners. 'Losses' suffered by production and foreign trade enterprises are routinely covered by government transfers. Investment decisions are controlled by the state. Money and credit are allocated by the central planners. The wage bill is set by the government. Access to foreign currency is restricted. Private ownership is limited to consumer goods. In contrast, the ITA determined in its March 29, 2007 analysis that market forces actually determine the prices of more than 90% of products in China, that wages seem to be negotiated, as opposed to government-set, foreign currency is more accessible, and private ownership rights are acknowledged by the Chinese government. At the same time, "the current PRC government has instead opted to shrink the role of the state in some areas while preserving it in others, but never ceding fundamental control over the economy to market forces completely." Therefore, the ITA concluded, even though China remains an NME country, the current state of China's economy permits the agency to determine whether the Chinese government has bestowed a benefit on Chinese producer, and whether any such benefit is specific. On December 7, 2007, the ITC announced its negative determination of injury in both the countervailing and antidumping investigations on CFS paper. A summary of the reasons for this determination follows: Given the modest imminent increase in production capacity in China and Indonesia, the absence of any potential for product shifting, the lack of evidence of significant price effects from these imports during the period examined, the moderate inventories of the subject merchandise, the absence of negative effects of the subject imports on the development and production efforts of the domestic industry, and our conclusion that the domestic industry is not vulnerable, we find that material injury by reason of subject imports will not occur absent issuance of antidumping and countervailing duty orders against subject imports from China and Indonesia. We therefore conclude that the domestic CFSP industry is not threatened with material injury by reason of imports from China and Indonesia. Since the ITC issued a final negative CVD determination, the investigation was terminated and all estimated duties deposited or bonds posted as a result of the investigation were (or are in the process of being) refunded or canceled. The most significant action in this case, however, was the ITA's determination that it was able to measure subsidies in China. Although the investigation did not ultimately result on CV duties being imposed on the product, a subsequent investigation that concluded in late July 2008 (on circular welded carbon quality steel pipe) resulted in the first CVD order placed on products from an NME country since 1983. As of this writing, countervailing duties have been placed on 13 products from China, and at least 8 investigations are pending. On January 9, 2007, the government of China filed suit in the Court of International Trade in an effort to prevent the ITA from continuing with the CVD investigation, alleging that the decision by the Court of Appeals for the Federal Circuit held "unequivocally" that the applicable statute did not allow application of the CVD law to NME countries. On March 29, 2007, the Court ruled that it did not have jurisdiction to hear the case because no final determination had been made. Although the Court did not rule on whether the ITA has the legal authority to apply CVD law to NMEs, it did state that "it is not clear that Commerce is prohibited from applying countervailing duty law to NMEs." On September 14, 2007, China requested WTO dispute settlement consultations with the United States on its preliminary antidumping and countervailing duty determinations on CFS paper. The U.S. Trade Representative announced the move and requested comments from the public on October 10, 2007. No further action in the dispute has been taken as of this writing. China has been an active user of AD investigations against products from the United States and other countries since its accession to the WTO. In 2009, China initiated its first CVD case. As of March 2010 Chinese authorities had 3 ongoing CVD investigations, all of them on products from the United States. On February 2, 2007, the USTR announced that the United States had requested WTO dispute settlement consultations with China over its use of "what we contend are illegal subsidies." This is the first step in the WTO dispute settlement process. On March 9, 2007, USTR Susan Schwab announced that China had agreed to terminate one of the nine challenged subsidy programs—a regulation implemented by China's central bank that allowed large exporters to take advantage of discounted loans not available to other companies. In its formal request for consultations, the United States pointed to several tax laws (including nine specifically cited laws) and other measures allegedly used by the Chinese government in order to provide tax refunds or exemptions to Chinese businesses if they purchase domestically produced goods instead of foreign products, provided they meet certain export performance criteria. The USTR stated that these subsidies "can distort trade conditions for U.S. manufacturers, small and medium-sized enterprises (SMEs) and their workers in multiple industries. They are available across manufacturing sectors, so they can inhibit U.S. exports of a huge range of products to China, and provide an unfair advantage to China's exports in the United States and around the world." On November 29, 2007, USTR Schwab announced that China had agreed to terminate all subsidies that the United States alleged were illegal under WTO rules by January 1, 2008. China signed separate Memoranda of Understanding (MOU) with the United States and Mexico promising to permanently eliminate the WTO-prohibited subsidies. In the 2010 National Trade Estimate Report on Foreign Trade Barriers, the USTR reported that China had eliminated the subsidies, as agreed. On December 19, 2008, the United States again requested consultations with China regarding "certain measures offering grants, loans, and other incentives to enterprises in China" providing that these Chinese companies meet certain export performance criteria. A settlement agreement was reached in December 2009 in which China confirmed that it had eliminated all of the challenged export-contingent benefits. Despite the ITA's affirmative determination that it is able to identify the existence of subsidies in China, some in Congressindicated that they intended to move forward with legislation to "ensure we are combating all unfair trade—whether it is dumping or subsidies—that puts American workers, farmers and businesses at a disadvantage." Congress may want to consider some of the following issues as it continues to address application of trade remedies to China. First, the ITA's decision that it can identify subsidies in China has no effect on China's standing as a nonmarket economy country or on the NME designations of other countries. It also does not affect ITA's determination that it is unable to find subsidies in NME countries other than China. Therefore, Congress may want to consider legislation ensuring that the CVD laws and actions specifically apply to other NME countries as well as China. Vietnam, another U.S. trading partner of increasing significance, is also an NME country. However, the amount of trade with the other remaining NME countries (Armenia, Azerbaijan, Belarus, Georgia, Kyrgyz Republic, Moldova, Tajikistan, Turkmenistan, and Uzbekistan) is not particularly significant at present, and to date, there are no outstanding AD orders or other significant trade disputes with these countries. Second, there are currently no specific factors to consider or methodologies provided in the trade remedy laws for administrative authorities to use when identifying subsidies in nonmarket economies. In contrast, the antidumping statute does provide a methodology for determining normal value in NME countries—including the authority to calculate expenses using inputs and factors of production in a market economy country "considered appropriate to the administering authority." Third,it is important to note that making CVD procedures available to U.S. industries is not without its trade-offs. AD duties tend to be higher than countervailing duties in general, and AD duties on imports from nonmarket economy countries tend to be even higher, in part due to the use of the third-country data methodology to calculate the amount of dumping. If China retained its NME status and subsidies were found on targeted merchandise for which AD duties were already in place, some of the companion AD duties might have to be revised downward in order to avoid "double counting"―or the possible inclusion of export subsidy amounts in certain AD duty calculations). In a June 2005 report, the Government Accountability Office (GAO) stated that this consideration "introduces a level of uncertainty about the magnitude of the total level of protection that would be applied to Chinese products," and "may result in combined rates that are lower than might be expected." Therefore, a determination by ITA that it can target subsidies in China, or legislation amending the statute, could result in the unintended consequence of an overall reduction in the amount of protection provided. However, since the two remedies address substantially different forms of price manipulation, it is also possible that some U.S. industries that had not been able in the past to obtain relief through the AD statute may be able to do so through CVD procedures. | Concern regarding the level of low-cost imports from China and other countries and its impact on U.S. firms and workers, combined with China's limiting of the appreciation of its currency, have led some in Congress to introduce legislation proposing to make countervailing duty laws applicable to China and other nonmarket economy countries. Countervailing duty laws provide for the assessment of additional duties on imports whose production and/or importation are found to be subsidized by a public entity in their country of origin and are injurious to a U.S. producer of similar merchandise. Antidumping, another kind of trade remedy action, addresses products sold in the United States at less than their fair value (as defined by law) in a similar manner. Although antidumping (AD) and countervailing duty (CVD) laws and procedures generally parallel each other, CVD laws contain no specific provisions for investigations on imports from nonmarket economy (NME) countries, while the AD statute does provide such guidelines. Initial administrative attempts in 1983 to apply countervailing remedies to allegedly subsidized imports from several NME countries led to determinations by the International Trade Administration (ITA) of the Department of Commerce (the U.S. agency charged with determining the existence and extent of subsidies) that subsidies within the meaning of the countervailing law, cannot be found in nonmarket economies. These ITA determinations were challenged in the U.S. Court of International Trade (CIT), which held that they were "not in accordance with the law," reversed them, and remanded the cases to the ITA. On appeal, the U.S. Court of Appeals for the Federal Circuit reversed, and reinstated the ITA's original determinations—thus affirming that the ITA has the discretion not to apply the CVD law to NME countries. The ITA reevaluated this decision, with respect to China only, during a countervailing investigation on coated free sheet (CFS) paper. On October 18, 2007, the ITA made a final affirmative determination of subsidies in the investigation, finding net countervailable subsidies ranging from 7.40% to 44.25%. Although the International Trade Commission (the U.S. agency charged with determining whether the U.S. industry suffered material injury as a result of the subsidy) made a negative injury determination in the investigation, meaning that no CVD duties were assessed, other industries pursued countervailing investigations as a result of the ITA's decision. As of this writing, countervailing duties have been placed on 13 products from China, and at least 8 investigations are pending. Legislation seeking to apply CVD action to NME countries introduced in the 111th Congress includes H.R. 496 and H.R. 499, both introduced on January 14, 2009. |
In 2008, an unknown computer programmer or group of programmers using the pseudonym Satoshi Nakamoto created a computer platform that would allow users to make valid transfers of digital representations of value. The system, called Bitcoin , is the first known cryptocurrency . A cryptocurrency is digital money in an electronic payment system in which payments are validated by a decentralized network of system users and cryptographic protocols instead of by a centralized intermediary (such as a bank). Since 2009, cryptocurrencies have gone from little-known, niche technological curiosities to rapidly proliferating financial instruments that are the subject of intense public interest. Recently, they have been incorporated into a variety of other financial transactions and products. For example, cryptocurrencies have been sold to investors to raise funding through initial coin offerings (ICOs), and the terms of certain derivatives are now based on cryptocurrencies. Some government central banks have examined the possibility of issuing cryptocurrencies or other digital currency. Media coverage of cryptocurrencies has been widespread, and various observers have characterized cryptocurrencies as either the future of monetary and payment systems that will displace government-backed currencies or a fad with little real value. When analyzing the public policy implications posed by cryptocurrencies, it is important to keep in mind what these currencies are expressly designed and intended to be—alternative electronic payment systems. The purpose of this report is to assess how and how well cryptocurrencies perform this function, and in so doing to identify possible benefits, challenges, risks, and policy issues surrounding cryptocurrencies. The report begins by reviewing the most basic characteristics and economic functions of money, the traditional systems for creating money, and traditional systems for transferring money electronically. It then describes the features and characteristics of cryptocurrencies and examines the potential benefits they offer and the challenges they face regarding their use as money. The report also examines certain risks posed by cryptocurrencies when they are used as money and related policy issues, focusing in particular on two issues: cryptocurrencies' potential role in facilitating criminal activity and concerns about protections for consumers who use these currencies. Finally, the report analyzes cryptocurrencies' impact on monetary policy. Money exists because it serves a useful economic purpose: it facilitates the exchange of goods and services. Without it, people would have to engage in a barter economy , wherein people trade goods and services for other goods and services. In a barter system, every exchange requires a double coincidence of wants —each party must possess the exact good or be offering the exact service that the other party wants. Anytime a potato farmer wanted to buy meat or clothes or have a toothache treated, the farmer would have to find a particular rancher, tailor, or dentist who wanted potatoes at that particular time and negotiate how many potatoes a side of beef, a shirt, and a tooth removal were worth. In turn, the rancher, tailor, and dentist would have to make the same search and negotiation with each other to satisfy their wants. Wants are satisfied more efficiently if all members of a society agree they will accept money —a mutually recognized representation of value—for payment, be that ounces of gold, a government-endorsed slip of paper called a dollar, or a digital entry in an electronic ledger. How well something serves as money depends on how well it serves as (1) a medium of exchange, (2) a unit of account, and (3) a store of value. To function as a medium of exchange , the thing must be tradable and agreed to have value. To function as unit of account , the thing must act as a good measurement system. To function as a store of value , the thing must be able to purchase approximately the same value of goods and services at some future date as it can purchase now. Returning to the example above, could society decide potatoes are money? Conceivably, yes. A potato has intrinsic value (this report will examine value in more detail in the following section, " Traditional Money "), as it provides nourishment. However, a potato's tradability is limited: many people would find it impractical to carry around sacks of potatoes for daily transactions or to buy a car for many thousands of pounds of potatoes. A measurement system based on potatoes is also problematic. Each potato has a different size and degree of freshness, so to say something is worth "one potato" is imprecise and variable. In addition, a potato cannot be divided without changing its value. Two halves of a potato are worth less than a whole potato—the exposed flesh will soon turn brown and rot—so people would be unlikely to agree to prices in fractions of potato. The issue of freshness also limits potatoes' ability to be a store of value; a potato eventually sprouts eyes and spoils, and so must be spent quickly or it will lose value. In contrast, an ounce of gold and a dollar bill can be carried easily in a pocket and thus are tradeable. Each unit is identical and can be divided into fractions of an ounce or cents, respectively, making both gold and dollars effective units of account. Gold is an inert metal and a dollar bill, when well cared for, will not degrade substantively for years, meaning can both function as a store of value. Likewise, with the use of digital technology, electronic messages to change entries in a ledger can be sent easily by swiping a card or pushing a button and can be denominated in identical and divisible units. Those units could have a stable value, as their number stays unchanging in an account on a ledger. The question becomes how does a lump of metal, a thing called a dollar, and the numbers on a ledger come to be deemed valuable by society, as has been accomplished in traditional monetary systems. Money has been in existence throughout history. However, how that money came to have value, how it was exchanged, and what roles government and intermediaries such as banks have played have changed over time. This section examines three different monetary systems with varying degrees of government and bank involvement. Early forms of money were often things that had intrinsic value, such as precious metals (e.g., copper, silver, gold). Part of their value was derived from the fact that they could be worked into aesthetically pleasing objects. More importantly, other physical characteristics of these metals made them well suited to perform the three functions of money and so created the economic efficiency societies needed: these metals are elemental and thus an amount of the pure material is identical to a different sample of the same amount; they are malleable and thus easy divisible; and they are chemically inert and thus do not degrade. In addition, they are scarce and difficult to extract from the earth, which is vital to them having and maintaining value. Sand also could perform the functions of money and can be worked into aesthetically pleasing glass. However, if sand were money, then people would quickly gather vast quantities of it and soon even low-cost goods would be priced at huge amounts of sand. Even when forms of money had intrinsic value, governments played a role in assigning value to money. For example, government mints would make coins of precious metals with a government symbol, which validated that these particular samples were of some verified amount and purity. Fiat money takes the government role a step further, as discussed below. In contrast to money with intrinsic value, fiat m oney has no intrinsic value but instead derives its value by government decree. If a government is sufficiently powerful and credible, it can declare that some thing—a dollar, a euro, a yen, for example—shall be money. In practice, these decrees can take a number of forms, but generally they involve a mandate that the money be used for some economic activity, such as paying taxes or settling debts. Thus, if members of society want to participate in the relevant economic activities, it behooves them to accept the money as payment in their dealings. In addition to such decrees, the government generally controls the supply of the money to ensure it is sufficiently scarce to retain value yet in ample-enough supply to facilitate economic activity. Relatedly, the government generally attempts to minimize the incidence of counterfeiting by making the physical money in circulation difficult to replicate and creating a deterrence through criminal punishment. Modern monies are generally fiat money, including the U.S. dollar. The dollar is legal tender in the United States, meaning parties are obligated to accept the dollar to settle debts, and U.S. taxes can (and generally must) be paid in dollars. This status instills dollars with value, because anyone who wants to undertake these basic economic activities in the largest economy and financial system in the world must have and use this type of money. In the United States, the Board of Governors of the Federal Reserve System maintains the value of the dollar by setting monetary policy. Congress mandated that the Federal Reserve would conduct monetary policy in the Federal Reserve Reform Act of 1977 ( P.L. 95-188 ), directing it to "maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Under this system, a money stock currently exceeding $14 trillion circulates in support of an economy that generates over $20 trillion worth of new production a year, and average annual inflation has not exceeded a rate of 3% since 1993. In addition, the Federal Reserve operates key electronic payment systems, including those involving interbank transfers. In this way, the Federal Reserve acts as the intermediary when banks transfer money between each other. Banks have played a role in another evolution of money: providing an alternative to the physical exchange of tangible currency between two parties. Verifying the valid exchange of physical currency is relatively easy. The payer shows the payee he or she is in fact in possession of the money, and the transfer is valid the moment the money passes into the payee's possession. This system is not without problems, though. Physically possessing money subjects it to theft, misplacement, or destruction through accident. A physical exchange of money typically requires the payer and payee be physically near each other (because both parties would have to have a high degree of trust in each other to believe any assurance that the money will be brought or sent later). From early in history, banks have offered services to accomplish valid transfers of value between parties who are not in physical proximity and do not necessarily trust each other. Customers give banks their money for, among other reasons, secure safekeeping and the ability to send payment to a payee located somewhere else (originally using paper checks or bills of exchange). Historically and today, maintaining accurate ledgers of accounts is a vital tool for providing these services. It allows people to hold money as numerical data stored in a ledger instead of as a physical thing that can be lost or stolen. In the simplest form, a payment system works by a bank recording how much money an individual has access to and, upon instruction, making appropriate additions and reductions to that amount. The mechanics of the modern payment system, in which instructions are sent and records are stored electronically, are covered in more detail in the following section, " The Electronic Exchange of Money ." What can be noted here in this basic description is that participants must trust the banks and that ledgers must be accurate and must be changed only for valid transfers. Otherwise, an individual's money could be lost or stolen if a bank records the payer's account as having an inaccurately low amount or transfers value without permission. A number of mechanisms can create trust in banks. For example, a bank has a market incentive to be accurate, because a bank that does not have a good reputation for protecting customers' money and processing transactions accurately will lose customers. In addition, governments typically subject banks to laws and regulations designed in part to ensure that banks are run well and that people's money is safe in them. As such, banks take substantial measures to ensure security and accuracy. Today, money is widely exchanged electronically, but electronic payments systems can be subject to certain difficulties related to lack of scarcity (a digital file can be copied many times over, retaining the exact information as its predecessor) and lack of trust between parties. Electronic transfers of money are subject to what observers refer to as the double spending problem. In an electronic transfer of money, a payer may wish to send a digital file directly to a payee in the hopes that the file will act as a transfer of value. However, if the payee cannot confirm that the payer has not sent the same file to multiple other payees, the transfer is problematic. Because money in such a system could be double (or any number of times) spent, the money would not retain its value. As described in the preceding section, this problem traditionally has been resolved by involving at least one centralized, trusted intermediary—such as a private bank, government central bank, or other financial institution—in electronic transfers of money. The trusted intermediaries maintain private ledgers of accounts recording how much money each participant holds. To make a payment, an electronic message (or messages) is sent to an intermediary or to and between various intermediaries, instructing each to make the necessary changes to its ledgers. The intermediary or intermediaries validate the transaction, ensure the payer has sufficient funds for the payment, deduct the appropriate amount from the payer's account, and add that amount to the payee's account. For example, in the United States, a retail consumer may initiate an electronic payment through a debit card transaction, at which time an electronic message is sent over a network instructing the purchaser's bank to send payment to the seller's bank. Those banks then make the appropriate changes to their account ledgers (possibly using the Federal Reserve's payment system) reflecting that value has been transferred from the purchaser's account to the seller's account. Significant costs and physical infrastructure underlie systems for electronic money transfers to ensure the systems' integrity, performance, and availability. For example, payment system providers operate and maintain vast electronic networks to connect retail locations with banks, and the Federal Reserve operates and maintains networks to connect banks to itself and each other. These intermediaries store and protect huge amounts of data. In general, these intermediaries are highly regulated to ensure safety, profitability, consumer protection, and financial stability. Intermediaries recoup the costs associated with these systems and earn profits by charging fees directly when the system is used (such as the fees a merchant pays to have a card reading machine and on each transaction) or by charging fees for related services (such as checking account fees). In addition, intermediaries generally are required to provide certain protections to consumers involved in electronic transactions. For example, the Electronic Fund Transfer Act ( P.L. 95-630 ) limits consumers' liability for unauthorized transfers made using their accounts. Similarly, the Fair Credit Billing Act ( P.L. 93-495 ) requires credit card companies to take certain steps to correct billing errors, including when the goods or services a consumer purchased are not delivered as agreed. Both acts also require financial institutions to make certain disclosures to consumers related to the costs and terms of using an institution's services. Notably, certain individuals may lack access to electronic payment systems. To use an electronic payment system, a consumer or merchant generally must have access to a bank account or some retail payment service, which some may find cost prohibitive or geographically inconvenient, resulting in underbanked or unbanked populations (i.e., people who have limited interaction with the traditional banking system). In addition, the consumer or merchant typically must provide the bank or other intermediary with personal information. The use of electronic payment services generates a huge amount of data about an individual's financial transactions. This information could be accessed by the bank, law enforcement (provided proper procedures are followed), or nefarious actors (provided they are capable of circumventing the intermediaries' security measures). Cryptocurrencies—such as Bitcoin, Ether, and Litecoin—provide an alternative to this traditional electronic payment system. As noted above, cryptocurrency acts as money in an electronic payment system in which a network of computers, rather than a single third-party intermediary, validates transactions. In general, these electronic payment systems use public ledgers that allow individuals to establish an account with a pseudonymous name known to the entire network—or an address corresponding to a public key—and a passcode or private key that is paired to the public key and known only to the account holder. A transaction occurs when two parties agree to transfer cryptocurrency (perhaps in payment for a good or service) from one account to another. The buying party will unlock the cryptocurrency they will use as payment with their private key, allowing the selling party to lock it with their private key. In general, to access the cryptocurrency system, users will create a "wallet" with a third-party cryptocurrency exchange or service provider. From the perspective of the individuals using the system, the mechanics are similar to authorizing payment on any website that requires an individual to enter a username and password. In addition, certain companies offer applications or interfaces that users can download onto a device to make transacting in cryptocurrencies more user-friendly. Cryptocurrency platforms often use blockchain technology to validate changes to the ledgers. Blockchain technology uses cryptographic protocols to prevent invalid alteration or manipulation of the public ledger. Specifically, before any transaction is entered into the ledger and the ledger is irreversibly changed, some member of the network must validate the transaction. In certain cryptocurrency platforms, validation requires the member to solve an extremely difficult computational decryption. Once the transaction is validated, it is entered into the ledger. These protocols secure each transaction by using digital signatures to validate the identity of the two parties involved and to validate that the entire ledger is secure so that any changes in the ledger are visible to all parties. In this system, parties that otherwise do not know each other can exchange something of value (i.e., a digital currency) not because they trust each other but because they trust the platform and its cryptographic protocols to prevent double spending and invalid changes to the ledger. Cryptocurrency platforms often incentivize users to perform the functions necessary for validation by awarding them newly created units of the currency for successful computations (often the first person to solve the problem is given the new units), although in some cases the payer or payee also is charged a fee that goes to the validating member. In general, the rate at which new units are created—and therefore the total amount of currency in the system—is limited by the platform protocols designed by the creators of the cryptocurrency. These limits create scarcity with the intention of ensuring the cryptocurrency retains value. Because users of the cryptocurrency platform must perform work to extract the scarce unit of value from the platform, much as people do with precious metals, it is said that these users mine the cryptocurrencies. Alternatively, people can acquire cryptocurrency on certain exchanges that allow individuals to purchase cryptocurrency using official government-backed currencies or other cryptocurrencies. Cryptographers and computer scientists generally agree that cryptocurrency ledgers that use blockchain technology are mathematically secure and that it would be exceedingly difficult—approaching impossible—to manipulate them. However, hackers have exploited vulnerabilities in certain exchanges and individuals' devices to steal cryptocurrency from the exchange or individual. Analyzing data about certain characteristics and the use of cryptocurrency would be helpful in measuring how well cryptocurrency functions as an alternative source of payment and thus its future prospects for functioning as money. However, conducting such an analysis currently presents challenges. The decentralized nature of cryptocurrencies makes identifying authoritative sources of industry data difficult. In addition, the recent proliferation of cryptocurrency adds additional challenges to performing industry-wide analysis. For example, as of August 27, 2018, one industry group purported to track 1,890 cryptocurrencies trading at prices that suggest an aggregate value in circulation of almost $220 billion. Because of these challenges, an exhaustive quantitative analysis of the entire cryptocurrency industry is beyond the scope of this report. Instead, the report uses Bitcoin—the first and most well-known cryptocurrency, the total value of which accounts for more than half of the industry as a whole —as an illustrative example. Examining recent trends in Bitcoin prices, value in circulation, and number of transactions may shed some light on how well cryptocurrencies in general have been performing as an alternative payment system. The rapid appreciation in cryptocurrencies' value in 2017 likely contributed to the recent increase in public interest in these currencies. At the beginning of 2017, the price of a Bitcoin on an exchange was about $993. The price surged during the year, peaking at about $19,650 in December 2017 (see Figure 1 ), an almost 1,880% increase from prices in January 2017. However, the price then dramatically declined by 65% to $6,905 in less than two months. From February through August 2018, the price of a Bitcoin remained volatile. Other major cryptocurrencies such as Ether and Litecoin have had similar price movements. As of October 7, 2018, the price of one Bitcoin was $6,570 and approximately 17.3 million Bitcoins were in circulation, making the value of all Bitcoins in existence about $113.6 billion. Although these statistics drive interest in and are central to the analysis of cryptocurrencies as investment s , they reveal little about the prevalence of cryptocurrencies' use as money . Recent volatility in the price of cryptocurrencies suggests they function poorly as a unit of account and a store of value (two of the three functions of money discussed in " The Functions of Money ," above), an issue covered in the " Potential Challenges to Widespread Adoption " section of this report. Nevertheless, the price or the exchange rate of a currency in dollars at any point in time (rather than over time) does not have a substantive influence on how well the currency serves the functions of money. The number of Bitcoin transactions, by contrast, can serve as an indicator—though a flawed one —of the prevalence of the use of Bitcoin as money. This number indicates how many times a day Bitcoins are transferred between accounts. Two industry data sources indicate that the number of Bitcoin transactions averaged about 208,000 per day globally in 2018 through August. In comparison, the Automated Clearing House—an electronic payments network operated by the Federal Reserve Bank and the private company Electronic Payments Network—processed almost 59 million transactions per day on average in 2017. Visa's payments systems processed on average more than 300 million transactions per day globally in 2017. The previous section illustrates that the use of cryptocurrencies as money in a payment system is still quite limited compared with traditional systems. However, the invention and growth in awareness of cryptocurrencies occurred only recently. Some observers assert that cryptocurrencies' potential benefits will be realized in the coming years or decades, which will lead to their widespread adoption. Skeptics, however, emphasize the obstacles facing the widespread adoption of cryptocurrencies and doubt that cryptocurrencies can overcome these challenges. This section of the report describes some of the potential benefits cryptocurrencies may provide to the public and the economic system as a whole. Later sections—" Potential Challenges to Widespread Adoption " and " Potential Risks Posed by Cryptocurrencies "—discuss certain potential challenges to widespread adoption of cryptocurrencies and some potential risks cryptocurrencies pose. As discussed in the " The Electronic Exchange of Money " section, traditional monetary and electronic payment systems involve a number of intermediaries, such as government central banks and private financial institutions. To carry out transactions, these institutions operate and maintain extensive electronic networks and other infrastructure, employ workers, and require time to finalize transactions. To meet costs and earn profits, these institutions charge various fees to users of their systems. Advocates of cryptocurrencies hope that a decentralized payment system operated through the internet will be less costly than the traditional payment systems and existing infrastructures. Cryptocurrency proponents assert that cryptocurrency may provide an especially pronounced cost advantage over traditional payment systems for international money transfers and payments. Sending money internationally generally involves further intermediation than domestic transfers, typically requiring transfers between banks and other money transmitters in different countries and possibly exchanges of one national currency for another. Proponents assert that cryptocurrencies could avoid these particular costs because cryptocurrency transactions take place over the internet—which is already global—and are not backed by government-fiat currencies. Nevertheless, it is difficult to quantify how much traditional payment systems cost and what portion of those costs is passed on to consumers. Performing such a quantitative analysis is beyond the scope of this report. What bears mentioning here is that certain costs of traditional payment systems—and, in particular, the fees intermediaries in those systems have charged consumers—have at times been high enough to raise policymakers' concern and elicit policy responses. For example, in response to retailers' assertions that Visa and MasterCard had exercised market power in setting debit card swipe fees at unfairly high levels, Congress included Section 1075 in the Dodd-Frank Consumer Protection and Wall Street Reform Act (Dodd-Frank Act; P.L. 111-203 )—sometimes called the "Durbin Amendment." Section 1075 directs the Federal Reserve to limit debit card swipe fees charged by banks with assets of more than $10 billion. In addition, studies on unbanked and underbanked populations cite the fees associated with traditional bank accounts, a portion of which may be the result of providing payment services, as a possible cause for those populations' limited interaction with the traditional banking system. Proponents of cryptocurrencies argue that an increase in the use of cryptocurrencies as an alternative payment system would reduce these costs through competition or would eliminate the need to pay them altogether. As discussed in the " Traditional Money " section, traditional payment systems require that government and financial institutions be credible and have people's trust. Even if general trust in those institutions is sufficient to make them credible in a society, certain individuals may nevertheless mistrust them. For people who do not find various institutions sufficiently trustworthy, cryptocurrencies could provide a desirable alternative. In countries with advanced economies, such as the United States, mistrust may not be as prevalent (although not wholly absent) as in other countries. Typically, developed economies are relatively stable and have relatively low inflation; often, they also have carefully regulated financial institutions and strong government institutions. Not all economies share these features. Thus, cryptocurrencies may experience more widespread adoption in countries with a higher degree of mistrust of existing systems than in countries where there is generally a high degree of trust in existing systems. A person may mistrust traditional private financial institutions for a number of reasons. An individual may be concerned that an institution will go bankrupt or otherwise lose his or her money without adequately apprising him or her of such a risk (or while actively misleading him or her about it). In addition, opening a bank account or otherwise using traditional electronic payment systems generally requires an individual to divulge to a financial institution certain basic personal information, such as name, social security number, and birthdate. Financial institutions store this information and information about the transactions linked to this identity. Under certain circumstances, they may analyze or share this information, such as with a credit-reporting agency. In some instances hackers have stolen personal information from financial institutions, causing concerns over how well these institutions can protect sensitive data. Individuals seeking a higher degree of privacy or control over their personal data than that afforded by traditional systems may choose to use cryptocurrency. Certain individuals also may mistrust a government's willingness or ability to maintain a stable value of a fiat currency. Because fiat currency does not have intrinsic value and, historically, incidents of hyperinflation in certain countries have seen government-backed currencies lose most or nearly all of their value, some individuals may judge the probability of their fiat money losing a significant portion of its value to be undesirably high in some circumstances. These individuals may place greater trust in a decentralized network using cryptographic protocols that limit the creation of new money than in government institutions. The appropriate policy approach to cryptocurrencies likely depends, in part, on how prevalent these currencies become. For cryptocurrencies to deliver the potential benefits mentioned above, people must use them as money to some substantive degree. After all, as money, cryptocurrencies would do little good if few people and businesses accept them as payment. For this reason, currencies are subject to network effects , wherein their value and usefulness depends in part on how many people are willing to use them. Currently, cryptocurrencies face certain challenges to widespread adoption, some of which are discussed below. Recall that how well cryptocurrency serves as money depends on how well it serves as (1) a medium of exchange, (2) a unit of account, and (3) a store of value. Several characteristics of cryptocurrency undermine its ability to serve these three interrelated functions in the United States and elsewhere. Currently, a relatively small number of businesses or individuals use or accept cryptocurrency for payment. As discussed in the " The Price and Usage of Cryptocurrency " section, there were 208,000 transactions involving Bitcoin per day globally (out of the billions of transactions that take place) in 2018 through August, and a portion of those transactions involved people buying Bitcoins for the purposes of holding them as an investment rather than as payment for goods and services. Cryptocurrency may be used as a medium of exchange less frequently than traditional money for several reasons. Unlike the dollar and most other government-backed currencies, cryptocurrencies are not legal tender, meaning creditors are not legally required to accept them to settle debts. Consumers and businesses also may be hesitant to place their trust in a decentralized computer network of pseudonymous participants that they may not completely understand. Relatedly, consumers and businesses may have sufficient trust in and be generally satisfied with existing payment systems. As previously mentioned, the recent high volatility in the price of many cryptocurrencies undermines their ability to serve as a unit of account and a store of value. Cryptocurrencies can have significant value fluctuations within short periods of time; as a result, pricing goods and services in units of cryptocurrency would require frequent repricing and likely would cause confusion among buyers and sellers. In regard to serving as a store of value, Bitcoin lost almost 53% of its value in the first half of 2018, which equates to a 346% annualized rate of inflation. In comparison, the annualized inflation of prices in the U.S. dollar was 2.1% over the same period. Whether cryptocurrency systems are scalable —meaning their capacity can be increased in a cost-effective way without loss of functionality—is uncertain. At present, the technologies and systems underlying cryptocurrencies do not appear capable of processing the number of transactions that would be required of a widely adopted, global payment system. As discussed in the " The Price and Usage of Cryptocurrency " section, the platform of the largest (by a wide margin) cryptocurrency, Bitcoin, processes a small fraction of the overall financial transactions parties engage in per day. The overwhelming majority of such transactions are processed through established payment systems. As well, Bitcoin's processing speed is still comparatively slow relative to the nearly instant transaction speed many electronic payment methods, such as credit and debit cards, achieve. For example, blocks of transactions are published to the Bitcoin ledger every 10 minutes, but because a limited number of transactions can be added in a block, it may take over an hour before an individual transaction is posted. Part of the reason for the relatively slow processing speed of certain cryptocurrency transactions is the large computational resources involved with mining—or validating—transactions. When prices for cryptocurrencies were increasing rapidly, many miners were incentivized to participate in validating transactions, seeking to win the rights to publish the next block and collect any reward or fees attached to that block. This incentive led to an increasing number of miners and to additional investment in faster computers by new and existing miners. The combination of more miners and more energy required to power their computers led to ballooning electricity requirements. However, as the prices of cryptocurrencies have deflated, validating cryptocurrency transactions has become a less rewarding investment for miners; consequently, fewer individuals participate in mining operations. The energy consumption required to run and cool the computers involved in cryptocurrency mining is substantial. Some estimates indicate the daily energy needs of the Bitcoin network are comparable to the needs of a small country, such as Ireland. In addition to raising questions about whether cryptocurrencies ultimately will be more efficient than existing payment systems, such high energy consumption could result in high negative e xternalities —wherein the price of a market transaction, such as purchasing electricity, may not fully reflect all societal costs, such as pollution from electricity production. In general, when a buyer of a good or a service provided remotely sends a cryptocurrency to another account, that transaction is irreversible and made to a pseudonymous identity. Although a cryptocurrency platform validates that the currency has been transferred, the platform generally does not validate that a good or service has been delivered. Unless a transfer is done face-to-face, it will involve some degree of trust between one party and the other or a trusted intermediary. For example, imagine a buyer agrees to purchase a collectible item from a seller located across the country for one Bitcoin. If the buyer transfers the Bitcoin before she has received the item, she takes on the risk that the seller will never ship the item to her; if that happened, the buyer would have little, if any, recourse. Conversely, if the seller ships the item before the buyer has transferred the Bitcoin, he assumes the risk that the buyer never will transfer the Bitcoin. These risks could act as a disincentive to parties considering using cryptocurrencies in certain transactions and thus could hinder cryptocurrencies' ability to act as a medium of exchange. As mentioned in the " Banks: Transferring Value Through Intermediaries " section, sending cash to someone in another location presents a similar problem, which historically has been solved by using a trusted intermediary. In response to this problem, several companies offer cryptocurrency escrow services. Typically, the escrow company holds the buyer's cryptocurrency until delivery is confirmed. Only then will the escrow company pass the cryptocurrency onto the seller. Although an escrow service may enable parties who otherwise do not trust each other to exchange cryptocurrency for goods and services, the use of such services reintroduces the need for a trusted third-party intermediary in cryptocurrency transactions. As with the use of intermediaries in traditional electronic transactions discussed above, both a buyer and a seller in a cryptocurrency transaction would have to trust that the escrow company will not abscond with their cryptocurrency and is adequately protected against hacking. For cryptocurrencies to gain widespread acceptance as payment systems and displace existing traditional intermediaries, new procedures and intermediaries such as those described in this section may first need to achieve a sufficient level of trustworthiness and efficiency among the public. If cryptocurrencies ultimately require their own system of intermediaries to function as money, questions may arise about whether this requirement defeats their original purpose. Policymakers developed most financial laws and regulations before the invention and subsequent growth of cryptocurrencies, which raises questions about whether existing laws and regulations appropriately and efficiently address the risks posed by cryptocurrency. Some of the more commonly cited risks include the potential that cryptocurrencies will be used to facilitate criminal activity and the lack of consumer protections applicable to parties buying or using cryptocurrency. Each of these risks is discussed below. Criminals and terrorists are more likely to conduct business in cash and to hold cash as an asset than to use financial intermediaries such as banks, in part because cash is anonymous and allows them to avoid establishing relationships with and records at financial institutions that may be subject to anti-money laundering reporting and compliance requirements. Some observers are concerned that the pseudonymous and decentralized nature of cryptocurrency transactions may similarly provide a means for criminals to hide their financial dealings from authorities. For example, Bitcoin was the currency used on the internet-based, illegal drug marketplace called Silk Road. This marketplace and Bitcoin escrow service facilitated more than 100,000 illegal drug sales from approximately January 2011 to October 2013, at which time the government shut down the website and arrested the individuals running the site. Criminal use of cryptocurrency does not necessarily mean the technology is a net negative for society, because the benefits it provides could exceed the societal costs of the additional crime facilitated by cryptocurrency. In addition, law enforcement has existing authorities and abilities to mitigate the use of cryptocurrencies for the purposes of evading law enforcement. Recall that cryptocurrency platforms generally function as an immutable, public ledger of accounts and transactions. Thus, every transaction ever made by a member of the network is relatively easy to observe, and this characteristic can be helpful to law enforcement in tracking criminal finances. Although the accounts may be identified with a pseudonym on the cryptocurrency platform, law enforcement can exercise methods involving analysis of transaction patterns to link those pseudonyms to real-life identities. For example, it may be possible to link a cryptocurrency public key with a cryptocurrency exchange customer. Certain cryptocurrencies may provide users with greater anonymity than others, but use of these technologies currently is comparatively rare. In addition to law enforcement's abilities to investigate crime, the government has authorities to subject cryptocurrency exchanges to regulation related to reporting suspicious activity. The Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has issued guidance explaining how its regulations apply to the use of virtual currencies —a term that refers to a broader class of electronic money that includes cryptocurrencies. FinCEN has indicated that an exchanger ("a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency") and an administrator ("a person engaged as a business in issuing [putting into circulation] a virtual currency, and who has the authority to redeem [to withdraw from circulation] such virtual currency") generally qualify as money services businesses (MSBs) subject to federal regulation. Among other things, MSBs generally must register with and report suspicious transactions to FinCEN, and they must maintain anti-money laundering compliance programs. State law and regulation generally impose a variety of registration anti-money laundering requirements on money services businesses. The specific requirements generally vary across different states; a state-by-state analysis is beyond the scope of this report. Bills focused on investigating the criminal use of cryptocurrencies and improving government agencies' ability to address the problem have seen action in the 115 th Congress. These bills include the following: H.R. 2433 passed the House on September 12, 2017, and would direct the Department of Homeland Security, in coordination with appropriate federal agencies, to develop an assessment of the threat of individuals using cryptocurrencies to carry out acts of terrorism. H.R. 5036 passed the House on September 28, 2018, and would (1) establish the Independent Financial Technology Task Force to research and develop proposals regarding the use of digital currencies in terrorism and illicit activity, (2) direct the Treasury to pay a reward to anyone who provides information that leads to a conviction of an individual involved with terrorist use of digital currencies, and (3) establish the FinTech Leadership in Innovation Program to fund the development of tools and programs to detect terrorist and illicit use of digital currencies. H.R. 6069 passed the House on June 25, 2018, and would direct the Government Accountability Office to produce a study on the use of virtual currencies and online marketplaces to facilitate sex and drug trafficking. H.R. 6411 passed the House on September 12, 2018, and would amend FinCEN's duties and powers to explicitly include "emerging technologies or value that substitutes for currency" as an area in which FinCEN can coordinate with foreign financial intelligence in anti-money laundering efforts. The Internal Revenue Service (IRS) has issued guidance stating that it will treat virtual currencies as property (as opposed to currency ), meaning users owe taxes on any realized gains whenever they dispose of virtual currency, including when they use it to purchase goods and services. In a court filing seeking to obtain information on customers of Coinbase—the largest U.S. cryptocurrency exchange—the IRS identified approximately 800 to 900 returns per year from 2013 to 2015 that included capital gains that likely came from cryptocurrencies. In addition, recent anecdotal reporting—based in part on individuals' tax return filings from one filing service—suggests that few 2017 tax filings included reported capital gains from cryptocurrencies. Nevertheless, considering the level of activity in the cryptocurrency markets, one analysis estimated the U.S. tax liability on cryptocurrency gains was $25 billion in 2017. The lack of clarity surrounding whether and to what degree people are appropriately declaring gains from cryptocurrency on their tax returns has raised concerns that the technology could facilitate tax evasion. As with money laundering, individuals could use the opportunity to hide and move money in a pseudonymous, decentralized platform (and thus avoid generating records at traditional financial institutions) as a mechanism for hiding income from tax authorities. Data that would aid in analyzing whether this is occurring are scarce at this time, because the IRS has only recently begun actively collecting customer information from cryptocurrency exchanges. Although it is outside the scope of this report, another potential reason a person or entity may want to move money or assets while avoiding engagement with traditional financial institutions could be to evade financial sanctions. For example, the Venezuelan government has launched a digital currency with the stated intention of using it to evade U.S. sanctions. The governments of Iran and Russia have expressed interest in doing so, as well. For more information on the potential use of cryptocurrencies to evade financial sanctions, see CRS In Focus IF10825, Digital Currencies: Sanctions Evasion Risks , by Rebecca M. Nelson and Liana W. Rosen. Although there is no overarching regulation or regulatory framework specifically aimed at providing consumer protections in cryptocurrencies markets, numerous consumer protection laws and regulatory authorities at both the federal and state levels are applicable to cryptocurrencies. Whether these regulations adequately protect consumers and whether existing regulation is unnecessarily burdensome are topics subject to debate. This section will examine some of these consumer protections and present arguments related to these debated issues. A related concern has to do with whether investors in certain cryptocurrency instruments such as initial coin offerings —wherein companies developing an application or platform issue cryptocurrencies or other digital or virtual currency that are or will be used on the application or platform—or cryptocurrency derivatives contracts are adequately informed of risk and protected from scams. However, this secondary use of cryptocurrency as investment vehicles is different from the use of cryptocurrencies as money, and it is beyond the scope of this report. For examinations of these issues, see CRS Report R45221, Capital Markets, Securities Offerings, and Related Policy Issues , by Eva Su; and CRS Report R45301, Securities Regulation and Initial Coin Offerings: A Legal Primer , by Jay B. Sykes. No federal consumer protection law specifically targets cryptocurrencies. However, the way cryptocurrencies are sold, exchanged, or marketed can subject cryptocurrency exchanges or other cryptocurrency-related businesses to generally applicable consumer protection laws. For example, Section 5(a) of the Federal Trade Commission Act (P.L. 63-203) declares "unfair or deceptive acts or practices in or affecting commerce" unlawful and empowers the Federal Trade Commission (FTC) to prevent people and most companies from engaging in such acts and practices. In recent years, the FTC has brought a number of enforcement actions against cryptocurrency promoters and mining operations due to potential violations of Section 5(a). In addition, Title X of the Dodd-Frank Act grants the Consumer Financial Protection Bureau (CFPB) certain rulemaking, supervisory, and enforcement authorities to implement and enforce certain federal consumer financial laws that protect consumers from "unfair, deceptive, or abusive acts and practices." These authorities apply to a broad range of financial industries and products, and they arguably could apply to cryptocurrency exchanges as well. Although the CFPB has not actively exercised regulatory authorities in regard to the cryptocurrency industry to date, the agency is accepting cryptocurrency-related complaints and previously has indicated it would enforce consumer financial laws in appropriate cases. Both the FTC and the CFPB have made available informational material, such as consumer advisories, to educate consumers about potential risks associated with transacting in cryptocurrencies. In addition, all states have laws against deceptive acts and practices, and state regulators have enforcement authorities that could be exercised against cryptocurrency-related businesses. Additional consumer protections generally are applied to cryptocurrency exchanges at the state level through money transmission laws and licensing requirements. Money transmitters, including cryptocurrency exchanges, must obtain applicable state licenses and are subject to state regulatory regimes applicable to the money transmitter industry in each state in which they operate. For example, money transmitters generally must maintain some amount of low-risk investments and surety bonds—which are akin to an insurance policy that pays customers who do not receive their money—as safeguards for customers in the event they do not receive money that was to be sent to them. Certain observers assert that consumers may be especially susceptible to being deceived or misinformed when dealing in cryptocurrencies. Cryptocurrency is a relatively new type of asset, and consumers may not be familiar with how cryptocurrencies work and how they derive their value. This unfamiliarity may mean a consumer could be unknowingly charged excessive fees when using or exchanging cryptocurrencies; deceived about cryptocurrencies' true value; or unaware of the possibility or likelihood of loss of value, electronic theft, or loss of access to cryptocurrency due to losing or forgetting associated public or private keys. In addition, a feature of cryptocurrency transfers is irreversibility, which could leave consumers without recourse in certain cryptocurrency transactions. Although certain federal laws and regulations intended to protect consumers (such as those described in " Applicable Regulation ," above) do apply to certain cryptocurrency transactions, others may not. Some of those laws and regulations that do not currently apply are specifically designed to protect consumers engaged in the electronic transfer of money, require certain disclosures about the terms of financial transactions, and require transfers to be reversed under certain circumstances. For example, the Electronic Fund Transfer Act of 1978 (EFTA; P.L. 95-630 ) requires traditional financial institutions engaging in electronic fund transfers to make certain disclosures about fees, correct errors when identified by the consumer, and limit consumer liability in the event of unauthorized transfers. In general, EFTA protections appear not to apply to cryptocurrency transactions, because these transactions do not involve a financial institution as defined in the EFTA. The application of state laws and consumer protections to cryptocurrency transactions is not uniform, and the stringency of regulation can vary across states. This variation could create a situation in which consumers in states with relatively lax regulation are inadequately protected. If Congress decides current consumer protections are inadequate, policy options could include extending the application of certain electronic fund transfer protections to consumers using cryptocurrency exchanges and service providers and granting federal agencies additional authorities to regulate those businesses. Proponents of cryptocurrencies have asserted that the application of a state-by-state consumer protection regulatory regime to cryptocurrency exchanges is unnecessarily onerous. They note that certain state regulations applicable to these exchanges are designed to address risks presented by traditional money transmission transactions (i.e., allowing fiat money to be submitted at one location and picked up at another location). For example, the previously mentioned requirements to maintain low-risk investments and surety bonds are intended to ensure customers will receive transmitted money. Cryptocurrency proponents argue that the services provided and the risks presented by cryptocurrency exchanges are substantively different from those of traditional money transmitters and that the requirements placed on those businesses—particularly requirements to hold minimum amounts of assets to back cryptocurrencies they hold on behalf of customers—are ill-suited to the cryptocurrency exchange industry. Supporters of cryptocurrencies further argue that if the United States does not reduce the regulatory burdens involved in cryptocurrency exchanges, the country will be at a disadvantage relative to others in regard to the development of cryptocurrency systems and platforms. If Congress decides the current regulatory framework is unnecessarily burdensome, some argue that one policy option would be to enact federal law applicable to cryptocurrency exchanges (or virtual currency exchanges more broadly) that preempts state-level requirements. As discussed in the " Government Authority: Fiat Money " section, in the United States, the Federal Reserve has the authority to conduct monetary policy with the goals of achieving price stability and low unemployment. The central banks of other countries generally have similar authorities and goals. Some central bankers and other experts and observers have speculated that the widespread adoption of cryptocurrencies could affect the ability of the Federal Reserve and other central banks to implement and transmit monetary policy, and some have suggested that these institutions should issue their own digital, fiat currencies. The mechanisms through which central banks implement monetary policy can be technical, but at the most fundamental level these banks conduct monetary policy by regulating how much money is in circulation in an economy. Currently, the vast majority of money circulating in most economies is government-issued fiat money, and so governments (particularly credible governments in countries with relatively strong, stable economies) have effective control over how much is in circulation. However, if one or more additional currencies that the government did not control (such as cryptocurrencies) were also prevalent and viable payment options, their prevalence could have a number of implications. The widespread adoption of such payment options would limit central banks' ability to control inflation, as they do now, because actors in the economy would be buying, selling, lending, and settling in cryptocurrency. Central banks would have to make larger adjustments to the fiat currency to have the same effect as previous adjustments, or they would have to start buying and selling the cryptocurrencies themselves in an effort to affect the availability of these currencies in the economy. Because cryptocurrency circulates on a global network, the actions of one country that buys and sells cryptocurrency to control its availability could have a destabilizing effect on other economies that also widely use that cryptocurrency; in this way, one country's approach to cryptocurrency could undermine price stability or exacerbate recessions or overheating in another country. For example, as economic conditions in one country changed, that country would respond by attempting to alter its monetary conditions, including the amount of cryptocurrency in circulation. However, the prescribed change for that economy would not necessarily be appropriate in a country that was experiencing different economic conditions. The supply of cryptocurrency in this second country nevertheless could be affected by the first country's actions. Another challenge in an economy with multiple currencies—as would be the case in an economy with a fiat currency and cryptocurrencies—is that the existence of multiple currencies adds difficulty to buyers and sellers making exchanges; all buyers and sellers must be aware of and continually monitor the value of different currencies relative to each other. As an example, such a system existed in the United States for periods before the Civil War when banks issued their own private currencies. The inefficiency and costs of tracking the exchange rates and multiple prices in multiple currencies eventually led to calls for and the establishment of a uniform currency. To date, governments (Venezuela excepted) generally have not been directly involved in the creation of cryptocurrencies; one of the central goals in developing the technology was to eliminate the need for government involvement in money creation and payment systems. However, cryptocurrency's decentralized nature is at the root of certain risks and challenges related to its lack of widespread adoption by the public and its use by criminals. These risks and challenges have led some observers to suggest that perhaps central banks could use the technologies underlying cryptocurrencies to issue their own central bank digital currencies (CBDCs) to realize certain hoped-for efficiencies in the payment system in a way that would be "safe, robust, and convenient." Much of the discussion related to CBDCs is speculative at this point. The extent to which a central bank could or would want to create a blockchain-enabled payment system likely would be weighed against the consideration that these government institutions already have trusted digital payment systems in place. Because of such considerations, the exact form that CBDCs would take is not clear; such currencies could vary across a number of features and characteristics. For example, it is not clear that cryptography would be necessary to validate transactions when a trusted intermediary such as a central bank could reliably validate them. Nevertheless, some central banks are examining the idea of CBDCs and the possible benefits and issues they may present. The possibility of CBDCs' introduction raises a number of questions about their potential benefits, challenges, and impacts on the effectiveness of monetary policy. Numerous observers assert that CBDCs could provide certain benefits. For example, some proponents extend the arguments related to cryptocurrencies providing efficiency gains over traditional legacy systems to CBCDs; they contend that central banks could use the technologies underlying cryptocurrencies to deploy a faster, less costly government-supported payment system. Observers have speculated that a CBDC could take the form of a central bank allowing individuals to hold accounts directly at the central bank. Advocates argue that a CBDC created in this way could increase systemic stability by imposing additional discipline on commercial banks. Because consumers would have the alternative of safe deposits made directly with the central bank, commercial banks would likely have to offer interest rates and security at a level necessary to attract deposits above any deposit insurance limit. One of the main arguments against CBDCs made by critics, including various central bank officials, is that there is no "compelling demonstrated need" for such a currency, as central banks and private banks already operate trusted electronic payment systems that generally offer fast, easy, and inexpensive transfers of value. These opponents argue that a CBDC in the form of individual direct accounts at the central bank would reduce bank lending or inappropriately expand central banks' role in lending. A portion of consumers likely would shift their deposits away from private banks toward central bank digital money, which would be a safe, government-backed liquid asset. Deprived of this funding, private banks likely would have to reduce their lending, leaving central banks to decide whether or how they should support lending markets to avoid a reduction in credit availability. In addition, skeptics of CBDCs object to the assertion that these currencies would increase systemic stability, arguing that CBDCs would create a less stable system because they would facilitate runs on private banks. These critics argue that at the first signs of distress at an individual institution or the bank industry, depositors would transfer their funds to this alternative liquid, government-backed asset. Observers also disagree over whether CBDCs would have a desirable effect on central banks' ability to carry out monetary policy. Proponents argue that, if individuals held a CBDC on which the central bank set interest rates, the central bank could directly transmit a policy rate to the macroeconomy, rather than achieving transmission through the rates the central bank charged banks and the indirect influence of rates in particular markets. In addition, if holding cash (which in effect has a 0% interest rate) were not an option for consumers, central banks potentially would be less constrained by the zero lower bound . The zero lower bound is the idea that the ability of individuals and businesses to hold cash and thus avoid negative interest rates limits central banks' ability to transmit negative interest rates to the economy. Critics argue that taking on such a direct and influential role in private financial markets is an inappropriately expansive role for a central bank. They assert that if CBDCs were to displace cash and private bank deposits, central banks would have to increase asset holdings, support lending markets, and otherwise provide a number of credit intermediation activities that private institutions currently perform in response to market conditions. The future role and value of cryptocurrencies remain highly uncertain, due mainly to unanswered questions about these currencies' ability to effectively and efficiently serve the functions of money and displace existing money and payment systems. Proponents of the technology assert cryptocurrencies will become a widely used payment method and provide increased economic efficiency, privacy, and independence from centralized institutions and authorities. Skeptics—citing technological challenges and obstacles to widespread adoption—assert cryptocurrencies do not effectively perform the functions of money and will not be a valuable, widely used form of money in the future. As technological advancements and economic conditions play out, policymakers likely will be faced with various issues related to cryptocurrency, including concerns about its alleged facilitation of crime, the adequacy of consumer protections for those engaged in cryptocurrency transactions, the level of appropriate regulation of the industry, and cryptocurrency's potential effect on monetary policy. | Cryptocurrencies are digital money in electronic payment systems that generally do not require government backing or the involvement of an intermediary, such as a bank. Instead, users of the system validate payments using certain protocols. Since the 2008 invention of the first cryptocurrency, Bitcoin, cryptocurrencies have proliferated. In recent years, they experienced a rapid increase and subsequent decrease in value. One estimate found that, as of August 2018, there were nearly 1,900 different cryptocurrencies worth about $220 billion. Given this rapid growth and volatility, cryptocurrencies have drawn the attention of the public and policymakers. A particularly notable feature of cryptocurrencies is their potential to act as an alternative form of money. Historically, money has either had intrinsic value or derived value from government decree. Using money electronically generally has involved using the private ledgers and systems of at least one trusted intermediary. Cryptocurrencies, by contrast, generally employ user agreement, a network of users, and cryptographic protocols to achieve valid transfers of value. Cryptocurrency users typically use a pseudonymous address to identify each other and a passcode or private key to make changes to a public ledger in order to transfer value between accounts. Other computers in the network validate these transfers. Through this use of blockchain technology, cryptocurrency systems protect their public ledgers of accounts against manipulation, so that users can only send cryptocurrency to which they have access, thus allowing users to make valid transfers without a centralized, trusted intermediary. Money serves three interrelated economic functions: it is a medium of exchange, a unit of account, and a store of value. How well cryptocurrencies can serve those functions relative to existing money and payment systems likely will play a large part in determining cryptocurrencies' future value and importance. Proponents of the technology argue cryptocurrency can effectively serve those functions and will be widely adopted. They contend that a decentralized system using cryptocurrencies ultimately will be more efficient and secure than existing monetary and payment systems. Skeptics doubt that cryptocurrencies can effectively act as money and achieve widespread use. They note various obstacles to extensive adoption of cryptocurrencies, including economic (e.g., existing trust in traditional systems and volatile cryptocurrency value), technological (e.g., scalability), and usability obstacles (e.g., access to equipment necessary to participate). In addition, skeptics assert that cryptocurrencies are currently overvalued and under-regulated. The invention and proliferation of cryptocurrencies present numerous risks and related policy issues. Cryptocurrencies, because they are pseudonymous and decentralized, could facilitate money laundering and other crimes, raising the issue of whether existing regulations appropriately guard against this possibility. Many consumers may lack familiarity with cryptocurrencies and how they work and derive value. In addition, although cryptocurrency ledgers appear safe from manipulation, individuals and exchanges have been hacked or targeted in scams involving cryptocurrencies. Accordingly, critics of cryptocurrencies have raised concerns that existing laws and regulations do not adequately protect consumers dealing in cryptocurrencies. At the same time, proponents of cryptocurrencies warn against over-regulating what they argue is a technology that will yield large benefits. Finally, if cryptocurrency becomes a widely used form of money, it could affect the ability of the Federal Reserve and other central banks to implement and transmit monetary policy, leading some observers to argue that central banks should develop their own digital currencies (as opposed to a cryptocurrency); others oppose this idea. The 115th Congress has shown significant interest in these and other issues relating to cryptocurrencies. For example, the House passed several bills (H.R. 2433, H.R. 5036, and H.R. 6069, and H.R. 6411) aimed at better understanding or regulating cryptocurrencies. The 116th Congress—and beyond—may continue to consider the numerous policy issues raised by the increasing use of cryptocurrencies. |
The interactions of three variables underlie debates on the issue of climate change and what responses might be justified: the magnitude and rates of change of (1) population, (2) incomes, and (3) intensity of greenhouse gas emissions relative to economic activities. This report examines the interrelationships of the variables to explore their implications for policies that address climate change. Both internationally and domestically, initiatives are underway both to better understand climate change and to take steps to slow, stop, and reverse the overall growth in greenhouse gas emissions, the most important of which is carbon dioxide (CO 2 ), emitted by the combustion of fossil fuels. These initiatives include the following bulleted items. The United Nations Framework Convention on Climate Change (UNFCCC), to which the United States and almost all other nations are Parties. Its stated objective is to stabilize greenhouse gas concentrations in the atmosphere at levels that "would prevent dangerous interference with the climate system." It established the principle that all nations should take action, and that developed nations should take the lead in reducing emissions. It required Parties to prepare national action plans to achieve reductions, with developed countries aiming to reduce year 2000 emissions to 1990 levels. It required preparation of inventories of emissions and annual reports. And it set up a process for the Parties to continue meeting. The Kyoto Protocol, an agreement negotiated under the auspices of the UNFCCC; 169 nations—but not the United States—are Parties to the Protocol. Even as the Framework Convention was going into force, it was recognized that most nations would not meet their 2000 aims of holding emissions at 1990 levels. Ensuing negotiations, in which the United States participated, led to the Kyoto Protocol, which called for mandatory reductions in greenhouse gases for the period 2008-2012 by developed nations—but not by developing ones. With the United States not participating, and with developing nations not required to make GHG reductions (and China became the world's largest emitter in about 2005), the reductions mandated by Kyoto will not significantly slow the accumulation of GHG in the atmosphere, although much is being learned of the institutional structures, such as the European Union's "cap and trade" mechanism, for handling reductions. Even as the Kyoto process began, negotiations on next steps resumed. The Asia-Pacific Partnership on Clean Development and Climate (APP), composed of the United States, China, India, Japan, Australia, and South Korea. The purposes of the Partnership are to create a voluntary, non-legally binding framework for international cooperation to facilitate the development, diffusion, deployment, and transfer of existing, emerging, and longer-term cost-effective, cleaner, more efficient technologies and practices among the Partners through concrete and substantial cooperation, so as to achieve practical results. It has the goal of meeting "national pollution reduction, energy security and climate change concerns, consistent with the principles of the U.N. Framework Convention on Climate Change (UNFCCC)." The Copenhagen Accord is an agreement of the Parties to the UNFCCC to begin establishing actions to follow on the Kyoto Protocol. The Copenhagen Accord does not mandate specific reductions, but sets a goal of reducing global emissions "so as to hold the increase in global temperature below 2 degrees C, and take action to meet this objective consistent with science and on the basis of equity." Annex I nations commit to implement "quantified economy-wide emissions targets for 2020" and non-Annex I nations commit to implement "mitigation actions." Both sets of nations commit to reporting and verification procedures "in accordance with guidelines adopted by the Conference of the Parties." (Monitoring, reporting, and verification were a key demand of the United States of developing nations.) Also, the accord contained the promise that developed countries would make available $100 billion a year by 2020 "to address the needs of developing countries." However, these several, related efforts have had to struggle with substantive economic, technical, and political differences among regional, national, and local circumstances. Foremost among these differences is the divide between developed and less-developed nations. Conflict arises because any pressure to reduce emissions comes up against increases in emissions likely to result from energy use fueling economic development and raising standards of living in developing economies, which contain a large share of the world's population. Even in many developed nations, efforts to constrain emissions by, for example, conservation, increased energy efficiency, and use of energy sources that emit less or no CO 2 , have been outstripped by increases in total energy use associated with population and economic growth. For example, between 1990 and 2005, in the United States, the greenhouse gas intensity of the economy declined at a rate of -1.9% per year, but total emissions increased at the rate of 1.0% per year. Although some countries have experienced declines in emissions—either through economic contraction or deliberate policies—the overall trend, both globally and for most individual nations, reflects increasing emissions. This upward trend in greenhouse gas emissions runs counter to the long-term objectives of these climate change initiatives. This report identifies drivers of the increase in emissions and explores their implications for efforts to reduce emissions. During this exploration, it is useful to bear in mind that although short-term efforts may not achieve emissions reductions that immediately meet goals to prevent dangerous interference with the climate system, such endeavors may nevertheless establish a basis for longer-term efforts. The analysis below, which uses data from the World Resources Institute's Climate Analysis Indicators Tool (CAIT), is based on the following relationships: The CAIT database includes 185 nations (plus a separate entry for the European Union) with a 2005 population of 6.462 billion, compared with 191 members of the United Nations and with a 2005 world population count of 6.470 billion by the U.S. Census Bureau. Average income is measured as per capita Gross Domestic Product (GDP), in international dollars of purchasing power parity ($PPP). (Note that population times per capita GDP equals GDP.) Greenhouse gas intensity is measured as tons of emissions in carbon equivalents per million dollars of GDP. Table 1 provides a snapshot of the equation 1 variables for the top 20 greenhouse gas emitters in the year 2005, plus for the European Union 27, and for the world. The data reflect the wide range of circumstances faced by any initiative to address GHGs. However, it is the way those variables are changing that illuminates both the seemingly inexorable rise in GHG emissions and the challenge of reducing them. A variable changing at an annual rate of 6.9% doubles in 10 years; at an annual rate of 3%, it doubles in 23 years. The growth rate of each of the variables of equation 1 can be expressed as an exponent, the annual percentage rate of change over some time period (see Growth Relationship of Greenhouse Gas Drivers ). As exponents of multiplicands are added, relationship among the variables can be simply expressed: the growth rates of the three variable on the left side of the equation sum to the growth rate of the variable (emissions) on the right side. Thus, if the sum of the three growth rate variables on the left is positive, emissions are rising; if the sum is negative, emissions are declining; and if the sum is zero, emissions are constant. This growth relationship among the variables makes explicit why there is upward pressure on GHG emissions. For nearly all nations, population is increasing, with developing nations typically having the highest rate. Thus population growth rate is positive globally and for most nations; it is zero or negative for only a few nations. The economic development of less-developed nations is a global objective acknowledged by the UNFCCC; developed nations also promote economic growth to raise living standards. Thus economies are growing globally and for most nations. With the population and economic activity variables positive, emissions will be rising unless the decline in intensity exceeds the growth in population and economic activity, which has seldom been the case. If the goal is to reduce GHG emissions, the larger the negative change in intensity, the better. Table 2 shows the changes in these variables for 1990 - 2005. (The figures in the right-most column are taken from the CAIT database. ) As the table shows, global growth rates for population and per capita income outpaced the rate of decline in intensity—so GHG emissions rose; this is also true of the majority of nations, including the United States. Circumstances in several individual countries highlight some important points about GHG emissions and their potential control. First, for many nations, population growth is an important contributor to the increase in GHG emissions. For Brazil, Mexico, Indonesia, Iran, Australia, Spain, South Africa, and Turkey, any improvements in intensity were annulled by increases in population alone. Second, developing countries, focused on developing their economies, have increasing GHG emissions even when they manage to improve intensity (e.g., China, India, Mexico, Indonesia, South Korea, and South Africa). For these countries, population growth combined with per capita GDP growth overwhelmed whatever intensity improvements they achieved. Third, lower emissions can be associated with decreasing economic activity. For the Russian Federation and Ukraine, economic contraction following the dissolution of the Soviet Union contributed to decreases in their emissions. During 2008-2009,GHG emission reductions occurred in many if not most nations as a result of the global recession, and almost certainly declined globally. Fourth, several developed countries improved per capita GDP while holding their GHG emissions to a 1% increase or less: the United States, Japan, Germany, the United Kingdom, Italy, and France. Germany and the United Kingdom (and also the European Union 27) actually decreased their emissions. Fifth, in some developed countries, income growth alone exceeded the decline in intensity (e.g., Japan, Italy, Canada, Australia, and Spain). Stabilizing emissions would require an accelerated decline in intensity. For global emissions to have met the UNFCCC voluntary goal of being at 1990 levels in 2000, intensity would have had to decline at the rate of -2.9% per year, rather than at the actual -2.0%. For the United States, the situation was similar: for emissions in 2000 to have remained at 1990 levels, intensity would have had to decline at the rate of -3.2% per year, rather than the actual -1.9%. Looking to the future, this relationship holds—absent a declining population or a contracting economy, GHG emissions can be expected to decline only if intensity declines at a rate faster than it has been. How fast and how far might intensity be driven down? There are two ways to approach this question: one is to examine the sources of emissions and consider how much and how fast they could be curtailed; a second is to assess what level of greenhouse gases can be emitted to the atmosphere without causing "dangerous interference with the climate system" (in the words of the UNFCCC) and to calculate from those emissions what the intensity would have to be over time, taking into account population and income growth. Greenhouse gas emissions result from diverse human activities, including agriculture and the combustion of fossil fuels – the latter providing the energy that has driven the industrial revolution and accounting for much of the rise in CO 2 levels in recent centuries. This section of the report examines several of those major sources of emissions. Table 3 presents emissions data by economic sector for the top 20 emitting nations (plus the EU-27 and the world), including Land-Use Change and Forestry, and International Bunkers (so the total is different than in Table 1 ). As Table 3 shows, the energy sector is by far the largest contributor of greenhouse gases, accounting for 64% of total world emissions in 2005; the agricultural sector is second, accounting for about 14%. These two sectors dominate for almost all countries (industrial process emissions rank second for Japan and South Korea) – except for the dominance of Land-Use Change and Forestry for Brazil and Indonesia. Table 4 presents a breakdown of the energy sector emissions. Electricity and heat contributes the largest share, accounting for about 43% of total energy sector emissions in 2005, followed by transportation at about 19%, manufacturing at about 18%, other fuel combustion at about 13%, and fugitive emissions at about 6%. The most revealing aspect of sectoral emissions emerges from Table 5 , which shows their rates of change, and Table 6 , which shows the rates of change of the energy subsectors. Global emissions are growing fastest in the Industrial Processes sector (4.0%/year); next is the International Bunkers sector, growing at 2.9%/year: but as these two sectors are much smaller shares of total emissions than energy (see Table 3 ), the increases are relatively small in absolute terms; however, the rate of increase is substantial for nations that are industrializing, especially China, India, and South Korea. The largest absolute increase in emissions is driven by the rate of increase for the energy sector, growing at 1.6%/year. Within that sector (see Table 6 ), the most rapidly growing subsector is electricity and heat energy, at 2.5% per year, led by developing nations, especially China, India, Brazil, South Korea, Iran, and Indonesia, and also by Spain and Turkey. In contrast, for the EU-27, the rate and absolute emissions for the subsector declined slightly; but for the Russian Federation and Ukraine, the rate and absolute emissions declined substantially as their economies contracted. The next fastest growing subsector is transportation, at 2.0% a year, with every nation showing a positive rate of growth except the Russian Federation and Ukraine, with their contracting economies during the 1990s, and Germany, with a minimal decrease. The fastest rates of transportation emissions growth occurred in China, Iran, Indonesia, and South Korea. The previous section looked at emissions and the rate of change, 1990-2005, for all six greenhouse gases and all sectors of the economy (insofar as data are available). Of the six greenhouse gases, CO 2 dominates, accounting for 76.8% of the carbon equivalents of global GHG emissions in 2005 and 84.6% of U.S. GHG emissions (these figures include Land-Use Change and Forestry, and International Bunkers). Overwhelmingly, the source of that CO 2 is energy use: for world CO 2 emissions, energy use accounts for 77.9%; for the United States, energy use accounts for 98.8%. Two factors largely determine the intensity of CO 2 emissions of a nation's economy: energy intensity (energy per unit of GDP) and the fuel mix (emissions per unit of energy): Table 7 presents data on energy sector CO 2 emissions for 2006. The first data column represents energy intensity of the economy, measured in 1,000 tonnes of oil equivalent (toe) per million $PPP. The smaller the number, the more efficiently energy is used to support economic activity in that country. For the world, the energy intensity of the global economy is 0.19; of the top-20 emitting nations, 13 equal or better the world average. Seven countries, Japan, Mexico, Germany, the United Kingdom, Italy, Spain, and Turkey equal or better the efficiency of the EU-27, at 0.13; China, the Russian Federation, Ukraine, and South Africa are the least efficient, at 0.31 or worse. In general, the higher the number in column one, the more least-cost options that nation should be able to find for reducing energy use without adversely affecting the overall economy. Improvements could come, for example, from upgrading boilers, substituting gas-combined cycle electricity generation, improving the efficiency of the electricity grid, or upping the efficiency of the vehicle fleet. The second data column in Table 7 reflects the carbon content of the mix of fuels comprising energy use, measured as tons of carbon (C) per 1,000 tonnes of oil equivalent. The world average is 670. Of the top-20 GHG emitters, China has the highest emissions for the energy it uses, at 900 tons of carbon per 1000 tonnes of oil equivalent; France—with nuclear power dominating its electricity generating sector—is lowest, at 390. The United States is just over the world average, at 680. The smaller the number, the less CO 2 being emitted by the energy used. Higher numbers would generally reflect a higher proportion of coal combusted in the electricity-generating, manufacturing, and heating sectors and a low transportation fleet fuel economy; lower numbers would generally reflect a higher proportion of hydropower, renewables, or nuclear power in the electricity, manufacturing, and heating sector, and a high transportation fleet fuel economy. Again, in many cases, the higher the number, the more least-cost options for lowering CO 2 emissions without adversely affecting the overall economy, for example by substituting natural gas for coal or renewables for oil. The third data column in Table 7 contains each nation's intensity of carbon emissions for the energy sector; it is the product of the first and second data columns. (Note that this intensity number is for CO 2 emissions only, and is thus different from greenhouse gas intensity , which includes CO 2 plus five other gases.) The higher the number, the less efficiently the economy is using carbon-emitting energy. The highest intensity nations are Ukraine, China, the Russian Federation, and South Africa; the lowest are France and Brazil, meaning that they get the most economic output for the emissions of CO 2 from the energy they use. The United States at 130 is slightly more efficient that the world average of 138, but less efficient than, for example, the European Union-27, at 86, and Japan and Turkey, both at 88. The last column in the table provides data on total emissions from energy use for 2006 – a year later than the same data series in column one in Table 3 . Another question is the relationship between new economic growth and emissions, which are often influenced by the degree of industrialization and the prices and availability of different fuels. Table 8 compares this by providing information on the annual rates of change of factors affecting CO 2 emissions from energy use. The first three data columns parallel the first three in Table 7 , giving the rates of change during 1990-2005. In terms of CO 2 emissions, negative numbers mean that over time a nation is getting more economic activity for less energy (first data column) and more energy for less CO 2 (second data column). As Table 8 shows, there are wide variations among nations. For example, China's economy made rapid progress in using energy more efficiently (energy intensity of -5.1% per year), even though the energy it used actually produced more CO 2 per unit of energy (+1.3% per year). A number of countries, including the EU-27, improved efficiency and reduced emissions per unit of energy used. The third data column, which should be the sum of the first two, is negative if, overall, the country is producing more economic activity for the CO 2 emitted. The fourth and fifth columns in Table 8 give the rates of change of the nations' GDPs and total CO 2 emissions from energy use. A nation's rate of change of CO 2 intensity can be negative, but if GDP is growing faster than CO 2 intensity is declining, emissions will rise (the last column). The carbon intensity of energy use—that is, the consequences of fuel mix—is especially notable in looking at the energy mix of electricity generation, as discussed in the next section. Variations among countries of the carbon intensity of energy use (see Table 5 ) are strongly affected by the carbon intensity of electricity generation – in the United States electricity generation accounts for 41% of total CO 2 emissions. Differences among countries are marked, as depicted in Table 9 . Choices among generating technologies are the primary driver of disparities among countries in the carbon intensity of their electricity generation. In general, countries with high numbers generate a substantial proportion of their electricity by burning fossil fuels, and countries with low numbers generate large quantities of electricity by nuclear facilities, hydropower, or other renewables. For example, France, with the lowest carbon intensity of electricity production of 20.3 in 2006, generated 79.2% of its electricity by nuclear power, 11.7% by hydropower and other renewables, and about 9.6% by conventional thermal. The United States, with a carbon intensity of electricity production in 2006 of 148, generated 19.4% of its electricity by nuclear power, 9.8% by hydropower and other renewables, and about 71% by conventional thermal. Although a nation's electricity-generating technologies are obviously affected by its resource endowments in terms of hydropower and fossil fuels, choices can be made, as exemplified by France. In 1980, France's electricity was generated 27% by hydropower, 24% by nuclear, 27% by coal, and 19% by oil. By 1990, with electricity production up over 60%, nuclear had risen to a 75% share, whereas coal and oil had fallen to 8% and 2% shares, respectively. Not only did nuclear power account for all the growth in electricity generation during the period, but it displaced half the coal-fired and more than three-quarters of the oil-fired electricity generation. In 1990, the electricity produced by nuclear power exceeded France's total amount of electricity generated 10 years earlier. France's transition to nuclear power meant that its CO 2 intensity (i.e., CO 2 emissions/GDP) declined between 1980 and 1990 at a rate of -4.9% per year, and CO 2 emissions declined at a rate of -2.6% per year. Thus, between 1980 and 1990, France's total CO 2 emissions declined by 23%—at the same time its per capita GDP was growing by 20.4% (+1.9% per year). Thus equation 3 yields a negative growth in emissions (numbers do not add precisely, due to rounding): During the 1990s, the United Kingdom made a major shift from coal to natural gas in the generation of its electricity. In 1990, the United Kingdom's electricity was generated 21% by nuclear, 1% by natural gas, and 65% by coal. In 2000, with electricity generation up 17%, nuclear's share was 23%, whereas coal's share had dropped to 33% and natural gas's share had risen to 39%. Because natural gas produces less total CO 2 per kilowatt hour than coal (at a ratio of about 0.6 to 1 on a Btu basis ), CO 2 intensity in the United Kingdom declined between 1990 and 2000 at a rate of -2.8% per year, and CO 2 emissions declined at a rate of -0.5% per year. Thus, between 1990 and 2000, total CO 2 emissions in the United Kingdom declined by 4.5% (-0.5% per year)—at the same time its per capita GDP was growing by 23.6% (+2.1% per year). Thus equation 3 yields a negative growth in emissions (numbers do not add precisely, due to rounding): The examples of France and the United Kingdom show that for a period of time, at least, greenhouse gas intensity improvements can be sufficient to absorb growth in population and economic activity, so that actual emissions decline. The examples also show that the introduction of new technology can cause sudden shifts in emission rates. The United States has also had periods when its CO 2 emissions declined. From 1980-1986, U.S. CO 2 intensity declined at a rate of -3.6% per year, and emissions declined at a rate of -0.5% per year. But after 1986 the rate of intensity decrease slowed: between 1987 and 2003, the intensity rate averaged about -1.7% per year. After 2003, through 2006 (the last year of CAIT's data), the rate of intensity decrease speeded up to an average annual -2.6%. Nonetheless, throughout the 1987-2006 period, the decrease failed to compensate for population and per capita GDP growth, so CO 2 emissions rose at 1.1% per year. Over the longer term, therefore, emissions have risen: in terms of equation 3 , U.S. CO 2 emissions for 1980-2005 are as follows (numbers do not add precisely, due to rounding): The transportation sector is one of the fast-growing sources of emissions (see Table 6 ) – and it is proving one of the most intractable to reducing greenhouse gas emissions. Studies indicate that nations vary considerably in the energy efficiency and greenhouse gas emissions intensity of their transport sectors, but data are limited for making inter-country comparisons of the carbon intensity of passenger miles or of ton-miles. For example, one effort examining vehicle miles shows substantial variations among several nations, with the United States being the highest emitter per passenger vehicle ( Figure 1 ). To some extent, these variations reflect differing geographic, cultural, and infrastructure circumstances among the nations; however, as with the carbon intensity of electricity generation, a substantial cause of the variations is deliberate policies, such as fuel efficiency standards, emission standards, fuel taxes, and choices of investments in transportation infrastructure. For the United States, the Bureau of Transportation Statistics provides data on the energy intensity of passenger modes ( Table 10 ). Two important points emerge from Table 10 . First, transportation efficiency for several modes has improved over time. Air traffic gained efficiency in the transition to jets and larger aircraft. Vehicular passenger miles have gained efficiency, but at a slowing pace. On the other hand, transit motor bus efficiency per passenger mile has gone up and down . Second, the choice of transportation mode, which can be affected by infrastructure investments and other public policies, substantively affects passenger-mile efficiency. Amtrak and, by extension, commuter rail, is considerably more efficient than any of the other choices, except motorcycles. Moreover, within the highway mode, efficiency varies significantly: in 2000, passenger cars were 20% more efficient on average than pickups, SUVs, and minivans, but in 2006 improvements in the latter had reduced the difference to 12%. All in all, it appears that policy choices can affect the energy intensity of travel, and thus opportunities for improvement exist. Because there is clearly a limit on greenhouse gas emission reductions to be achieved by heightened efficiencies in the transportation sector, interest turns to alternative fuels that do not generate greenhouse gases, including renewables and hydrogen. Brazil has made considerable progress in substituting ethanol for gasoline (40% by volume); however, the U.S. promotion of ethanol is still a small proportion of gasoline consumption (3.6% by volume in 2006 ), and there are questions about the net impact of ethanol use on CO 2 emissions. Hydrogen remains a distant possibility. Land use changes can affect emissions ( Table 3 ) and intensity ( Table 11 ). They have been excluded from most analyses in this report because the data are limited and less robust than most of the emissions data, and because for most nations, taking it into account changes little. Taking into account land use changes and forestry is highly time dependent: as nations clear land, develop their agriculture, and harvest forest resources, their emissions will rise; but for many nations , these activities occurred long ago. Only for those nations now at the point in their development where agricultural land clearing and logging are important activities, do substantial emissions result. Today, this is most notable in Indonesia and Brazil. In 2005, their emissions attributable to land use changes and forestry practices accounted for 71% and 64%, respectively, of their total GHG emissions. And as can be seen in Table 11 , incorporating land use changes and forestry greatly increases the greenhouse gas intensity of their economies. Even though land use changes may have a small effect on emissions for most countries, and the data lack robustness, including it in analyses can identify those situations where it is undeniably important and for which interventions might pay large dividends in terms of curtailing greenhouse gas emissions or sequestering CO 2 . That economic growth is a major underlying cause of the rise in greenhouse gas emissions is evident when one examines cumulative emissions: nations that achieved economic growth in the 19 th and 20 th Centuries account for the majority of the emissions over time. Moreover, as greenhouse gas emissions are long-lived in the atmosphere, their effect cumulates over time. A justification for developed nations taking the lead on reducing emissions, while giving developing ones the opportunity to increase emissions from activities that are necessary for economic development, is not just that developed nations are wealthier but also that they account for the bulk of cumulative emissions affecting climate. Data to assess cumulative emissions are limited. In general, data are available only for CO 2 and are calculated from fuel use estimates; land use changes over long time spans are important, but data are scanty or unavailable. CAIT provides figures for CO 2 emissions from fuel use, only from 1850, and not including land use changes ( Table 12 ). Because climate-forcing depends on the cumulative emissions, not current emissions, it is easy to see from Table 12 why developing nations feel that developed ones should take the lead. Given CAIT data, the United States and the European Union-27 account for over half the cumulative CO 2 emissions from energy use since 1850. The data on cumulative emissions and on including or excluding land use changes (see Table 11 ) highlight why individual nations are so differently affected by proposals to reduce greenhouse gas emissions. Setting a baseline year for determining a nation's emissions means that countries that developed early could do so with no restrictions on the use of fuels and other resources regardless of their potential impact on climate, while those nations just now undergoing development might face restrictions. The emissions of already developed nations are embedded in their baselines. Similarly, whether certain activities such as land use changes are included or not affects what is in the baseline. The greenhouse gas emissions of Brazil and Indonesia, for example, increase markedly when emissions from land use changes of the last few decades are counted; but comparable land use changes in many other countries (e.g., the United States) happened in earlier centuries, and the resulting emissions count only toward cumulation, not against any current baseline. Numerous subtle and indirect interactions occur among population, income, intensity, energy use, land use changes, and emissions. These interactions affect policy choices concerning climate change because of their implications for other important social policy initiatives and objectives—most importantly, policies to promote economic development and income growth. These interactions also make difficult the projection of trends over time. Economic development and growing incomes interact with population growth in two ways. First, birth rates tend to decline as incomes rise, reducing one of the upward pressures on emissions. Most high-income nations have annual birth rates of 0.5% or lower, compared with developing nations with birth rates that in some cases exceed 2% per year. Second, the economic opportunity that many developed nations offer means they may have relatively high immigration rates, so their population growth is higher than their birth rate. Overall, most demographers expect the rate of population growth to slow, although world population is projected to exceed 9 billion in 2050, with most of the increase in the developing world. Economic development and energy use are closely intertwined. The substitution of fossil fuel energy for human and animal power has been an important driver of the industrial revolution and consequent higher incomes. Indeed, for many, industrialization is synonymous with economic development. Yet at some point in development, the growth in incomes becomes at least partially detached from energy use, as energy costs lead to attention to energy efficiencies and as economies shift toward post-industrial services. Public policies can affect the relationship between economic development and growth and energy use in many ways, including taxation, infrastructure development, and research and development. The UNFCCC assumes that developing nations will inevitably have to exploit more energy as they give priority to reducing poverty. A key element of the climate change debate is how to decouple that economic development-energy use link. Income and emissions are related in another way, as well. In general, low-income people in developing nations focus their efforts on survival, whereas nations and individuals with higher incomes are likely to have more time and money to attend to environmental needs and amenities. Thus, while richer nations consume more goods and services, including energy, per capita, they also have generally been the most aggressive in addressing pollution and other environmental insults. This empirical relationship is known as the Environmental Kuznets Curve. However, its applicability to CO 2 emissions has been questioned, and to the degree that it does exist for conventional pollutants such as sulfur dioxide, it reflects policy choices to constrain emissions. These interactions have both short-run and long-run implications. For most nations most of the time, the combination of population growth and per capita GDP growth has more than offset forces tending to depress emissions, so emissions have increased. Overall, the most critical interaction is the one between per capita GDP growth and resource uses, especially energy, but also including cement manufacture, agricultural practices, deforestation, waste disposal, and the consumption and release of certain chemicals. What might be required to "prevent dangerous interference with the climate system" remains debatable. The answer actually depends on the concentration of greenhouse gases in the atmosphere, not the level of emissions at a given point in time. Ultimate goals, then, are typically expressed in terms of what concentration would be required to keep global warming below a certain amount with a certain probability. Models are then used to assess what emission reductions would be required to keep concentrations below the target level. As noted earlier, the Copenhagen Accord is an agreement of the Parties to the UNFCCC to begin establishing actions to follow on the Kyoto Protocol. The Copenhagen Accord does not mandate specific reductions, but sets a goal of reducing global emissions "so as to hold the increase in global temperature below 2 degrees C, and take action to meet this objective consistent with science and on the basis of equity." The United States has declared that its Copenhagen Accord target commitment is for a q uantified economy-wide emissions reduction for 2020 "i n the range of 17%" from 2005, "in conformity with anticipated U.S. energy and climate legislation, recognizing that the final target will be reported to the Secretariat in light of enacted legislation ." Analyzing and projecting the values and the rates of change for the variables population, income, intensity, and emissions depend on the baseline, the time period in question, and assumptions about changes over time. For the purpose of thinking about the United States slowing and then reversing its increase in greenhouse gas emissions, the historic trends in population, income growth, and greenhouse gas intensity indicate the magnitude of the challenge: To simply stop the growth in GHG emissions, the three factors on the left side of the equation must sum to zero. Population growth is slowing: the actual rate for 2000-2006 was slightly over 0.9%, and the U.S. Census Bureau projects it to fall to +0.8% by 2050. Assuming that population continues to grow at +0.9% through 2020, and that per capita GDP grows at the rate of +1.8% of 1990-2005, then GHG intensity would have to decline at the rate of -2.7% per year to stabilize emissions. But the U.S. target for the Copenhagen Accord is to reduce GHG emissions for 2020 to 17% below 2005 emissions. Taking the CAIT emissions data for 2005 of 1,892 MMTCE (excludes land use changes and forestry and international bunkers ), the 2020 target would be 1,570 MMTCE. This would require an emissions reduction of -1.2% per year for 2005-2020 (actually, emissions grew through 2007, before turning down during the recession in 2008). If one assumes that 2010 GHG emissions were at the 2005 level and that the annual trends of +0.9% population and +1.8% per capita GDP continue through 2020, what rate of intensity decline would be necessary to achieve the 2020 goal? The answer is, it would take a rate of intensity decline of about -4.6% per year beginning in 2010, to reach the level of 1,570 in 2020. This represents a substantial, ongoing improvement in intensity, from a GHG intensity of 153 MMTCE/million$PPP in 2005, to an intensity of 86 in 2020—but perhaps not impossible , when one considers that in 2005 France's intensity level was 80. Over the longer term, much more aggressive goals have been proposed: the U.S. target for the Copenhagen Accord appended a note suggesting a goal for 2050 of an 83% reduction from 2005 levels of GHG emissions, which would limit U.S. emissions to 321 MMTCE. Assuming population and per capita GDP grow from 2010 to 2050 at the average annual rates of 0.85% and 1.8%, respectively, then given the emission rate at the cap, U.S. greenhouse gas intensity in 2050 would be about 8 MMTCE/million$PPP—an extremely low-carbon economy. Or, in terms of rate of change, intensity would have to decline between 2005 and 2050 at an average rate of about -6.6% per year. To give perspective to rates of intensity decline, consider an illustrative scenario in which, for each of the 10 years 2016-2025, two 1,000-megawatt nuclear electrical generating facilities go into service (or equivalent generating capacity based on renewables), replacing existing coal-fired facilities. Each plant would displace approximately 6 million tons of carbon per year; when all 20 coal-supplanting plants were in service in 2025, they would be displacing 120 million tons of carbon per year. All else equal, displacing this much carbon would accelerate the rate of decline in intensity for 2016-2025 by about -0.5% per year. This example, which lowers emissions and intensity only incrementally, shows that large declines in intensity would require multiple initiatives. To meet the goal of reducing economy-wide emissions to 17% of 2005 levels by 2050 implies some mix of making tremendous gains in energy efficiency, shifting to energy sources that emit virtually no CO 2 , and developing the capacity to capture and sequester enormous amounts of CO 2 . As has been noted, world greenhouse gas intensity has been declining, but not at a rate sufficient to prevent rising GHG emissions (numbers do not add precisely, due to rounding): An in-depth analysis of policies and programs for reducing global greenhouse gas emissions is far beyond the scope of this report. But if greenhouse gases are to be reduced, the imperative to reduce intensity is clear. Simply put, more people at higher standards of living means more goods and services, especially energy—to cook, heat and cool homes, to manufacture goods, to transport people and goods, etc. To decouple those increases in the numbers of consumers and their consumption from increases in greenhouse gas emitting energy uses implies policies fostering greater efficiency in using energy and/or use of non-greenhouse gas-emitting forms of energy, such as renewables or nuclear. But greater efficiency ultimately reaches limits from the laws of physics; alternative fuels run into the facts that, in most places, fossil fuel, either coal or natural gas, is the least expensive fuel for generating electricity and heat, and oil is the least expensive fuel for powering transport. Beyond the energy sector, moreover, there are many other areas where policies may affect GHG emissions. Land use and agricultural and forestry policies can have direct implications for emissions, and could reduce intensity. The non-CO 2 gases, many of which pose particularly long-term climate implications, offer cost-effective opportunities for reductions from certain industrial processes, landfills, and fuel production. Perhaps most importantly, at the global scale, the possibility exists for identifying and exploiting least-expensive opportunities for reducing greenhouse gases, thereby increasing the efficiency with which economies use greenhouse gas-emitting technologies. This depends, however, on global instruments for accounting for and verifying such reductions. Reaching practical agreements on international mechanisms (e.g., for a carbon tax or a cap-and-trade system to obtain economic efficiencies among nations in reducing emissions) requires divergent national goals to be focused on what is, ultimately, a global issue. The global nature of climate change challenges national sovereignty. The UNFCCC, the Kyoto Protocol, the Asia-Pacific Partnership, and the Copenhagen Accord are efforts in multilateral approaches to reducing emissions, but their individual and complementary successes remain to be seen. In the end, the interactions of the variables, population, income, and intensity of emissions ( equation 1) , together with the inexorable force of compounding growth rates over time ( e quation 2 ) are inescapable conditions determining both the risks of climate change and the costs, benefits, and tradeoffs of options for responding. If climate change poses a genuine risk to the well-being of mankind, the nations of the world, individually and collectively, face two fundamental challenges: adopting and implementing policies and encouraging the development and use of technologies that emit lower levels of greenhouse gases, and maintaining a sufficiently high rate of intensity decline over the long term to ensure declining emissions. In 1992, Congress enacted the Energy Policy Act of 1992 (EPACT, P.L. 102-486 ), which contained provisions to implement the United Nations Framework Convention on Climate Change (UNFCCC), which had been signed earlier in the year. The UNFCCC's objective to stabilize "greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system" was echoed in EPACT, which called for a National Energy Policy Plan to "include a least-cost energy strategy ... designed to achieve [among other goals] ... the stabilization and eventual reduction in the generation of greenhouse gases.... " In ratifying the UNFCCC, the United States agreed to several principles for achieving this objective, including the following: "[D]eveloped country Parties should take the lead in combating climate change and the adverse effects thereof." "Parties should take precautionary measures to anticipate, prevent or minimized the causes of climate change and mitigate its adverse effects." "Parties have a right to, and should, promote sustainable development.... " Climate change policies should take "into account that economic development is essential for adopting measures to address climate change." The UNFCCC's linking of sustainable development and climate change mitigation reflects the perceived need to decouple economic development and growth from non-sustainable, greenhouse gas-emitting energy technologies. As this report suggests— An expanding global population is an important driver for economic growth. As affirmed in the UNFCCC, climate change policies are to take "into full account the legitimate priority needs of developing countries for the achievement of sustained economic growth and the eradication of poverty." Economic development may reduce population pressure in the long-term but creates increasing demand for resources that, employing current technologies, contribute to greenhouse gas emissions. Although economies become more efficient over time, those efficiencies have yet to overcome the combination of expanding population and growing economies without the intervention of governments. Satisfying the energy needs of dynamic economies is increasing the demand for coal and other fossil fuels for economic and other reasons. To meet the massive reductions in greenhouse gas emissions in the long term required by various stabilization scenarios would seem to require the development and deployment of commercially available technologies to shift economies substantively away from fossil fuels, and/or the large-scale capture and sequestration of the emissions of CO 2 from coal and other fossil fuels. The UNFCCC recognizes the "special difficulties of those countries, especially developing countries, whose economies are particularly dependent on fossil fuel production, use and exportation, as a consequence of action taken on limiting greenhouse gas emissions." Breaking the current dynamic of increasing populations and economic growth pushing up greenhouse emissions would depend on developing "sustainable" alternatives—both in improving the efficiency of energy use and in moving the fuel mix toward less greenhouse gas-emitting alternatives. In the UNFCCC, developed nations committed to taking the initiative by "adopt[ing] national policies and tak[ing] corresponding measures on the mitigation of climate change ... [that] will demonstrate that developed countries are taking the lead in modifying longer-term trends in anthropogenic emissions consistent with the objective of the Convention.... " Such development paths are critical not only for any domestic program, but also participation by developing countries in any global greenhouse gas stabilization program may be at least partially dependent on the availability and cost of such technologies. As stated by the UNFCCC, The extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources and transfer of technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of the developing country Parties. The Copenhagen Accord places new emphasis on technology development and its transfer among nations and represents an important component of the United States'—and other developed nations'—response to this principle. It remains to be seen whether the proposed funds are forthcoming, and how they are dispersed. Fostering technological change depends on two driving factors: exploiting new technological opportunities (technology-push) and market demand (market-pull). Currently, U.S. policy is oriented primarily to the technology-push part of the equation, with a focus on research and development (R&D). In contrast, the European Union (EU) is complementing its research and development efforts by constructing a multi-phased, increasingly more stringent market-pull for greenhouse gas-reducing technologies and approaches, including taxes and regulatory requirements overlain by the EU's Emissions Trading System. The market-pull side focuses on market interventions to create demand, which poses questions of— Whether, how, and to what extent to use price signals to change behaviors and to stimulate innovation of technologies that increase energy efficiency or that emit less greenhouse gases. Direct taxes on energy or on greenhouse gases could be one approach, whereas the concept of shifting taxes from incomes to consumption would be a broader one. Whether, how, and to what extent to use regulatory actions to change behaviors and to require technologies that increase energy efficiency or emit less greenhouse gases. A direct regulatory effort would be a renewable power standard for electricity-generating facilities, which requires some specified portion of electric power to be generated by renewables, such as water power, solar, or wind (whether nuclear power might count is an open question). Heretofore, especially in the United States, regulatory efforts curtailing greenhouse gas emissions commonly originated in response to other objectives, such as reducing health-damaging air pollutants or enhancing energy security by fostering substitutes for imported oil. In these cases, reductions in greenhouse gases were coincidental ("no regrets"); further co-reduction opportunities remain (e.g., methane from landfills). However, the objective of reducing greenhouse gases as the primary object of regulations is increasingly coming to the fore, especially in some states. The technology-push side focuses on research and development. It raises questions as to what R&D programs should be supported at what levels: Over the short-to mid-term, how can existing technologies be made more sustainable? How can energy (and other resources) be used more efficiently? What alternatives can be pursued? What are the relative federal and private roles in selecting and financing R&D of specific technologies? Perhaps most important for the longer run, what breakthrough research should be pursued? Over the past 100 years, a number of technological changes have occurred (e.g., in nuclear power, computing, and communications) that demonstrate the low success rate of predicting technological and societal changes far into the future. At present, at least two technological breakthrough possibilities can be discerned: fusion power, which conceivably could wean economies from fossil fuels, and sequestration, which could capture and store carbon dioxide—and perhaps even remove excess from the atmosphere. Other breakthroughs are surely possible—including serendipitous discoveries that cannot be conceived of now. If the ultimate, 2050 target for reducing greenhouse gas emissions is as aggressive as 83% below 2005 levels, as in some proposals, then fundamentally at issue is whether the risks of climate change can be addressed only by incremental "muddling through" or whether some extraordinary, aggressive effort is needed. Certainly, there are many opportunities for incremental and iterative policies to reduce greenhouse gases, to conserve energy, to find alternative energy sources, to make vehicles more energy efficient, to enhance carbon sequestration through afforestation and refined cropping practices, to deter deforestation and land use changes that increase CO 2 emissions, and so on. In addition, the potential for a substantial supply of natural gas offers the United States the possibility of buying time (similar to what the U.K. did in the 1990s) to allow a combination of research and development and market forces responding to a government-imposed carbon price to providing longer term opportunities. The incremental nature of such a response provides flexibility, while a time frame of decades offers hope of unpredictable breakthroughs or the discovery that climate change is not so threatening as some fear. Conversely, given the drivers increasing emissions, such as population growth and economic development and growth, it is hard to see how incremental changes affecting intensity will achieve the rate of intensity decline sufficient to reduce emissions to the proposed levels, even over decades. From this perspective, an intense, aggressive pursuit of breakthroughs—even with high costs and high risks of failure—has to be weighed against the costs and risks of failing to prevent potentially dangerous interference with the climate system. | In the context of climate change and possible responses to the risk associated with it, three variables strongly influence the levels and growth of greenhouse gas (GHG) emissions: population, income (measured as per capita gross domestic product [GDP]), and intensity of emissions (measured as tons of greenhouse gas emissions per million dollars of GDP). (Population) × (per capita GDP) × (Intensityghg) = Emissionsghg This is the relationship for a given point in time; over time, any effort to change emissions alters the exponential rates of change of these variables. This means that the rates of change of the three left-hand variables, measured in percentage of annual change, sum to the rate of change of the right-hand variable, emissions. For most countries, and for the world as a whole, population and per capita GDP are rising faster than intensity is declining, so emissions are rising. Globally, for the variables above over the period 1990-2005, the rates of change (∆) in annual percent sum as follows (numbers do not add precisely because of rounding): Population ∆ + per capita GDP ∆ + Intensityghg ∆ = Emissionsghg ∆ (+1.4) + (+1.7) + ( -1.6) = (+1.6) As can be seen, global emissions have been rising at a rate of about 1.6% per year, driven by the growth of population and of economic activity. Within this generalization, countries vary widely. (Unless otherwise noted, comments about countries refer to the top-20 emitters as of 2005, who accounted for about 75% of world emissions that year.) Between 1990 and 2005, in some countries, including Brazil, Mexico, Indonesia, and South Africa, population growth alone exceeded the decline in intensity. For most countries, and for the world as a whole, per capita GDP growth exceeded the intensity improvement each achieved. Countries for whom intensity improvements were greater than their per capita GDP increases included Germany, the United Kingdom, the United States, France, and South Africa. And both the Russian Federation and the Ukraine, following their economic contractions in the 1990s, posted negative numbers for population, per capita income, intensity, and GHG emissions between 1990 and 2005. Besides the Russian Federation and the Ukraine, only the United Kingdom and Germany reduced their GHG emissions for the period (Germany being helped by reductions in the former East Germany). Stabilizing greenhouse gas emissions would mean the rate of change equals zero. Globally, with a population growth rate of 1.4% per year and an income growth rate of 1.7% per year, intensity would have to decline at a rate of -3.1% per year to hold emissions at the level of the year that rate of decline went into effect. Within the United States, at the 1990-2005 population growth rate of 1.1% per year and income growth rate of 1.8% per year, intensity would have had to decline at a rate of -2.9% per year to hold emissions level; however, U.S. intensity declined at a rate of -1.9%, leaving emissions to grow at 1.0% per year. Looking to the future, under auspices of the Copenhagen Accord, the United States has submitted a target of reducing emissions from the 2005 level by 17% in 2020. This would require the United States to reduce the intensity of its emissions by some -4.6% per year during the 2010-2020 decade. This implies that the rate of intensity decline needs to better than double. |
T he Pesticide Registration Improvement Extension Act of 2012 (PRIA 3), which amended certain provisions of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), reauthorized the U.S. Environmental Protection Agency (EPA) to collect and use two types of fees to enhance and accelerate the agency's pesticide registration program and related activities. Maintenance fees , which pesticide registrants must pay to keep existing pesticide registrations reviewed and issued by EPA, help to partially fund the agency's periodic reevaluation of registrations. PRIA 3 authorized the collection of maintenance fees until the end of FY2017. Registration service fees , which applicants must pay when seeking EPA review of various applications related to pesticide registrations, help to partially defray the costs of evaluating such applications. At the end of FY2017, PRIA 3 would have reduced the rate in which EPA may collect registration service fees annually over two years. However, successive continuing resolutions and, most recently, the Consolidated Appropriations Act, 2018, extended the authority to collect both types of fees until the end of FY2018 without a reduction in the amount of registration fees that EPA may collect. This report provides historical background on both types of fees and summarizes current statutory provisions regarding such fees and legislation introduced in the 115 th Congress that would reauthorize the authority to collect fees. FIFRA requires EPA to review and register the use of pesticide products meeting certain statutory criteria and periodically reevaluate existing pesticide registrations (i.e., registration review). Section 408 of the Federal Food, Drug, and Cosmetic Act requires EPA to establish maximum limits ("tolerances") for pesticide residues in or on food and animal feed. EPA assesses fees on pesticide manufacturers and distributors, referred to as "registrants," for pesticide registrations and pesticide-related applications. These fees, which are deposited in designated funds within the U.S. Treasury and subsequently appropriated, combined with discretionary appropriations from the General Fund of the U.S. Treasury pay for EPA's pesticide regulatory activities. Since 1954, Congress has authorized the collection of various fees to partially defray certain costs associated with federal pesticide regulation activities. Additional annual appropriations fund the majority of the costs. Enacted as part of the Consolidated Appropriations Act, 2004, the Pesticide Registration Improvement Act of 2003 (PRIA 1) established the current pesticide fee framework. PRIA 1 modified provisions originally enacted in 1988 that authorized the collection and use of maintenance fees to enhance and accelerate a one-time EPA review of pesticide registrations that the agency issued prior to November 1, 1984 (i.e., reregistration). PRIA 1 also authorized the collection and use of registration service fees to defray costs associated with EPA review of applications for registering new pesticide active ingredients and products, adding new uses to existing pesticide registrations, establishing and amending tolerances, and amending pesticide labels. PRIA 1 established a schedule that provided the fee amounts associated with various review activities and required EPA to complete its review of submitted applications within specific timeframes depending on the category of application if the agency collected the fee. In 2007, the Pesticide Registration Improvement Renewal Act (PRIA 2) reauthorized and amended the pesticide fee framework. PRIA 2 added new categories of applications for which registration service fees may be assessed, revised the schedule of timeframes in which EPA is required to make a decision on an application, and adjusted the fee amounts for both maintenance and registration service fees. With the enactment of PRIA 3 in 2012, Congress reauthorized and further amended the pesticide fee framework. The current pesticide fee framework, as amended by PRIA 3 and extended by the Consolidated Appropriations Act, 2018, is summarized in the following sections. In accordance with the Consolidated Appropriations Act, 2018, the authority to collect pesticide maintenance fees expires on September 30, 2018. FIFRA Section 4, as amended by PRIA 3, sets annual maximum maintenance fees per registrant generally based on the number of registrations held. Congress also established a cap on the aggregate amount of maintenance fees that EPA may collect annually ($27.8 million per fiscal year) from FY2013 through FY2018. If a registrant does not pay the required maintenance fee for its pesticide registration, Section 4 authorizes EPA to cancel the pesticide registration. Section 4 provides "small businesses" with certain fee reductions and exempts registrations of certain public health pesticides from the payment of maintenance fees. Collected maintenance fees are deposited as receipts in the "Reregistration and Expedited Processing Fund" in the U.S. Treasury. These receipts are made available to EPA as mandatory appropriations for offsetting costs associated with (1) evaluating inert ingredients and expedited processing of certain applications within specified statutory time frames, and (2) reevaluating registered pesticides (including setting tolerances). Additionally, Section 4 requires EPA to use up to $800,000 per year from FY2013 through FY2018 to enhance information systems capabilities to improve tracking of pesticide registration decisions. In accordance with the Consolidated Appropriations Act, 2018, EPA's authority to collect registration service fees begins to phase out starting at the end of FY2018. If the authority to collect registration service fees is not extended or reauthorized, pursuant to PRIA 3, the amount of registration service fees that EPA may collect would be reduced by 70% for FY2019 and, at the end of FY2019, the authority to collect registration service fees would expire. FIFRA Section 33, as amended by PRIA 3, sets registration service fee amounts for 189 different actions that may be requested by the applicant (e.g., review of new registration applications or amendments to existing applications). EPA must complete requested actions within specified timeframes, which vary based on the category of action. Section 33 presents the current fee schedule, which is subject to certain adjustments by EPA, and specified timeframes for the completion of requested actions. Section 33 provides "small business" fee reductions, and EPA may exempt from or waive a portion of the registration service fee for applications seeking to register "minor uses" of a pesticide. Applications involving tolerance setting in the "public interest" and federal and state governmental entities are exempt from the payment of registration service fees. The authority to collect and obligate registration service fees under FIFRA Section 33 must be provided, in advance, by annual discretionary appropriations. Section 33 prohibits EPA from assessing registration service fees if appropriations for salaries, contracts, and expenses for specified functions of the EPA Office of Pesticide Programs (excluding any fees appropriated) are less than the corresponding FY2012 appropriation ($128.3 million). Generally, EPA confirms whether minimum appropriations have been met to determine whether the agency is authorized to assess registration service fees for the fiscal year. However, for FY2013 through FY2018, annual appropriations have authorized EPA to assess registration service fees notwithstanding the condition of minimum appropriations. Section 33 requires EPA to deposit collected pesticide registration service fees as receipts in the "Pesticide Registration Fund" in the U.S. Treasury. Unlike receipts in the "Reregistration and Expedited Processing Fund," the expenditure of receipts in the "Pesticide Registration Fund" is subject to annual appropriations acts. Once Congress appropriates the fee receipts, EPA may use them without fiscal year limitation for the following purposes: covering costs associated with the review and decisionmaking of applications received with the payment of the applicable registration service fee; enhancing scientific and regulatory activities related to worker protection; awarding worker protection partnership grants ($500,000 in aggregate annually from FY2013 through FY2018); and carrying out a pesticide safety education program ($500,000 annually from FY2013 through FY2018). FIFRA requires the Inspector General of EPA to annually audit the Reregistration and Expedited Processing Fund and Pesticide Registration Fund in accordance with the act and the Chief Financial Officers Act of 1990, as amended. The Inspector General must submit the findings and recommendations of the audit to EPA and certain congressional committees. Additionally, FIFRA requires EPA to annually report on various aspects of its pesticide program activities. Congress appropriated a total of $8.89 billion for EPA for FY2018 in the Consolidated Appropriations Act, 2018 and the Further Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2018. Of the total FY2018 enacted appropriations for EPA, the exact amount provided for the specified functions of the EPA Office of Pesticide Programs referenced above is not readily reported. As mentioned above, the Consolidated Appropriations Act, 2018, authorizes EPA to assess registration service fees notwithstanding the condition of minimum appropriations. From FY2004 through FY2018, collected maintenance fees ranged from $21.4 million to $28.7 million per fiscal year. In the same time period, collected registration service fees ranged from $10.6 million to $18.6 million per fiscal year. Collected maintenance and registration service fees each year are estimated to provide one-fourth of the total appropriation for EPA's pesticide program activities. Congress initiated legislative efforts to reauthorize the collection of maintenance and registration service fees in 2017. Congress did not enact reauthorization legislation but extended the authority to collect fees for one year through FY2018 appropriations. The House and Senate have passed separate versions of reauthorization legislation, summarized below, that await the resolution of differences. On March 20, 2017, the House passed the Pesticide Registration Enhancement Act of 2017 ( H.R. 1029 , H.Rept. 115-49 ), which would reauthorize the collection of both fees and amend the activities that fees may fund. On June 28, 2018, the Senate passed an amendment to H.R. 1029 , renamed the Pesticide Registration Improvement Extension Act of 2018. Both versions of H.R. 1029 would reauthorize the collection of maintenance fees and registration service fees through FY2023 and FY2025, respectively; increase the cap on annual maintenance fees per registrant by 12% and the aggregate for all maintenance fees from $27.8 million per fiscal year to an average amount of $31.0 million per fiscal year; direct EPA annually to set aside not more than $500,000 in the Reregistration and Expedited Processing Fund for expedited rulemaking and guidance development related to evaluating the efficacy of pesticides in controlling certain invertebrate pests; direct EPA annually to set aside not more than $500,000 in the Reregistration and Expedited Processing Fund for enhancing the good laboratory practices standards compliance monitoring program; revise registration service fee amounts for different actions the applicant may request the agency to conduct; add more actions in which registration service fees may be assessed; and revise certain time frames in which EPA is required to complete review of a requested action. The Senate amendment to H.R. 1029 would require EPA to carry out and not revise two final rules before October 1, 2021, with one exception. EPA promulgated both rules during the previous administration. One rule amended elements of the existing agricultural worker protection standard (e.g., training, notification, pesticide safety and hazard communication information, use of personal protective equipment, and providing supplies for routine washing and emergency decontamination). The Senate amendment would authorize EPA to propose and promulgate revisions to the standard that address application exclusion zones. The other rule revised standards for certified pesticide applicators ("Pesticides; Certification of Pesticide Applicators"), amending elements of the existing standard with the stated intent of protecting applicators, the public, and the environment from risks associated with the use of restricted use pesticides. Additionally, the Senate amendment to H.R. 1029 would direct the U.S. Government Accountability Office to publish a report by October 1, 2021, on the use of designated representatives. The report must examine the effect of designated representatives on the availability of pesticide application and hazard information and worker health and safety. In addition, the report must include any recommendations to prevent the misuse of pesticide application and hazard information. Section 9119 of H.R. 2 , the Agriculture and Nutrition Act of 2018, as passed by the House on June 21, 2018, would enact House-passed H.R. 1029 into law. The Senate amendment to H.R. 2 , the Agricultural Improvement Act of 2018, passed by the Senate on June 28, 2018, does not include a similar provision. On July 18, 2018, the House requested a conference with the Senate to resolve differences between the House and Senate versions of H.R. 2 . The two prior PRIA reauthorizations were enacted into law without roll call votes in the House and the Senate, suggesting a general consensus for extending the pesticide fee framework. In floor statements, members have recognized a coalition of organizations that represent the pesticide industry, state agricultural departments, and environmental and farmworker interests for developing PRIA in the early 2000s and assisting with reauthorizing legislation. However, the current iteration of PRIA reauthorization has not resulted in a final enactment due, in part, to disagreements between the House and Senate on EPA administration and enforcement of certain FIFRA regulations. | Division G of Title II of the Consolidated Appropriations Act, 2018 (P.L. 115-141) extended U.S. Environmental Protection Agency (EPA) authority to collect fees from the pesticide industry for the maintenance and evaluation of pesticide registrations under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA; 7 U.S.C. 136 et seq.) until the end of FY2018. Two types of industry-paid fees supplement annual appropriations from the General Fund to support EPA's pesticide regulatory program. Without the extension, the authority to collect maintenance fees would have expired at the end of FY2017 under the Pesticide Registration Improvement Extension Act of 2012 (PRIA 3; P.L. 112-177). Maintenance fees are paid by pesticide registrants to retain existing pesticide registrations, which govern the terms and conditions for lawful pesticide distribution and use. Additionally, without the extension, PRIA 3 would have gradually phased out the authority to collect registration service fees by the end of FY2019. Registration service fees are paid by applicants who seek EPA review of applications associated with pesticide registrations (e.g., new registrations, amendments to existing registrations). If these fee authorities are not reauthorized or extended after FY2018, pursuant to PRIA 3, the authority to collect maintenance fees would expire and the authority to collect registration service fees would be phased out by the end of FY2019. Since FY2004, total maintenance fees collected by EPA have ranged from $21.4 million to $28.7 million per fiscal year and total registration service fees have ranged from $10.6 million to $18.6 million per fiscal year. Maintenance and registration service fees collected each fiscal year have provided approximately one-fourth of the total appropriation for EPA's pesticide program activities. In the 115th Congress, the House-passed H.R. 1029, the Pesticide Registration Enhancement Act of 2017, and the Senate amendment to H.R. 1029, the Pesticide Registration Improvement Extension Act of 2018, would reauthorize the collection of maintenance fees until the end of FY2023 and registration service fees until the end of FY2025. The amount that EPA may collect in registration service fees would be reduced by 40% for FY2024 and 70% for FY2025 in a phase out. Both the House and Senate versions of H.R. 1029 would increase the cap on annual maintenance fees per registrant by 12% and the aggregate for all maintenance fees from $27.8 million per fiscal year to an average amount of $31.0 million per fiscal year. Both the House and Senate versions of H.R. 1029 would revise registration service fee amounts for different actions the applicant may request the agency to conduct and certain time frames in which EPA is required to complete review of a requested action. The Senate amendment to H.R. 1029 would require EPA to implement without revision two final rules promulgated during the previous administration before October 1, 2021. The two EPA rules address standards for the protection of agricultural workers from pesticide exposures and the certification of applicators that use restricted use pesticides. The Senate amendment to H.R. 1029 would also direct the U.S. Government Accountability Office to publish a report on the use of designated representatives and their effect on the availability of pesticide application and hazard information. On June 21, 2018, the House passed H.R. 2, the Agriculture and Nutrition Act of 2018, which includes a provision that would enact House-passed H.R. 1029. The Senate amendment to H.R. 2, the Agriculture Improvement Act of 2018, does not include a similar provision. On July 18, 2018, the House requested a conference with the Senate to resolve differences between the House and Senate versions of H.R. 2. |
Medicare is a federal insurance program that pays for covered health care services of qualified beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act as a federal entitlement program to provide health insurance to individuals 65 and older, and has been expanded over the years to include permanently disabled individuals under 65. Generally, individuals are eligible for premium-free Part A of Medicare if they or their spouse paid Medicare payroll taxes for at least 40 quarters, are at least 65 years old, and are a citizen or permanent resident of the United States. Individuals under 65 may also qualify for coverage if they have a permanent disability, have end-stage renal disease (permanent kidney failure requiring dialysis or transplant), or have amyotrophic lateral sclerosis (Lou Gehrig's disease). Medicare consists of four parts—A through D. Part A covers hospital services, skilled nursing facility services, home health visits, and hospice services. Part B covers a broad range of medical services, including physician services, laboratory services, durable medical equipment, and outpatient hospital services. Enrollment in Part B is optional, however most beneficiaries with Part A also enroll in Part B. Part C, also known as Medicare Advantage, provides private plan options, such as managed care, for beneficiaries who are enrolled in both Parts A and B. Part D provides optional outpatient prescription drug coverage through private plans. Medicare serves approximately one in six Americans and virtually all of the population aged 65 and over. In 2013, the program covered 52.3 million persons (43.5 million aged and 8.8 million disabled) at a total cost of $583 billion, accounting for about 20% of national health spending and 3.5% of Gross Domestic Product (GDP). Medicare is an entitlement program, which means that it is required to pay for covered services provided to enrollees so long as specific criteria are met. Since 1965, the Medicare program has undergone considerable change. For example, the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 as amended), made numerous changes to the Medicare program that modify provider reimbursements, provide incentives to increase the quality and efficiency of care, and enhance certain Medicare benefits. For example, under the legislation, annual updates of the prices paid by Medicare for almost all non-physician categories of health services are being reduced by the growth in economy-wide productivity (productivity adjustments). The ACA also established a new Independent Payment Advisory Board (IPAB), which is required to make recommendations to reduce Medicare spending in years in which Medicare costs are projected to exceed a target growth rate. The legislation did not, however, make changes to the physician sustainable growth rate (SGR) payment system; unless Congress takes action before April 1, 2015, reductions in physician payment rates of about 21% will be required. Additionally, the Budget Control Act of 2011 (BCA; P.L. 112-25 ) provided for increases in the debt limit and established procedures designed to reduce the federal budget deficit, including the creation of a Joint Select Committee on Deficit Reduction. The failure of the Joint Committee to propose deficit reduction legislation by its mandated deadline triggered automatic spending reductions ("sequestration" of mandatory spending and reductions in discretionary spending) in fiscal years 2013 through 2021. The American Taxpayer Relief Act of 2012 (ATRA, P.L. 112-240 ) delayed the automatic reductions by two months, while the Bipartisan Budget Act of 2013 (BBA, P.L. 113-67 ) extended sequestration for mandatory spending for an additional two years—through FY2023. On February 15, 2014, the President signed into law an amended version of S. 25 ( P.L. 113-82 ), which, among other things, included a provision to extend BCA's sequester of mandatory spending through FY2024. Section 256(d) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, P.L. 99-177 ) contains special rules for the Medicare program in the event of a sequestration. Among other things, it specifies that for Medicare, sequestration is to begin the month after the sequestration order has been issued. Therefore, as the initial sequestration order was issued March 1, 2013, Medicare sequestration began April 1, 2013, and will continue through March 31, 2025. Under sequestration, Medicare's benefit structure generally remains unchanged; however, benefit related payments are subject to 2% reductions. In other words, most Medicare payments to health care providers, as well as to MA and Part D plans, are being reduced by 2%. Certain Medicare payments are exempt from sequestration and therefore not reduced. Some non-benefit related Medicare expenses, such as administrative and operational spending, are subject to higher reductions, 7.3% in 2014. This report provides an overview of how the Medicare program is financed, including a description of the Medicare trust funds and a summary of key findings and estimates from the 2014 Report of the Medicare Board of Trustees regarding 2013 program operations and future financial soundness. Medicare's financial operations are accounted for through two trust funds maintained by the Department of the Treasury—the Hospital Insurance (HI) trust fund for Part A and the Supplementary Medical Insurance (SMI) trust fund for Parts B and D. For beneficiaries enrolled in Medicare Advantage (Part C), payments are made on their behalf in appropriate portions from the HI and SMI trust funds. HI is primarily funded by payroll taxes, while SMI is primarily funded through general revenue transfers and premiums (see Figure 1 ). The HI and SMI trust funds are overseen by a Board of Trustees that provides annual reports to Congress. Covered Part A benefits, namely, inpatient hospital services, skilled nursing facility services, some home health services, and hospice care are paid for out of the HI trust fund. Payments are also made for administrative costs associated with operating this part of the program. Similar to the Social Security system, the HI portion of Medicare was designed to be self-supporting, and is financed through dedicated sources of income rather than relying on general tax revenues. The primary source of income credited to the HI trust fund is payroll taxes paid by employees and employers; each pays a tax of 1.45% on earnings. The self-employed pay 2.9%. Unlike Social Security, there is no upper limit on earnings subject to the tax. ACA imposes an additional tax of 0.9% on high-income workers with wages over $200,000 for single filers, and $250,000 for joint filers effective for taxable years beginning in 2013. (ACA also imposes an additional tax on unearned income beginning in 2013; however, this tax is not credited to the trust fund.) Additional income to the HI trust fund consists of premiums paid by voluntary enrollees who are not entitled to premium-free Medicare Part A through their (or their spouse's) work in covered employment; a portion of the federal income taxes paid on Social Security benefits; and interest on federal securities held by the trust fund. The HI trust fund is primarily an accounting mechanism used to track whether the program has sufficient income and assets to make payments for Part A benefits. When the government receives Medicare revenues (payroll taxes), income is credited by the Treasury to the appropriate trust fund in the form of special issue interest-bearing government securities. (Interest on these securities is also credited to the trust fund.) The tax income exchanged for these securities then goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund; this cash may be used for any government spending purpose. When payments for Medicare Part A benefits are made, the payments are paid out of the general treasury, and a corresponding amount of securities is deleted from (written off) the HI trust fund. The trust fund surpluses are not reserved for future Medicare benefits, but are simply bookkeeping entries that indicate how much Medicare has lent to the Treasury (or alternatively, what is owed to Medicare by the Treasury). From the unified budget perspective, these "asset" balances are regarded as future spending obligations and are thus treated as liabilities. (See the " Medicare Expenditures and the Federal Budget " section for an overview of differences in trust fund and unified budget accounting conventions.) As long as the HI trust fund has a balance, the Treasury Department is authorized to make payments for Medicare Part A services. To date, the HI trust fund has never run out of money (i.e., become insolvent ), and there are no provisions in the Social Security Act that govern what would happen if that were to occur. For example, there is no authority in law for the program to use general revenue to fund Part A services in the event of such a shortfall. Since the beginning of the Medicare program, the payroll tax rate has been adjusted periodically by Congress as one of the mechanisms to maintain the financial adequacy of the HI trust fund. Additionally, Congress has taken numerous actions to slow the growth in expected Part A spending. Medicare Part B benefits (which include physician services, outpatient hospital care, some home health services, durable medical equipment, diagnostic tests, and other services) and Part D outpatient prescription drug benefits are paid for out of the Supplementary Medical Insurance (SMI) trust fund. Unlike the HI program, the SMI program was not intended to be fully supported through dedicated sources of income. Instead, it relies primarily on general tax revenues and beneficiary premiums as revenue sources. Because contributions (general revenue and premiums) into the SMI trust fund are automatically updated each year to ensure that the program has enough money to continue operating, the SMI trust fund is kept in balance and will remain in financial balance indefinitely (i.e., the SMI trust fund cannot become insolvent). Income from these sources is credited to the SMI trust fund and any SMI revenues that exceed SMI spending accumulate in the SMI trust fund; however, SMI trust fund balances are generally small. Similar to HI, the basic structure of the SMI financing system can be changed only through an act of Congress. Medicare Part B is financed mostly by federal general revenues, and beneficiary premiums are set at a rate to cover 25% of estimated Part B program costs for the aged. Beginning in 2011, additional revenues from an annual fee imposed on certain manufacturers and importers of branded prescription drugs (including biological products and excluding orphan drugs) are being credited to the Part B account in the SMI trust fund. In 2014, the monthly premium is $104.90 for most Medicare Part B enrollees, and individuals who receive Social Security benefits have their Part B premium payments automatically deducted from their Social Security benefit checks. Since 2007, high-income enrollees pay higher premiums. As a result of a provision in ACA, the income thresholds used to determine which beneficiaries are subject to higher Part B premium rates will be frozen at 2010 levels through 2019. Over time, this freeze will result in a larger number of beneficiaries paying the higher premiums and is expected to bring in increased revenue to the SMI trust fund. Medicare Part D is primarily financed through a combination of beneficiary premiums and federal general revenues. In addition, certain transfers are made from the states. These transfers, referred to as "clawback payments," represent a portion of the amounts states could otherwise have been expected to pay for drugs under Medicaid if drug coverage for the dual-eligible population (those who qualify for both Medicare and Medicaid) had not been transferred to Part D. In 2014, the base monthly premium is $32.42; however, beneficiaries pay different premiums depending on the Part D plan they have selected (and whether they are entitled to low-income premium subsidies). Part D premium payments may be automatically deducted from Social Security benefit checks, paid directly to the prescription drug plan sponsor, or made through an electronic funds transfer. Premiums for the Part D program are required to cover 25.5% of standard benefit costs; however, as recipients of the Part D low-income subsidies are not required to pay premiums, premiums covered only about 14% of Part D program costs in 2013 (see Figure 1 ). As required by ACA, beginning in 2011, high-income Part D prescription drug program enrollees are required to pay higher premiums similar to high-income Part B enrollees; the income thresholds are set at the same levels as those under Part B and frozen in the same manner through 2019. The Medicare Board of Trustees was established under the Social Security Act to oversee the financial operations of the HI and SMI trust funds. By law, the six-member Board is composed of the Secretary of the Treasury, the Secretary of Health and Human Services, the Secretary of Labor, the Commissioner of Social Security, and two public members (not of the same political party) nominated by the President and confirmed by the Senate. The Secretary of the Treasury is the Managing Trustee, and the Administrator of the Centers for Medicare & Medicaid Services (CMS) is designated the Secretary of the Board. The Medicare Trustees provide a report to Congress each year on the operations of the trust funds. Financial projections included in the report are made by CMS actuaries using major economic and other assumptions selected by the Trustees based on current law. Among the variables used are estimations of consumer price index (CPI), fertility rate, mortality rate, workforce size, wage increases, and life expectancy. The Trustees review these assumptions annually, and update them as warranted by new analyses of trends and data. The report includes three forecasts ranging from pessimistic ("high cost") to mid-range ("intermediate") to optimistic ("low cost"). The intermediate projections represent the Trustees' best estimate of economic and demographic trends and are the projections most frequently cited. (Unless otherwise noted, the intermediate projections are used throughout this report.) The 2014 report of the Medicare Trustees was issued July 28, 2014. As noted, the Medicare Trustees generally make their projections based on current law. However, in their 2014 report, the Trustees made an exception with regard to the sustainable growth rate (SGR) formula for physician payments under Part B. Although under current law, physician payments are scheduled to be reduced by close to 21% in April 2015, the Trustees recognized that in every year since 2002, Congress has overridden these reductions. The Trustees therefore used a "projected baseline" that assumed that physician payments would remain at their current levels through the end of 2015, and then increased by 0.6% annually through 2023. However, even with the above change in projection methodology, the report warned that estimates based on other current-law assumptions may not be realistic. As such, the actuaries of CMS conducted a separate analysis that provides projections based on an "illustrative alternative" to current law. The alternative estimates are based on the assumption that the economy-wide productivity adjustments mandated by ACA would be made through 2019, but would then be phased out from 2020 to 2034, and that IPAB recommendations for cost reductions would not be implemented. In calendar year (CY) 2013, Medicare provided about 52.3 million beneficiaries with benefits at a total cost of about $583 billion, or an average of $11,910 per enrollee. (See Appendix A , Appendix B , and Appendix C for historical and projected enrollment, total Medicare income and expenditures, and per capita expenditures.) Because HI and SMI have different funding mechanisms, a description of each fund's 2013 operations is presented separately below. As shown in Table 1 , in CY2013, total income to the HI trust fund was $251.1 billion. Payroll taxes of workers and their employers accounted for $220.8 billion (87.9%), with the remainder coming from interest and government credits, premiums (from those buying into the program), and taxation of Social Security benefits. The HI program paid out $266.2 billion, most of which was for benefit costs; the rest, about 1.6%, was used for administrative expenses. Similar to years 2008 through 2012, expenditures again exceeded income in 2013, and the trust fund balance was reduced from $220.4 billion at the end of 2012 to $205.4 billion at the end of 2013 (a loss of $15.0 billion). (See Appendix D for funding amounts in prior years and estimates for future years.) In CY2013, the SMI trust fund (Part B and Part D accounts combined) brought in $324.7 billion in revenue ($255.0 billion from Part B and $69.7 billion from Part D), and expended $316.8 billion ($247.1 billion from Part B and $69.7 from Part D); the $7.9 billion surplus was added to the SMI trust fund balance. General revenues accounted for 72.9% of total income, and premiums accounted for 22.5%. (See Table 1 for 2013 Parts B and D operations data.) Of the $255.0 billion in income to Part B, general revenues made up $185.8 billion of that amount (72.9%), premiums accounted for $63.1 billion (24.7%), and interest and other income made up the remaining $6.1 billion (2.4%). In 2013, the program paid out $247.1 billion; similar to HI, almost all of this amount was used to cover benefits, while the remaining 1.3% covered administrative expenses. (See Appendix E for historical and projected income and expenditures in the SMI Part B account.) Of the $69.7 billion in Part D income, general revenues accounted for $51.0 billion (73.2%), premiums accounted for $9.9 billion (14.2%), and transfers from states for $8.8 billion (12.6%). Almost all of the 2013 Part D program expenditures of $69.7 billion were used to pay benefit costs, and the rest, about 0.6%, was used for administrative expenses. (See Appendix F for historical and projected income and expenditures in the SMI Part D account.) Over the next 10 years, total Medicare expenditures are projected to increase at an average annual rate of 6.8%, with total spending growing from $582.9 billion in 2013 to close to $1.1 trillion in 2023 (see Figure 2 and Appendix B ). The average growth rate reflects the expected growth in the number of individuals eligible for Medicare as well as expected increases in utilization and complexity of services per beneficiary and in the prices of those services. The growth rate also factors in ACA changes that affect cost growth rates, such as the productivity adjustments to the annual payment updates to certain providers and changes in payments to Medicare Advantage plans. Additionally, unlike in prior years' projections, these growth rates assume that the scheduled physician payment reductions of about 21% in April 2015 will not go into effect. In the short term, the adequacy of the HI trust fund is determined by comparing its assets at the beginning of the year to expected costs for that year. The Trustees consider the fund to be adequate if the ratio of assets to expenditures is at least 100% at the beginning of and throughout the 10-year projection period. The Trustees note that the HI fund is not adequately financed over the next 10 years. Specifically, the new report states that the fund fails to meet the short-range (i.e., 10-year, 2014-2023) test of financial adequacy because total HI assets at the start of the year ($205.4 billion) are expected to be below 100% of expenditures (76%) during 2014. HI expenditures have exceeded income every year since 2008 and are projected to continue doing so under current law through 2014. In 2009 and 2010, income from payroll taxes decreased substantially due to higher unemployment and slow growth in wages. In years 2011 through 2013, revenues grew faster than expenditures; however, they still did not reach the level of expenditures in those years, as spending also continued to increase due to growing Medicare enrollment and periodic updates to Medicare provider payment rates. Income is expected to continue increasing at a faster rate than expenditures from 2014 through 2017 due to the assumed continuation of the economic recovery, the application of an additional 0.9% HI payroll tax for high-income enrollees beginning in 2013, and the 2% reduction in benefit spending required by BCA from April 1, 2013, through March 31, 2024. Over the next 10 years, HI income is expected to grow on average by 5.9% per year, while expenditures are expected to grow at an average rate of 5.3% per year. From 2015 through 2022, the HI trust fund is expected to run a slight surplus; after that period, expenditures are once again expected to outpace income. (See Figure 3 .) As premium and general revenue income for Medicare Parts B and D are reset each year to match expected costs, the SMI trust fund is deemed to be adequately financed over the next 10 years and beyond. However, over the past five years, Medicare Part B costs have been growing rapidly—by an average of 6.2% annually, exceeding GDP average growth by 3.5 percentage points. If, as assumed by the Trustees, Congress overrides physician payment reductions as it has done in the past, the Part B growth rate during this period is projected to average about 5.7% each year over the next five years. However, should the physician payment cuts be allowed to go into effect beginning in April 2015 as required under current law, Part B expenditures (and corresponding income) are expected to grow at a slower average growth rate of 4.9% annually over the next five years (2014-2018), slightly lower than expected GDP growth over the same period (5.0%). For Part D, annual average growth over the past five years has been around 7.2%; however, due to expected growth in per person drug costs (in part due to increased costs associated with phasing out the Part D coverage gap) and expected growth in the number of enrollees, the average annual increase in expenditures is estimated to be 9.9% through 2018. However, over the next 10 years, estimated Part D costs are somewhat lower than projected in the prior Trustees report due to lower expected drug costs and higher expected rebates from drug manufacturers. Medicare's fiscal health is often gauged by the projected solvency of the HI trust fund. As noted in the section " Medicare Trust Funds ," in years in which HI expenditures exceed income, the program still has authority to continue to make payments as long as the trust fund has a balance. However, when the trust fund balance reaches $0, it is deemed insolvent and this part of the program would no longer have the authority to cover expenditures that exceed HI trust fund income. The 2014 Trustees report estimates that the HI trust fund will become insolvent in 2030, four years later than projected in last year's report (see Figure 4 ). The improved projections are primarily due to lower than expected expenditures in 2013, the base year used to project future expenditures, and reductions in assumptions of utilization of Part A services. In the past decade, beginning in 2004, HI expenditures began exceeding tax income (from payroll taxes and from the taxation of Social Security benefits). Expenditures began to exceed total income (tax income plus all other sources of revenue) in 2008. (Refer to Figure 3 for illustration of expenditure and income trends through 2023.) At that time, HI assets (the balance of the HI trust fund at the beginning of the year) were used to meet the portion of expenditures that exceeded income (the HI deficit ). Expenditures have exceeded income every year since then, and are expected to continue doing so through 2014. Although the trust fund is projected to run a small surplus in years 2015 through 2022, after that time expenditures are expected to again exceed income, with trust fund assets making up the difference until the asset balance is depleted in 2030. At that time, the trust fund is projected to only have sufficient income to cover 85% of Part A expenditures. Unless action is taken prior to that date to increase HI revenue and/or decrease expenditures, Congress would need to appropriate additional funding (e.g., through general revenue transfers) to make up for these deficits and to allow for full and on time payments to providers of Part A services. Because the impact of the ACA productivity adjustments on projected HI expenditures is relatively modest in the short term, the expected trust fund exhaustion date provided in the illustrative alternative, 2029, is only a year earlier than that under the projected baseline scenario. For projections beyond 2023, the Medicare Trustees do not provide actual dollar figures due to the difficulty of making meaningful comparisons of dollar values for different time periods over a long timeframe. Instead, the long-term financial soundness of the Medicare program is generally determined using one or more of the following measures: A comparison of the program's income and its cost as a percentage of taxable payroll (how much would need to be added to the payroll tax to keep HI solvent—this measure is only applicable to the HI trust fund); A determination of the present value of the program's unfunded liabilities over a particular period (the amount in today's dollars that would be needed to be in the trust fund for the program to remain financially sound for a specified period); and/or A comparison of expected benefit costs with GDP, the most frequently used measure of the total output of the U.S. economy (the amount spent on Medicare compared to the size of the economy in general). The Trustees caution that while these estimates can provide indications as to whether the trust funds are in adequate financial condition, financial outcomes are inherently uncertain, especially over a very long time period. The long-range financial soundness of the HI trust fund is often determined by comparing the fund's income rate (the ratio of tax income, including payroll taxes and taxes on Social Security benefits, to taxable payroll) with its cost rate (the ratio of program expenditures to taxable payroll). The term taxable payroll refers to the total amount of wages, salaries, and self-employment income in the economy that is subject to the HI tax. By relating income and expenditure projections to expected future taxable payroll, comparisons can be made for long periods of time without the distortions caused by the changing value of the dollar (e.g., through inflation). Additionally, it indicates the relative amount of the nation's earnings that may be needed to cover the program's commitments in the future when compared to what is needed today. In the past, cost rates have generally increased over time, rising from 0.94% in 1967 to 3.39% in 1996 (see Figure 5 ). This growth reflects both the higher rate of increase in medical care costs than in average earnings subject to HI taxes and the higher rate of increase in the number of HI beneficiaries than in the number of covered workers. Cost rates after that time have fluctuated primarily due to the passage of legislation affecting Medicare expenditures, including the Balanced Budget Act of 1997 ( P.L. 105-33 ) and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ), as well as favorable economic performance. From 2008 through 2011, cost rates increased each year (3.30%, 3.67%, 3.69%, and 3.68%, respectively) due to the lower amount of taxable payroll resulting from the recession and subsequent slow recovery. Due to slower growth in Medicare spending, the 2012 cost rates decreased to 3.60%, and decreased again in 2013 to 3.55%. The 2014 Trustees report projects that in the short term, as a result of the expected continued economic recovery and changes made by the ACA, the cost rate will continue to decline through 2017. Over the long run, however, expenditures as a percentage of taxable payroll are expected to increase to 5.57% by 2085, primarily due to the aging of the baby boom generation and expected growth in health care costs. Under the illustrative alternative , the expected HI cost rate for 2085 is 8.75%. The HI income rate is projected to increase gradually from 3.28% in 2013 to 4.26% in 2085 primarily due to ACA's 0.9% increase in payroll taxes for high-income earners starting in 2013. As the income thresholds used to determine who qualifies as "high-income" are not indexed to grow with inflation, it is expected that more workers will be subject to this higher tax rate over time. Additionally, it is expected that income from taxation of Social Security benefits will increase as the number of Social Security recipients increases over time. Because the illustrative alternative only assumes changes in payments, the income rate is the same as that in the baseline projection of the 2014 Trustees report. As indicated earlier, HI expenditures in most future years are expected to exceed income, resulting in a negative difference between cost and income rates. In 2030, non-interest income is expected to cover 85% of HI expenditures, decline to 75% by 2045 and stay about the same level for the remainder of the 75-year projection period. The slowing of the growth of the cost rate beyond 2045 is due to the expected compounding of the ACA reductions in provider payment updates and the assumed slowing of growth in the volume and intensity of services used by Medicare beneficiaries. The 2014 Trustees report estimates that at the end of the 75-year period, there will be an HI deficit (difference between the cost rate and the income rate) of 1.31% of taxable payroll. Under the illustrative alternative scenario, which assumes that the ACA productivity adjustments will eventually be phased out, the HI deficit at the end of the 75-year period is expected to be about 4.64% of taxable payroll. The actuarial balance can be interpreted as the percentage that would need to be added to the current-law income rates and/or subtracted from the current-law cost rates in each of the next 75 years in order for the financing to support HI costs and to meet the targeted trust fund balance at the end of the projection period. The actuarial balance of the HI trust fund is defined as the difference between the sum of the income rate expected for each year in the 75-year projection period (including the beginning trust fund balance) and the sum of the cost rates for each year, expressed as a percentage of taxable income. This summarized rate is based on the present values of future income, costs, and taxable payroll. The 2014 Trustees report estimates that the summarized HI income rate for the entire 75-year period is 3.82% of taxable payroll and the summarized cost rate is expected to be 4.69%. The difference, the actuarial balance , is -0.87%. Because this is a negative number, the HI trust fund fails to meet the Trustees' long-range test of actuarial balance. This means that the income rate would need to increase by 0.87% of taxable payroll throughout the next 75 years for the trust fund to reach actuarial balance (e.g., by increasing the standard payroll tax from 2.90% to 3.77%), program spending would need to be reduced by a corresponding amount, or some combination of the two would need to occur. (The Trustees note that if no changes in the payroll tax or HI spending occur prior to 2030, then the required increase after that time would be 1.21% of taxable payroll.) If the productivity adjustments to HI provider payment updates cannot be continued in the long run, the CMS actuaries estimate that the actuarial deficit would be much higher, 1.92% of taxable payroll, under their illustrative alternative scenario. The unfunded obligation is a measure of the long-term funding shortfall of the Medicare program. It is defined as the difference between the present value of the expected cost of the Medicare program over a specified time period and the present value of projected income (including the initial value of the trust fund). Put another way, the unfunded obligation is the amount of money that would have to be added to the trust funds today to make the program financially sound over a specified time period. The 2014 Trustees report estimates that the unfunded obligation of the HI trust fund is $3.6 trillion (0.4% of the present value of GDP) over the next 75 years. This means that if $3.6 trillion were added to (or expenditures reduced from) the trust fund at the beginning of 2014, the program could meet the projected cost of current-law expenditures over the next 75 years. The Trustees note that limiting the estimates of HI unfunded obligations to 75 years understates the full magnitude of these obligations because the 75-year measures only reflect the full amount of taxes paid by the next few generations of workers, but not the full amount of their expected benefits. Therefore, since 2004, the Trustees report has included a measure of unfunded obligations that extends indefinitely (through infinity). Such extended projections can help indicate whether the HI financial imbalance would be improving or continuing to worsen beyond the 75-year period. In making these estimates, the Trustees assume that the current-law HI program, demographic, and economic trends used for the 75-year projection will continue indefinitely, except that average HI expenditures per beneficiary will increase at the same rate as GDP per capita less the productivity adjustments beginning in 2088. If the slower ACA price updates were to continue indefinitely, then the HI financial imbalance actually improves beyond the 75-year period. Under these assumptions, over the infinite horizon, the HI program is projected to have a deficit of $1.9 trillion, 0.1% of GDP (see Table 2 ). Due to its automatic financing provisions, the SMI account is expected to be adequately financed into the indefinite future; therefore the unfunded obligations are considered to be $0 (see Table 3 ). However, estimated SMI expenditures of $33.6 trillion over the next 75 years are expected to exceed premium revenues and state payments by $24.7 trillion; general fund transfers of this amount will be needed to keep the SMI trust fund in balance for the next 75 years. The estimated present value of Part B expenditures through the infinite horizon is $43.0 trillion, of which $24.3 trillion would occur during the first 75 years. Approximately 26% of expenditures for each time period would be financed through beneficiary premiums, and a fraction of a percent would be financed through fees collected related to brand-name prescription drugs. The remaining 74% is expected to be paid by general revenues. Similarly, the estimated present value of Part D expenditures through the infinite horizon is $19.4 trillion, of which $9.3 trillion would occur during the first 75 years. For each time period, approximately 17% of expenditures would be financed through beneficiary premiums, 10% through state transfers, and the remaining 73% funded by general revenues. A comparison of Medicare costs (for Medicare Parts A through D combined) to GDP provides a measure of the amount of financial resources that will be necessary to pay for Medicare services relative to the output of the U.S. economy. The rising costs of health services, increasing utilization rates, and anticipated increases in the complexity of services are expected to contribute to the rising costs of Medicare relative to GDP. Additionally, it is expected that as increasing numbers of people become eligible for Medicare, there will be a significant growth in benefit expenditures. Under current law, the Trustees expect Medicare costs to increase from 3.5% of GDP in 2013 to 5.3% of GDP in 2035 and to 6.9% in 2088. Under the illustrative alternative , projected Medicare costs are expected to represent about 8.4% of GDP in 2088. (See Appendix G for a comparison of projections of Medicare expenditures as a percentage of GDP from the 2009 through 2014 Trustees reports.) Over the next 75 years, general revenues and beneficiary premiums are expected to play an increasing role in financing the program. (See Figure 6 .) General revenue transfers to the SMI trust fund are projected to increase from 1.4% of GDP in 2014 to 3.3% in 2088, and beneficiary premiums from 0.5% of GDP in 2014 to 1.2% in 2088. As shown, the share of Medicare income from payroll taxes and taxation of benefits is expected to fall substantially during that period (from 41% to 28%), while the share of general fund revenue is expected to rise (from 43% to 52%), as is the share of premiums (from 14% to 18%). Any excess in projected spending over revenues represents the HI deficit; in 2088, the HI deficit is projected to represent 0.5% of GDP. As noted, HI and SMI are financed very differently. HI is funded by current workers through a payroll tax, while SMI is funded by premiums from current beneficiaries and federal general revenues. Because of this financing, the SMI trust fund's income is projected to equal expenditures for all future years. However, there is concern that over time the economy will be unable to support the increasing reliance on general revenues which in large measure comes from taxes paid by the under-65 population. In response, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ) required the Trustees report to include an expanded analysis of Medicare expenditures and revenues. Specifically, a determination must be made as to whether general revenue financing will exceed 45% of total Medicare outlays within the next seven years (on a fiscal year basis). The law specifies that if an excess general revenue funding determination is made for two successive years, a "Medicare funding warning" is triggered, and the President is to submit a legislative proposal to respond to the warning. The Congress is required to consider the proposals on an expedited basis; however, passage of legislation within a specific time frame is not required. To date, no legislation has been enacted to specifically respond to these funding warnings. In each report issued from 2006 through 2013, the Medicare Trustees made a determination of excess general revenue funding. However, in their 2014 report, the Trustees project that general revenues will not exceed 45% of total Medicare outlays within the next 7 fiscal years (FY2014-FY2020), and therefore did not issue a funding warning. The Trustees project that from FY2014 through about FY2022, the expected higher tax income and lower outlays due to ACA provisions and other legislation will result in general revenue funding remaining below the 45% threshold. However, the Trustees estimate that beginning in FY2024, the ratio of dedicated funding and outlays will exceed 45%, grow to 55% by 2043, and stay at that level through 2088. Proponents of the 45% threshold measurement believe that it can serve as an effective early warning system and that it forces fiscal responsibility. Opponents of the measure suggest that it doesn't adequately recognize a shift towards the provision of more services on an outpatient basis or the impact of the Part D program on general revenue increases, and that other measures, such as Medicare spending as a percentage of GDP, Medicare spending as a portion of total federal spending, or the number of workers subject to payroll taxes per Medicare beneficiary, are better ways to measure the health of the Medicare program. By law, the annual Medicare Trustees reports focus on the financial status of the Medicare HI and SMI trust funds. Trust fund accounting methods are used to determine whether dedicated sources of Medicare revenue, together with any asset balances, are sufficient to allow the payment of expected expenditures on a timely basis. In contrast, when examining Medicare finances under unified budget accounting methods, the total flow of money into and out of the U.S. Treasury is typically examined regardless of the source of revenue. The expected shortfall in payroll taxes needed to fully cover future HI expenses and the rapid growth of SMI, which relies primarily on general revenues for financing, have made it increasingly important to look at Medicare expenditures from the perspective of the federal budget as a whole. To illustrate, over the next 75 years, HI revenues are projected to fall short of expenditures by $3.8 trillion in present value terms. This is the additional amount that is expected to be needed in order to pay HI benefits at the level expected under current law over the next 75 years. Note that the federal liability from a budget perspective includes the beginning accumulated assets in the HI trust fund, as they represent federal payment obligations. In other words, from the budget perspective, the total liability includes both the present value of the HI deficit of $3.6 trillion (see Table 2 ) plus the approximately $0.2 trillion in trust fund assets as of January 1, 2014. Additionally, general revenue transfers in present value terms of $24.7 trillion are expected to be needed to cover SMI expenditures (Parts B and D combined) over the next 75 years. The Medicare Trustees estimate that, assuming personal and corporate income taxes in the future maintain their historical average level relative to the national economy, the portion of income taxes that will be needed to fund the general revenue portion of SMI will grow from 13.8% in 2014 to 30.6% in 2080 (see Table 4 ). As noted earlier, ACA contains numerous provisions that are expected to reduce Medicare spending growth (both HI and SMI) in future years. The ACA did not reduce beneficiaries' Medicare covered benefits or change Medicare's financing structure. Medicare is still funded primarily through mandatory spending, and aside from certain constraints in HI financing, there are still generally no limits on Medicare spending. The ACA mainly changes the way that payments are made to healthcare providers who provide services to Medicare beneficiaries. Because of these changes, Medicare expenditures are expected to be less than they would have been under prior law, but spending is not limited to those amounts. Actual benefit spending could be greater or less than projections depending on a variety of factors, including beneficiary health care needs and their utilization of services in a given year. As shown in Figure 2 , Medicare spending is still expected to increase in the future, just not as quickly as projected under prior law. As Medicare is not "pre-funded," these expected "savings" are neither cut from, nor credited to, the Medicare trust funds. The expected reduction in future Medicare spending mainly just means that the federal government and Medicare beneficiaries are expected to spend less on Medicare benefits than they would have under prior law. As shown in this report, a wide array of measures can be used to describe the short- and long-term financial status of the Medicare program. While trust fund solvency issues are important, they only present part of the picture. When viewed from the perspective of the entire federal budget and the economy, Medicare spending obligations, even under the more optimistic scenario presented in the 2014 Medicare Trustees report, are expected to consume an increasing portion of federal budgetary resources over time. Budget experts have expressed concern about the long-run implications of Medicare expenditures on federal deficits; for example, in its long-term budget forecast, CBO noted: The long-term budget outlook is much less positive, however. The combination of three factors—the aging of the population, growth in per capita spending on health care, and an expansion of federal subsidies for health insurance—is expected to significantly boost the government's spending for Social Security and major health care programs. Barring changes to current law, that additional spending would contribute to larger budget deficits toward the end of the 10-year period that runs from 2015 to 2024, causing federal debt, which is already quite large relative to the size of the economy, to swell even more. The Medicare Trustees caution that it is difficult to forecast health and economic indicators over an extended period of time. For example, forecasts are based on the assumption that health spending will outpace GDP growth in the future because it has consistently done so in the past. It is possible that in the future, advances in medical technology, changes in consumer preferences, shifts in the health status of the population, or changes in the way health care services are delivered could result in very different financial outcomes from those estimated in the Trustees report. Further, as evidenced by the issuance of an illustrative alternative to the 2014 Trustees report, if changes to current health care policies are enacted (most notably these affecting provider productivity adjustments), future Medicare costs could be significantly different from current projections. There are no simple solutions to address the problems raised by the rapid growth in health care costs, the economic conditions, and the aging of the population. Additionally, as an entitlement program, Medicare must pay for all medically necessary covered benefits for enrollees; except for constraints placed on the program by the HI financing mechanism, there are no limits on overall Medicare spending. As such, policy options to restrain the growth of Medicare spending will continue to attract considerable interest. Proposals to reduce Medicare spending generally fall into one of two categories: (1) those that would reduce the federal share of Medicare spending (for example, by increasing beneficiary premiums and/or cost-sharing, changing Medicare eligibility criteria such as age, reducing the range of covered benefits, reducing provider payment amounts, establishing defined federal contributions, or setting federal spending limits); and (2) those that would reduce U.S. health care spending regardless of who is paying (e.g., decreasing medical errors, reducing unneeded, duplicative and/or ineffective care, and reducing fraud and abuse). On the revenue side, options to increase program income may include modifying dedicated Medicare payroll taxes or general income taxes, and/or imposing new fees or dedicated taxes. Some of the above changes could be made while still retaining Medicare's current structure, while others could only be made in the context of major program restructuring. Many of the proposals could be combined as part of an overall reform package. The challenge to policy makers will be to slow the growth in Medicare spending over the long term, to establish fair levels of contributions from beneficiaries and taxpayers, and to ensure continued beneficiary access to needed health care services. The Medicare Trustees suggest that prompt action is needed to address both the short- and the long-range financial challenges of the Medicare program; the sooner that solutions can be enacted, the more flexible these solutions can be, and the more gradually they may be phased in. Appendix A. Medicare Enrollment Appendix B. Total Medicare Income and Expenditures (HI and SMI Combined) Appendix C. Medicare Per Capita Expenditures Appendix D. Operation of the Hospital Insurance Trust Fund Appendix E. Operation of the Supplementary Medical Insurance Trust Fund, Part B Account Appendix F. Operation of the Supplementary Medical Insurance Trust Fund, Part D Account Appendix G. Medicare Expenditures as a Percentage of GDP | Medicare is the nation's health insurance program for individuals aged 65 and over and certain disabled persons. Medicare consists of four distinct parts: Part A, or Hospital Insurance (HI); Part B, or Supplementary Medical Insurance (SMI); Part C, or Medicare Advantage (MA); and Part D, the outpatient prescription drug benefit. The Part A program is financed primarily through payroll taxes levied on current workers and their employers; these are credited to the HI trust fund. The Part B program is financed through a combination of monthly premiums paid by current enrollees and general revenues. Income from these sources is credited to the SMI trust fund. Beneficiaries can choose to receive all their Medicare services, except hospice, through managed care plans under the MA program; payment is made in appropriate parts from the HI and SMI trust funds. A separate account in the SMI trust fund accounts for the Part D drug benefit; Part D is financed through general revenues, beneficiary premiums, and state contributions. The HI and SMI trust funds are overseen by a Board of Trustees that provides annual reports to Congress. The 2014 report of the Medicare Board of Trustees estimates that the HI trust fund will become insolvent in 2030, four years later than it had predicted in the 2013 report. Because of the way that it is financed, the SMI fund cannot face insolvency; however, the Trustees project that SMI expenditures will continue to grow rapidly, and thus place increasing demands on Medicare beneficiaries and all taxpayers. Additionally, unlike in prior years, the projections in the 2014 report assume that reductions in physician payment rates scheduled under current law will not occur, because these reductions have usually been overridden by Congress. The Trustees estimate that total Medicare costs will increase from 3.5% of GDP in 2013 to 6.9% in 2088. Although the Medicare Trustees report that the financial outlook for the Medicare program appears to have improved as a result of changes made by the Patient Protection and Affordable Care Act as amended (ACA, P.L. 111-148), they caution that the projections in the report are somewhat uncertain, due to the potential for future expenditure reductions not to materialize. As it has done each year subsequent to the enactment of ACA, the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary issued a supplemental analysis that provides illustrative alternative projections based on the assumption that certain ACA provisions affecting Medicare provider payments will be phased out. |
In response to concerns over competition from foreign firms, the U.S. Congress has increasingly looked for ways the federal government can stimulate technological innovation in the private sector. This technological advancement is critical in that it contributes to economic growth and long term increases in our standard of living. New technologies can create new industries and new jobs; expand the types and geographic distribution of services; and reduce production costs by making more efficient use of resources. The development and application of technology also plays a major role in determining patterns of international trade by affecting the comparative advantages of industrial sectors. Since technological progress is not necessarily determined by economic conditions, it can have effects on trade independent of shifts in macroeconomic factors that may affect the marketplace. Joint ventures are an attempt to facilitate technological advancement within the industrial community. Academia, industry, and government can play complementary roles in technology development. While opponents argue that cooperative ventures stifle competition, proponents assert that they are designed to accommodate the strengths and responsibilities of these sectors. Collaborative projects attempt to utilize and integrate what the participants do best and to direct these efforts toward the goal of generating new goods, processes, and services for the marketplace. They allow for shared costs, shared risks, shared facilities, and shared expertise. The lexicon of current cooperative activity covers various different institutional and legal arrangements. These ventures might include industry-industry joint projects involving the creation of a new entity to undertake research, the reassignment of researchers to a new effort, and/or hiring new personnel. Collaborative industry-university efforts may revolve around activities in which industry supports centers (sometimes cross-disciplinary) for research at universities, funds individual research projects, and/or exchanges personnel. Cooperative activities with the federal government might include projects that use federal facilities and researchers, federal funding for industry-industry or industry-university efforts, or financial support for centers of excellence at universities to which the private sector has access. There are many different types of cooperative arrangements. The flexibility associated with this concept can allow for the development of institutional and organizational plans tailored to the specific needs of the particular project. Issues of patent ownership, disclosure of information, licensing, and antitrust are to be resolved on an individual basis within the general guidelines established by law governing joint ventures. Collaborative ventures can be structured either "horizontally" or "vertically." The former involves efforts in which companies work together to perform research and then use the results of this research within their individual organizations. The latter involves activities where researchers, producers, and users work together. Both approaches are seen as ways to address some of the perceived obstacles to the competitiveness of American firms in the marketplace. Traditionally, the federal government has funded research and development (R&D) to meet mission requirements; in areas where the government is the primary user of the results; and/or where there is an identified need for R&D not being performed in the private sector. Most government support is for basic research which is often long-term and highly risky for individual companies; yet research can be the foundation for breakthrough achievements which can revolutionize the marketplace. Studies have shown that inventions based on R&D are the more important ones. However, the societal benefits of research tend to be greater than those that can be captured by the firm performing the work. Thus the rationale for federal funding of research in industry. The major emphasis of legislative activity has been on augmenting research in the industrial community. This focus is reflected in efforts to encourage companies to undertake cooperative research arrangements and expand the opportunities available for increases in research activities. Collaboration permits work to be done which is too expensive for one company to fund and also allows for R&D that crosses traditional boundaries of expertise and experience. A joint venture makes use of existing, and supports development of new resources, facilities, knowledge, and skills. Policy decisions focusing on increased research as a prelude to increased technological advancement were based upon the "pipeline model" of innovation. This process was understood to be a series of distinct steps from an idea through product development, engineering, testing, and commercialization to a marketable product, process, or service. Thus increases at the beginning of the pipeline—in research—were expected to result in analogous increases in innovation at the end. However, this model is no longer considered valid. Innovation is rarely a linear process and new technologies and techniques often occur that do not require basic or applied research or development. Most innovations are actually incremental improvements to existing products and processes. In some areas, particularly biotechnology, research is closer to a commercial product than this conception would indicate. In others, the differentiation between basic and applied research is artificial. The critical factor is the commercialization of the technology. Economic benefits accrue only when a technology or technique is brought to the marketplace where it can be sold to generate income and/or applied to increase productivity. In the recent past, it was increasingly common to find that foreign companies were commercializing the results of U.S. funded research at a faster pace than American firms. In a rapidly changing technological environment, the speed at which a product, process, or service is brought to the marketplace is often a crucial factor in its competitiveness. The recognition that more than research needs to be done has lead to other approaches at cooperative efforts aimed at expediting the commercialization of the results of the American R&D endeavor. These include industry-university joint activities, use of the federal laboratory system by industry, and industry-industry development efforts where manufacturers, suppliers, and users work together. Industry-university cooperation in R&D is one important mechanism intended to facilitate technological innovation. Traditionally, universities perform much of the basic research integral to certain technological advancements. They are generally able to undertake fundamental research because it is part of the educational process and because they do not have to produce for the marketplace. The risks attached to work in this setting are fewer than those in industry where companies must earn profits. Universities also educate and train the scientists, engineers, and managers employed by companies. Academic institutions do not have the commercialization capacity available in industry and necessary to translate the results of research into products and processes that can be sold in the marketplace. Thus, if the work performed in the academic environment is to be integrated into goods and services, a mechanism to link the two sectors must be available. Prior to World War II, industry was the primary source of funding for basic research in universities. This financial support helped shape priorities and build relationships. However, after the war the federal government supplanted industry as the major financial contributor and became the principal determinant of the type and direction of the research performed in academic institutions. This situation resulted in a disconnect between the university and industrial communities. Because industry and not the government is responsible for commercialization, the difficulties in moving an idea from the research stage to a marketable product or process appear to have been compounded. Efforts to encourage increased collaboration between the academic and industrial sectors might be expected to augment the contribution of both parties to technological advancement. Company support for research within the university provides additional funds and information on the concerns and direction of industry. For many companies, access to expertise and facilities outside of the firm expands or complements available internal resources. Yet, such cooperation should not necessarily be seen as a panacea. Oftentimes, collaborative ventures fail because of various factors including conflicting goals, differing research cultures, and financial disagreements. The federal government can share its extensive facilities, expertise, knowledge, and new technologies with partners in a cooperative venture. In certain cases, the government laboratories have scientists and engineers with experience and skills, as well as equipment, not available elsewhere. The government also has a vested interest in technology development. It does not have the mandate or resources to manufacture goods but has a stake in the availability of products and processes to meet mission requirements. In addition, technological advancement contributes to the economic growth vital to the health and security of the nation. Collaboration between government laboratories and industry is not, however, just a one way street. In several technological areas, particularly electronics and computer software, the private sector is more advanced in technologies important to the national defense and welfare of this country. Interaction with industry offers federal scientists and engineers valuable information to be used within the government R&D enterprise. The cooperative venture concept has a long history. In the early 1970s, the National Science Foundation established its Industry-University Cooperative Research Centers program. The Electric Power Research Institute, a research organization supported by the electric power utilities, has been in operation since 1973. In the private sector, the Microelectronics and Computer Technology Corporation which performed research for its member firms prior to its dissolution, and the Semiconductor Research Corporation which funds research in universities, were created in the early 1980s. The difference today is the number of projects and the scope of legislative activity designed to promote cooperative ventures. Faced with pressures from foreign competition, the government's interest has expanded beyond that of funding R&D, to meeting other critical national needs including the economic growth that flows from new commercialization in the private sector. While acknowledging that the commercialization of technology is the responsibility of the business community, in the past several years the government has attempted to stimulate innovation and technological advancement in industry. These activities often involve the removal of barriers to technology development in the private sector, thereby permitting market forces to operate and the provision of incentives to encourage increased innovation-related efforts in industry. Cooperative R&D efforts are a part of both these trends. To address competitiveness concerns associated with joint research and to encourage companies to participate in this work which is typically long-term, risky, and often too expensive for one company to finance, Congress passed the National Cooperative Research Act ( P.L. 98 - 462 ) in 1984. This legislation clarified the antitrust laws and requires that the "rule of reason" standard be applied in determinations of violations of these laws; that cooperative research ventures are not to be judged illegal "per se." It also eliminated treble damage awards for those research ventures found in violation of the antitrust laws if prior disclosure (as defined in the law) has been made. In addition, the act made some changes in the way attorney fees are awarded to discourage frivolous litigation against joint research ventures without simultaneously discouraging suits of plaintiffs with valid claims. Between 1985 (when the law went into effect) and August 2009, 1,343 joint ventures have filed with the Justice Department. The provisions of the National Cooperative Research Act were extended to joint manufacturing ventures by P.L. 103 - 42 , the National Cooperative Production Amendments Act of 1993. These provisions are only applicable, however, to cooperative production when the principal manufacturing facilities are "located in the United States or its territories, and each person who controls any party to such venture ... is a United States person, or a foreign person from a country whose law accords antitrust treatment no less favorable to United States persons than to such country's domestic persons with respect to participation in joint ventures for production." Additional collaborative work was facilitated by the Advanced Technology Program (ATP) at the Department of Commerce's National Institute of Standards and Technology which was created by the Omnibus Trade and Competitiveness Act of 1988 ( P.L. 100 - 418 ). Prior to its replacement in FY2008 by the Technology Innovation Program (which lost funding in FY2012), ATP provided seed funding, matched by private sector investment, to companies or consortia comprised of universities, companies, and/or government laboratories for the development of generic technologies that have broad application across industrial sectors. As of the end of 2007 when the program was terminated, 824 projects had been funded representing approximately $1.6 billion in federal financing matched by $1.5 billion in financing from the private sector. Of these projects, approximately 28% were joint ventures. The Technology Innovation Program (TIP) replaced ATP but received significantly reduced funding in FY2011 and no support in FY2012. While similar in intent to ATP in that it was designed to promote high-risk R&D that would be of broad-based economic benefit to the Nation, TIP operated somewhat differently yet still encouraged joint ventures. Funding under TIP was limited to small and medium-sized businesses whereas grants under ATP were available to companies regardless of size. In the Advanced Technology Program, joint ventures were required to include two separately owned for-profit firms and could include universities, government laboratories, and other research establishments as participants in the project but not as recipients of the grant. Under TIP, a joint venture could have involved two separately owned for-profit companies but also could be comprised of one small or medium-sized firm and a university. A single company was able to receive up to $2 million for up to three years under ATP; under TIP, the participating company (which must be a small or medium-sized business) could receive up to $3 million for up to three years. In ATP, small and medium-sized companies were not required to cost share (large firms provided 60% of the total cost of the project) while in TIP there was a 50% cost sharing requirement which, again, only applied to the small and medium-sized businesses that were eligible. There were no funding limits for the five-year funding available for joint ventures under ATP; TIP limited joint venture funding to $9 million for up to five years. The Advisory Board that was created to assist in the Advanced Technology Program included industry representatives as well as federal government personnel and representatives from other research organizations. The Advisory Board for the Technology Innovation Program was comprised of only private sector members. In January 2009, nine awards were announced for "new research projects to develop advanced sensing technologies that would enable timely and detailed monitoring and inspection of the structural health of bridges, roadways and water systems that comprise a significant component of the nation's public infrastructure." According to TIP, $42.5 million in federal money was expected to be matched by $45.7 in private sector support. Twenty more awards were announced in December 2009 totaling almost $71.0 million in NIST financing with approximately $145.7 million in funding from other sources. Of the projects selected for the two solicitations, thirteen were in the area of monitoring and inspection of civil infrastructure; four were in the area of advanced repair of civil infrastructure; eleven were in the area of process scale up for advanced materials; and one was in the area of predictive modeling for advanced materials. Nine additional projects in various areas including biopharmaceuticals, electronics, nanotechnology, renewable energy, and energy sources received awards of more than $22 million in December 2010. Federal funding for these projects was expected to be matched by approximately $24 million in private sector support. Additional laws have attempted to facilitate industry-university cooperation. Title II of the Economic Recovery Tax Act of 1981 ( P.L. 97 - 34 ) provided, in part, a temporary 25% tax credit for 65% of all company payments to universities for the performance of basic research. Firms were also permitted a larger tax deduction for charitable contributions of equipment used in scientific research at academic institutions. The Tax Reform Act of 1986 ( P.L. 99 - 514 ) kept this latter provision, but reduced the credit for university basic research to 20% of all corporate expenditures for this work over the sum of a fixed research floor plus any decrease in non-research giving. The 1981 Act also provided an increased charitable deduction for donations of new equipment by a manufacturer to an institution of higher education. This equipment must be used for research or training for physical or biological sciences within the United States. The tax deduction was equal to the manufacturer's cost plus one-half the difference between the manufacturer's cost and the market value, as long as it does not exceed twice the cost basis. While never made permanent, the research tax credit has been extended numerous times and changes have been made to certain provisions. The credit expired at the close of calendar year 2011. Amendments to the patent and trademark laws contained in P.L. 96-517 , commonly referred to as the "Bayh-Dole" Act, also were designed to foster interaction between academia and the business community. This law provides, in part, for title to inventions made by contractors receiving federal R&D funds to be vested in the contractor if it is a university, not-for-profit institution, or a small business. Certain rights to the patent are reserved for the government and these organizations are required to commercialize within a predetermined and agreed upon time frame. Providing universities with patent title is expected to encourage licensing to industry where the technology can be manufactured or utilized, thereby creating a financial return to the academic institution. University patent applications and licensing have increased since this law was enacted. Many cooperative industry-industry or industry-university programs are supported and/or organized by the federal departments and agencies. These include, but are not limited to, the National Science Foundation's Engineering Research Centers, the more than 40 Industry-University Cooperative Research Programs, and the Science and Technology Centers. The Department of Defense supports various Centers of Excellence, as does the Federal Aviation Administration. While most legislative activities are intended to facilitate technological advance across industries, there have been several efforts to provide direct assistance for cooperative ventures in a particular industry. These initiatives are based, in part, on national defense and economic security concerns over specific technologies that are, or are perceived as, potentially critical to a wide range of businesses. Among the joint ventures, funded primarily by the Department of Defense (DOD), have been SEMATECH (a joint private sector semiconductor manufacturing research effort which is now privately financed) and the National Center for Manufacturing Sciences which also receives support from the Department of Energy, the Department of Transportation, and the Environmental Protection Agency. In addition, DOD supports the Software Engineering Institute and the Department of Energy assists in the US Drive initiative that, among other things, encourages joint R&D between federal laboratories and private firms leading to commercialization. Cooperation between industry and the federal R&D enterprise is another facet of the effort to increase industrial competitiveness through joint ventures. The federal government will have spent an estimated $138.9 billion in FY2012 on research and development to meet the mission requirements of the federal departments and agencies. This has led to many technologies and techniques, as well as to the generation of knowledge and skills, which may have applications beyond their original intent. To foster their development and commercialization in the industrial community, various laws have established institutions and mechanisms to facilitate the movement of ideas and technologies between the public and private sectors. The Stevenson-Wydler Technology Innovation Act ( P.L. 96 - 480 ), as amended by the Federal Technology Transfer Act ( P.L. 99 - 502 ) and the Department of Defense FY1990 Authorizations ( P.L. 101 - 189 ), provided, in part, a legislative mandate for technology transfer from the federal government to the private sector, established a series of offices in the agencies and/or laboratories to administer transfer efforts, provided incentives for federal laboratory personnel to actively engage in technology transfer, and created new contractual means for industry to work with the laboratories including cooperative research and development agreements (CRADAs). P.L. 104 - 113 , the National Technology Transfer and Advancement Act, addressed existing policy with respect to the dispensation of intellectual property under a CRADA by amending the Stevenson-Wydler Act. P.L. 106 - 404 , the Technology Transfer Commercialization Act, made changes in existing practices concerning patents held by the government to make it easier for federal agencies to license such inventions to the private sector for commercialization. To further promote cooperative research and development among universities, government, and the private sector, changes in the patent laws were made by P.L. 108-453 . the CREATE Act. The legislation amended section 103(c) of title 25, United States Code, such that certain actions between researchers under a joint research agreement will not preclude patentability. A program of regional Centers for the Transfer of Manufacturing Technology (now part of the Hollings olHManufacturing Extension Partnership effort) to facilitate the movement to the private sector of knowledge and technologies developed under the aegis of the National Institute of Standards and Technology was established by the Omnibus Trade and Competitiveness Act. In addition, the law required that NIST provide technical assistance to state technology extension programs in an effort to improve private sector access to federal technology. Government-industry collaboration is further encouraged by a provision of the FY1991 National Defense Authorization Act ( P.L. 101-510 ) that amends the Stevenson-Wydler Act to allow government agencies and laboratories to develop partnership intermediary programs to augment the transfer of laboratory technology to the small business community. Cooperative work between small companies and federal laboratories leading to the commercialization of new technology is the intent of the Small Business Technology Transfer (STTR) program. Created by the Small Business Development Act of 1992, this effort provides funding for research proposals that are developed and executed collaboratively between a small firms and a scientist in a research organization. Extended several times, the program was scheduled to sunset at the end of FY2009, but was temporarily extended several times and is currently scheduled to terminate on September 30, 2017. It is not yet known whether federal support of cooperative ventures signals a long-term commitment to the development of technology. However, given current concerns over the federal budget, it is unlikely that large sums of government money will be forthcoming for such efforts in the future. Yet, other actions may reflect federal interest in the process of technological advancement. The use of the extensive government R&D system, with its expensive state-of-the-art facilities, can provide both academia and industry with resources that may be beyond their financial ability. And despite the often short-term focus of budget decisions, federal funds and non-monetary contributions to cooperative ventures may be leveraged by contributions from state and local agencies and the private sector. If the proliferation of programs is any indication, state and local jurisdictions have been in the forefront of cooperative endeavors. Many state and local economic development activities focus on increasing innovation and the use of technology in the private sector. Instead of competing for companies to relocate, many of these jurisdictions now see additional benefits accruing from the creation of new firms and the modernization of existing ones through the application of new technology. Various states and localities are attempting to foster an entrepreneurial climate by undertaking the development and support of a variety of programs to assist existing high technology businesses, to promote the establishment of new companies, and to facilitate the use of new technologies and processes in traditional industries. While these efforts vary by state and locality, many of them include industry-university-government cooperation. Several congressional proposals for increasing cooperative ventures built upon existing state and local activities in these areas. Proponents of cooperative work argue that certain benefits are associated with joint ventures. The increased popularity of this concept, and expanding federal support for this approach, however, might suggest some questions be raised to assess whether cooperative ventures are meeting expectations. It might be expected that an increasing number of industries and/or companies will come to the federal government for assistance in supporting cooperative R&D activities. Despite opposition by some to what has been described as "picking winners or losers," various sectors of the government have chosen to provide funding for cooperative ventures in specific industries while requiring that the private sector generate matching funds. At the same time, there are programs and policies that attempt to facilitate cooperative efforts across industry in general. Decisions might need to be made whether one approach is better than the other, or if both should continue. If part of government policy is to respond to individual industry requests for assistance, Congress may opt to consider developing procedures to select between industries and/or companies competing for limited federal funds. Can, and should, federal guidelines be established? In addition, is it possible to determine at this time what type of cooperative ventures are the most effective and efficient? Is there, in fact, one best model or should each venture be tailored to the specific situation? And finally, what are the implications of these decisions for policymaking in Congress? As noted above, innovation is a dynamic process that can involve idea origination, research, development, commercialization, and diffusion throughout the economy. However, it is not a linear process and an innovation may occur without developing through these steps. In fact, many innovations are incremental changes in existing goods and services in response to unmet market needs. The most crucial factor is the availability or use of the technology or technique in the marketplace. In the recent past, the commercialization and diffusion of products and processes often stood out as significant problems in terms of the ability of U.S. industries to compete. Firms in several other countries, first Japan and now China, India, and the East Asian newly industrializing countries, have been successful in commercializing the results of R&D. In various instances, this was research initially performed in the United States, as evidenced by the VCR and semiconductor chips. Basic research and the pursuit of science are done successfully in the United States as indicated, in part, by the number of Nobel prizes awarded to Americans. However, excellence in science does not necessarily assure leadership in world markets. It has been noted that the United States was the world's premiere economic power in the 1920s when this nation was far from being in the forefront of science. Instead, market leadership is significantly affected by the development and application of technology to make the goods and services the consumers want to purchase. Thus, questions may be raised as to whether programs and policies encouraging increased cooperative research, without concomitant efforts to facilitate the development and commercialization of technologies and techniques, can be effective mechanisms to increase the competitiveness of American industry. Do we need to know more about how to encourage the application of the research resulting from joint ventures in the manufacture of products and processes and in the delivery of services? Do these cooperative activities include mechanisms to facilitate the effective and timely transfer of the results back to the companies where they can be developed into goods for the marketplace? Since the major portion of the costs associated with bringing out a new product occur at the development and marketing stages, not in the research phase, should there be additional government incentives to encourage companies to spend funds for commercialization in addition to research? It is in the manufacturing arena where American companies appear to be the most vulnerable to foreign competition. Process technologies (those used in manufacturing) can significantly lower the costs of production and increase the quality of goods and services. In Global Competition , the President's Commission on Industrial Competitiveness (under former President Reagan) concluded that "... competitive success in many industries today is as much a matter of mastering the most advanced manufacturing processes as it is in pioneering new products." The costs associated with the development and purchase of new manufacturing equipment are high. This is particularly true for the 350,000 small companies which make up a major segment of the manufacturing community. Several of the cooperative efforts supported by the federal government address these manufacturing concerns. The Manufacturing Technology program of the Department of Defense, the advanced manufacturing initiatives in the Department of Energy, and the Manufacturing Extension Centers operated by the National Institute of Standards and Technology, although all different, are examples of government activities devoted to facilitating the development of new manufacturing techniques and/or their use in industry. Considering the importance of manufacturing, the existing cooperative programs may not be sufficient to increase the competitiveness of American industry. Are there more effective types of joint ventures? Cooperative efforts, where resources could be pooled and the equipment shared, may be one way to improve the manufacturing capability of U.S. firms, large or small. Will joint manufacturing prove to be a viable option? Should existing cooperative manufacturing programs in certain agencies be expanded or should new efforts in other departments be developed? Should one government agency have the lead in policy determinations; if so, the question remains in which federal department should the responsibility be vested? Many of the industries interested in cooperative ventures with federal financial support have approached the Department of Defense and, to a lesser extent, the Department of Energy's Defense Programs because these agencies have the greatest amount of available resources and/or funding. They also tend to have the expertise to operate large-scale programs and maintain close ties with certain industrial sectors which could be encouraged to increase cooperation. In addition, both DOD and DOE have a vested interest in the availability of certain technologies which could be provided by a healthy domestic commercial market. However, questions remain whether sponsorship of certain cooperative ventures by DOD and the Department of Energy's defense-related programs will lead to increased commercialization in the civilian marketplace. Critics argue that defense spending is not an effective mechanism to increase industry's ability to innovate and develop new technologies. Much of the research and development in the defense arena may be too specialized, overdesigned, and/or too costly to have value for commercial markets. The R&D also tends to concentrate on weapon systems and other defense hardware rather than on process technologies that are often necessary to improve manufacturing productivity. One reason cited for the competitive problems of the machine tool industry was its focus on defense needs rather than on the commercial market which is larger in the aggregate. On the other hand, the U.S. commitment to military R&D has contributed to a favorable balance of trade in the defense and aerospace industries. In the SEMATECH effort, the purpose of DOD support was to facilitate the commercial development of technologies with critical defense applications. The companies involved in SEMATECH were experienced semiconductor manufacturers and were knowledgeable about the markets' needs and operations. Thus, although the initial work performed by this semiconductor consortium may have been partially funded by the Defense Advanced Research Project Agency, it was designed to result in new products and processes in the civilian marketplace where both defense and commercial demand can be met. SEMATECH now operates without direct federal financing. The issue of cooperative work between the Defense Department and the private sector leading to commercial technologies was addressed in the former Technology Reinvestment Project and was part of the more recent Dual-Use Partnership Project. The Department of Energy has been expanding cooperative R&D activities in defense program laboratories in conjunction with an increase in all DOE collaborative efforts with industry. Decreased technology transfer budgets may impeded this effort, but several DOE defense laboratories are actively pursuing joint ventures with industry. With worldwide communications systems, it is virtually impossible to prevent the flow of scientific and technical information. What is critical to competitiveness is the speed at which this knowledge is used to make products, processes, and services for the marketplace. However, it appears that many foreign firms are willing and able to take the results of research performed both in the United States and their own countries and rapidly make high quality commercial goods. Many of these companies are purchasing American businesses or establishing U.S. subsidiaries to access American expertise. With the increased activity in research consortia, particularly those with federal support, questions might be asked as to whether or not foreign companies should or could be barred from access to the results. A larger issue is how to define an "American company." Is it determined by majority ownership, manufacturing, location, value added to the U.S. economy, or by some other definition? In addition, since technology is most effectively transferred by person-to-person interaction, would cooperative activities between American industry and foreign firms produce an outflow of information which could be used to increase competitive pressures? Government efforts to facilitate cooperative ventures have included both indirect supports and direct federal funding. Indirect measures include such things as tax policies, intellectual property rights, and antitrust laws that create incentives for the private sector. Other initiatives included government financing (on a cost shared basis) of joint efforts such as the now terminated Advanced Technology Program and the Technology Innovation Program at the National Institute of Standards and Technology, U.S. Department of Commerce. The Manufacturing Extension Partnership program requires state and/or local matching funds. In the past, participants in the legislative process generally did not make definite (or exclusionary) choices between these two approaches. However, recently these activities have been revisited. For example, efforts to eliminate the Advanced Technology Program and the Technology Innovation Program, funding for flat panel displays, and agricultural extension reflected concern over the role of government in developing commercial technologies and generally resulted in reductions of direct federal financing for such public-private partnerships or their elimination. It remains to be seen what approach will be taken by the Congress as it makes budget decisions that may affect the future of cooperative R&D. | In response to the foreign challenge in the global marketplace, the United States Congress has explored ways to stimulate technological advancement in the private sector. The government has supported various efforts to promote cooperative research and development activities among industry, universities, and the federal R&D establishment designed to increase the competitiveness of American industry and to encourage the generation of new products, processes, and services. Collaborative ventures are intended to accommodate the strengths and responsibilities of all sectors involved in innovation and technology development. Academia, industry, and government often have complementary functions. Joint projects allow for the sharing of costs, risks, facilities, and expertise. Cooperative activity covers various institutional and legal arrangements including industry-industry, industry-university, and industry-government efforts. Proponents of joint ventures argue that they permit work to be done that is too expensive for one company to support and allow for R&D that crosses traditional boundaries of expertise and experience. Such arrangements make use of existing, and support the development of new, resources, facilities, knowledge, and skills. Opponents argue that these endeavors dampen competition necessary for innovation. Federal efforts to encourage cooperative activities include the National Cooperative Research Act; the National Cooperative Production Act; tax changes permitting credits for industry payments to universities for R&D and deductions for contributions of equipment used in academic research; and amendments to the patent laws vesting title to inventions made under federal funding in universities. Technology transfer from the government to the private sector is facilitated by several laws. In addition, there are various ongoing cooperative programs supported by multiple federal departments and agencies. Given the increased popularity of cooperative programs, questions might be raised as to whether they are meeting expectations. Among the issues before Congress are whether joint ventures contribute to industrial competitiveness and what role, if any, the government has in facilitating such arrangements. |
Chapter 11 of the U.S. Bankruptcy Code is used by financially troubled business debtors that want to reorganize their financial affairs so that they may remain in business rather than liquidate. Although a trustee is appointed in chapter 7 liquidations, in a business reorganization under chapter 11, the debtor generally remains in possession and no trustee is appointed, thus allowing those most familiar with the business to continue managing it. The Bankruptcy Code generally provides debtors the opportunity to either assume or reject executory contracts in existence at the time the bankruptcy petition is filed. One sort of executory contract, collective bargaining agreements (CBAs), is treated somewhat differently. Although rejection of any executory contract is subject to the approval of the court, for most contracts, the business judgment rule applies and courts generally approve rejections that the debtor deems to be in its business interest. Rejection of CBAs must meet a higher standard. Section 1113 of the Bankruptcy Code provides the procedures that must be followed to reject a CBA. Recently introduced legislation would modify several sections of the Bankruptcy Code, including § 1113. H.R. 3652 and its companion bill, S. 2092 , were introduced by Representative Conyers and Senator Kennedy and are entitled the "Protecting Employees and Retirees in Business Bankruptcies Act of 2007." In this report, the two bills will be referred to as either H.R. 3652 or "the bill." This report's analysis of the bill will be limited to the modifications it proposes for § 1113 of the Bankruptcy Code. These modifications are found in § 8 of the bill. In its findings section, the bill asserts that despite recently enacted provisions to limit executive compensation, executive pay enhancements flourish in business bankruptcies at the expense of workers and retirees. According to the bill, workers and retirees are being disproportionately burdened in business bankruptcies. These workers and retirees have no way to diversify the risk of an employer's bankruptcy and are least able to absorb the losses imposed. H.R. 3652 urges "[c]omprehensive reform ... to remedy these fundamental inequities in the bankruptcy process and to recognize the unique firm-specific investment by employees and retirees in their employers' business through their labor." In 1984, the Bankruptcy Code was amended to add 11 U.S.C. § 1113, which outlines the requirements that must be met before a court can approve rejection of a collective bargaining agreement (CBA) by a debtor company using chapter 11 to reorganize. The section applies only to chapter 11 bankruptcies. Although there are no committee reports to explain the reason for adding 11 U.S.C. § 1113, its addition followed the U.S. Supreme Court's holding in National Labor Relations Board v. Bildisco and Bildisco . It is generally believed that Congress added the section in response to Bildisco . Bildisco was decided in February 1984, resolving a split between the circuits regarding the standard for rejection of a CBA. The Court held that rejection required that the agreement be burdensome to the debtor company and that rejection was favored after balancing the equities of the specific case. The Court also held that the debtor in possession did not automatically assume the CBA post-petition and would not violate § 8(a)(5) of the National Labor Relations Act (NLRA) if it unilaterally changed the terms of a CBA prior to the bankruptcy court's approval of rejection of that agreement. By adding § 1113, Congress provided both a procedure and a standard for rejection of CBAs and clarified that they could not be rejected under 11 U.S.C. § 365 as are other executory contracts. Furthermore, unilateral changes to the CBA were addressed and generally prohibited. H.R. 3652 proposes a number of changes to existing subsections of 11 U.S.C. § 1113 as well as adding six new subsections. As written, the bill would entirely replace the text of the first three subsections; however, the actual change to the text of the first subsection is minimal. At first glance, the bill appears to make dramatic changes in the Bankruptcy Code, but in some cases, the bill's language may be clarifying the Code rather than substantively changing it. In other cases, the language in the bill may be intended to either legislate resolution of some point of law that has been disputed in the courts or legislatively overrule existing case law. However, since there are no committee reports as yet, CRS cannot discern with certainty the sponsors' intent in proposing the changes. The proposed changes will be discussed in order, subsection by subsection, with accompanying discussion about the current state of the law, including ambiguities in the current code, various courts' interpretations, and scholarly writings about 11 U.S.C. § 1113. All headings referencing a subsection of 11 U.S.C. § 1113 refer to the subsections as proposed by this bill. Although the language of H.R. 3652 indicates that subsection (a) is deleted entirely, there is only one difference between the current text and the proposed textâthat is the removal of the words "assume or." As currently written, 11 U.S.C. § 1113(a) states that a debtor "may assume or reject a collective bargaining agreement only in accordance with the provisions of this section." However, that is the only time that assumption of CBAs is referred to in the entire section. Courts generally have found that 11 U.S.C. § 365 governs the assumption of CBAs, but removing "assume" from the language of 11 U.S.C. § 1113(a), would seem to make it clear from the statute that nothing in 11 U.S.C. § 1113 applies to assumptions of CBAs. Note, however, although it would remove "assume" from this subsection, the bill would add a later subsection stating that assumptions of CBAs are in accordance with 11 U.S.C. § 365, which addresses executory contracts generally. H.R. 3652 would limit the modifications to the existing CBA that can be proposed by the debtor. The current law provides general guidance about the type of proposal that should be made: a proposal should provide the modifications in benefits and protections that are necessary for reorganization and assure fair treatment to "all creditors, the debtor, and all of the affected parties." In contrast, the bill would limit proposals to those that would (1) limit the effect of the labor group's financial concessions to no more than two years after the effective date of the plan; (2) be the minimum savings the debtor needs to successfully reorganize; and (3) not put too great a burden on the labor group, either in amount or nature of the concession, in comparison to burdens placed on other groups, "including management personnel." Current law puts no time limit on the duration of the effects a debtor's proposed modifications to a CBA may have on the relevant affected labor group. Although an authorized representative always has the option of rejecting a debtor's proposal, a court will not necessarily find that the debtor's proposal was not fair and equitable to all affected parties even if its effects on the labor group are long-lasting. If the court finds the proposal fair and equitable, it may grant rejection of the CBA. H.R. 3652 would prohibit court approval of rejection unless the debtor's proposals for modification were in compliance with the proposed limitations. Therefore, limiting the debtor to proposals affecting the labor group for no more than two years would assure labor groups that they would not be confronted with situations in which a CBA's rejection was approved by the court after the labor group had rejected a debtor's proposal for lengthy concessions. If such lengthy concessions were proposed, the court would not be allowed to approve rejection because the debtor's proposal would not be in compliance with the requirements of (proposed) 11 U.S.C. § 1113(b)(1)(A). However, limiting the duration of modifications to a CBA may limit the debtor's ability to successfully reorganize. Modifications that can, in just two years, provide sufficient economic relief for the company's survival may necessarily require economic concessions from employees that are too burdensome to be acceptable because the effect on paychecks is too great. Conversely, modifications that last no more than two years but also have a smaller effect on paychecks may not provide sufficient economic relief to allow the debtor company to survive, effectively forcing the company into liquidation. The bill's second requirement for debtors' proposals is that they must "be no more than the minimal savings necessary to permit the debtor to exit bankruptcy such that confirmation of such plan is not likely to be followed by the liquidation of the debtor." It is questionable whether this will do anything to clarify existing law, under which there have been conflicts over the meaning of "necessary" in the current requirement that the debtor make a proposal that "provides for those necessary modifications in the employees benefits and protections that are necessary to permit . . . reorganization." Some courts have held that necessary means the minimum needed to avoid immediate liquidation; other courts have found that "necessary" is a more lenient standard than "essential," and have looked at whether the modifications will ensure the debtor's ability to survive reorganization. By including the phrase "such that confirmation of the plan is not likely to be followed by the liquidation of the debtor," it seems that the bill is intended to use the more lenient standard. However, the use of "no more than the minimal savings" could cause a court to use a stricter standard. If the bill's language were strictly interpreted to mean that the debtor may propose no more than the absolute minimum savings, the debtor might be in a virtually untenable position. One court, in construing the current law's requirement that modifications be "necessary" to allow reorganization, noted that in the context of this statute "necessary" must be read as a term of lesser degree than "essential." To find otherwise, would be to render the subsequent requirement of good faith negotiation, which the statute requires must take place after the making of the original proposal and prior to the date of the hearing, meaningless, since the debtor would thereby be subject to a finding that any substantial lessening of the demands made in the original proposal proves that the original proposal's modifications were not "necessary." If the proposed requirement that proposed modifications would produce no more than the minimal savings required were taken literally, debtors would be similarly constrained. The third limitation on proposals looks only at the burdens that are placed on the groups with whom the debtor is expected to have continuing relationships, rather than looking at whether all are being treated "fairly and equitably" as required by current law. The proposed change would also specify management personnel as one of the groups to be considered in determining whether the labor group is being overly burdened. Throughout the history of 11 U.S.C. § 1113, courts have considered management personnel when considering whether a debtor's proposal treated all parties fairly and equitably. However, they have looked at the whole picture rather than simply comparing burdens. For example, a proposal to reduce wages for union employees was considered fair and equitable even though some management employees received an increase in pay. The court's rationale was that it was fair to increase the pay of supervisors who had been earning less than those they were supervising. The language for proposed 11 U.S.C. § 1113(b)(1)(C) could be construed to require those cuts in wages and benefits for employees must be matched by similar cuts for management employees. Whether that similarity would be construed to require dollar-for-dollar parity or percentage-based parity is unknown. Current law requires three conditions be met before a court can grant a motion to reject a CBA: (1) The debtor must meet the requirements of 11 U.S.C. § 1113(b)(1) by (a) presenting a proposal that both treats all parties equitably and proposes changes necessary for reorganization, and (b) providing the representative with information needed to evaluate the proposal; (2) The representative must have refused to accept the debtor's proposal without good cause; and (3) "[T]he balance of equities [must] clearly favor[] rejection." H.R. 3652 's proposed subsection (c) would have three main prongs as does the current subsection, but most of its similarity ends there. Current law has three fairly simple subparagraphs, each of which involves some discretionary judgment regarding facts and circumstances. The subparagraphs in proposed subsection (c) are complex and one provides a presumption that would bar rejection of a CBA if not effectively rebutted. Current practices among companies in bankruptcy may have triggered a perceived need for this provision. It appears that other provisions of this subsection may be in part a response to recent court decisions, but may be responding to Bildisco as well. Impasse . One of the changes in the process required for a court to approve rejection of a CBA is a new requirement that the parties have reached an impasse. The Bildisco Court specifically stated that approving a debtor's request for rejection should not require the courts to determine that negotiations had reached an impasse. Although 11 U.S.C. § 1113 was introduced in response to concern over the Bildisco decision, neither the word "impasse" nor the concept appears in the current section 1113. In proposed 11 U.S.C. § 1113(c)(1) the word appears twice and it appears a third time as a concept. CRS is uncertain if including "impasse" in H.R. 3652 is an attempt to resolve a long-standing issue or a response to current court decisions involving the airline industry. As noted below, courts have recently enjoined strikes that were threatened in response to rejection of CBAs. The Railroad Labor Act (RLA), unlike the National Labor Relations Act (NLRA), requires parties to "exert every reasonable effort to make ... [an] agreement." According to recent court decisions, labor groups governed by the RLA continue to be bound by this obligation even after a court has approved rejection of a CBA under 11 U.S.C. § 1113. These courts interpreted the RLA as requiring labor groups to continue collective bargaining until there is no possibility that the parties can agree. At that point, most would agree that the parties have reached an impasse. If the changes to § 1113(c)(1) are adopted, courts may need to determine if impasse is reached at some earlier point. CRS is uncertain how courts would construe the requirement that the parties be at "impasse." Since the proposed bill includes the phrase "further negotiations are not likely to produce a mutually satisfactory agreement," courts may use a "more likely than not" standard. If, however, the courts construed "impasse" as equivalent to the recent court interpretations of the RLA standard, requiring an impasse as a prerequisite to rejection could effectively eliminate most rejectionsâpossibly through attrition since bargaining may well continue for a considerable period of time before a court would consider the parties at an impasse. If the company were to delay filing for bankruptcy and try to negotiate modifications to the CBA, parties who had not been able to reach a mutually satisfactory agreement might be considered to be at impasse when the bankruptcy case commences. However, whether the bargaining takes place before or after the bankruptcy filing, if it takes place over an extended period of time, a company might be forced to liquidate rather than reorganize. Those opposing this provision are likely to argue this would defeat the purpose of chapter 11 and, by not preserving jobs, would not protect workers. Those in favor of this provision are likely to argue that it encourages the parties to negotiate modifications each can accept, allowing the company to then continue with its workforce in place under a revised CBA. 11 U.S.C. § 1113(c)(1)(A) . In addition to finding that the parties are at an impasse, this subparagraph requires that, before approving a request for rejection, the court find that the debtor has fulfilled the requirements regarding proposing modifications. This is similar to current law, which also requires the debtor to have fulfilled the requirements of current subsection (b)(1), except that the requirements that must be met are different. The proposed change mirrors current law in requiring that the debtor provide appropriate information to the representative and bargain in good faith. 11 U.S.C. § 1113(c)(1)(B) . Under the bill, before approving rejection, the court must also "consider[] alternative proposals by the authorized representative and determine[] that such proposals do not meet the requirements of subparagraphs (A) and (B) of subsection (b)(1)." There is some ambiguity in this wording. Is the court to evaluate the representative's proposals as possible alternatives to the current CBA that the court might be able to impose on both the debtor and the labor group in lieu of outright rejection? On the other hand, could it mean that the court is simply to look at the representatives' proposals to determine whether they all meet the requirements of the subparagraphs? If they do, is the court then powerless to change the status quo of the CBA? There is nothing in the bill that explicitly gives the court the discretion to evaluate the representative's counterproposals and substitute one for the existing CBA. However, nothing in the current 11 U.S.C. § 1113(c) gives courts the power to impose the debtor's last proposal on both the debtor and the labor group after the court has approved rejection, yet courts have exercised that power. Inconsistencies between courts in applying the current law appear to be part of the impetus behind H.R. 3652 . Allowing the courts more discretion might increase those inconsistencies and lead to more "forum shopping" in bankruptcy filings. Courts might construe proposed subsection (c)(1) as simply providing prerequisites that must be met before a CBA can be rejected. In this case, proposed subparagraphs (A) and (B) might act as a constraint on negotiations by the representative. Since liquidation of the company normally would involve loss of jobs, it may be in the labor group's interest to make concessions if the debtor cannot reorganize without those concessions. However, as noted earlier, at times the burden on employees would be too great if the required economic relief provided to the employer were concentrated in a period of two years. To lessen the immediate impact on employees' paychecks, a representative might want to spread the effect of the financial concessions over three years rather than two. However, a representative might be reluctant to offer such a proposal if making it would open the door for court-approval of rejection. This might create a built-in conflict between the labor group's interest in avoiding rejection of the CBA and its interest in preserving jobs by making sufficient concessions to the debtor to assure successful reorganization. Current law does not require the court to look at the representative's counterproposals, but only at whether the representative had good cause for rejecting the debtor's proposals. Under current law, rejection has generally been the "stick" that was applied when representatives could not come to an agreement with debtors and did not have good cause for refusing to agree. The effect was to encourage negotiations, which is what section 1113 was intended to do. It is unclear whether the proposed provisions would encourage both parties to negotiate. It is possible that the provisions could create an imbalance in the two parties' motivation to negotiate, but at this point, we do not know which party might be more motivated by the proposed provisions. 11 U.S.C. § 1113(c)(1)(C) . This simply reiterates the impasse requirement by specifying that the court may only approve rejection if it finds that "further negotiations are not likely to produce a mutually satisfactory agreement." As noted earlier, courts may construe this as requiring less certainty as to the futility of further negotiations than exists under the RLA's requirement for continued bargaining. Under current law, the bankruptcy courts do not evaluate the prospects for an eventual agreement between the parties. 11 U.S.C. § 1113(c)(1)(D) . This provision requires the court to consider how the labor group would be affected by the debtor's proposal, but it seems to presume that the labor group will strike if the CBA is rejected. It requires the court to consider the effect of such a strike, including the debtor company's ability to "retain an experienced and qualified workforce." Reorganization in bankruptcy is based on the concept that it is better for all concerned if a company can continue in business rather than liquidate. If the result of rejection of a CBA is a strike that would effectively put the company out of business, the court may decide not to allow a rejection. If, however, the debtor company is not in a position to remain in business under the terms of the existing CBA, the company may be forced to liquidate rather than reorganize. This alternative might leave all creditors, including the labor group, in worse shape than they would have been had the company reorganized. This subsection provides parameters for the court's consideration of whether the debtor's proposed modifications meet the requirements of subsection (b). The court must consider the impact on all subsidiaries and affiliates of the debtor company, including foreign subsidiaries and affiliates, but what this means in practice is unclear. The court is also required to examine the history of financial concessions made by the labor group. If any have been made within twenty-four months prior to the filing of the bankruptcy petition, the court's evaluation of the debtor's proposed modifications must aggregate the effect of the earlier concession with the effect of the currently proposed modifications. This aggregation is unlikely to affect whether the proposed modifications meet the requirements of proposed 11 U.S.C. 1113(b)(1)(A)-(B), but is likely to affect evaluation of the burden imposed on the labor group as compared to other groups. Under current law, in considering whether to approve rejection, the court has discretion in concluding that the required conditions have been met. While H.R. 3652 does not remove all of the court's discretion, in one area the bill appears to significantly restrict the court's discretion. H.R. 3652 would establish a presumption that the debtor has overly burdened the labor group in comparison to the burdens on other groups, including management, if it "has implemented a program of incentive pay, bonuses, or other financial returns for insiders or senior management personnel during the bankruptcy, or . . . within 180 days" before the case began. Unless that presumption can be effectively rebutted, the debtor will have failed to meet the requirements for rejection. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) restricted "key employee retention plans" (KERPS), which provided retention bonuses and severance pay to management employees who were retained to manage the business through its reorganization. Since BAPCPA became effective, there has been a move toward paying managers incentive payments, which were not restricted. Though some of these incentive pay schemes have been rejected by the courts as actually being retention bonuses that did not meet BAPCPA's requirements, others have been upheld as incentive bonuses and, therefore, not subject to the restrictions imposed by the post-BAPCPA Bankruptcy Code restrictions. In 2006, both the Senate and the House introduced bills that would have limited the use of incentive bonuses in the same way that BAPCPA had limited retention pay. Though the bills were not passed by the 109 th Congress, their provisions are included in H.R. 3652 . This bill would extend BAPCPA restrictions on retention pay to incentive and performance bonuses as well as "bonus[es] of any kind, or other financial returns designed to replace or enhance incentive, stock, or other compensation in effect" before the bankruptcy petition was filed. These restrictions are bolstered by the bill's proposed amendment to 11 U.S.C. § 1113(c)(3). This proposed amendment could make it difficult for the court to approve rejection of a CBA if there were any sort of incentive pay, even if the court had approved the incentive pay after finding that it was necessary to retain a person whose services were essential for the business to continue, and met the other restrictions of 11 U.S.C. § 503(c)(1). Arguably, this could put a court in the position of having little flexibility to make decisions that could result in the debtor company's successful reorganizationâif it allowed incentive pay to retain someone essential to the business, it could be unable to approve rejection of a CBA if the debtor could not rebut the presumption that the labor group was being burdened more than management. If it did not allow incentive payments, the company might lose an employee who was seen as necessary for survival. Either alternative might cause the debtor to liquidate rather than reorganize. However, it could also be argued that this provision would encourage debtors to carefully consider whether incentive pay was necessary and, if necessary, limit it so that an effective argument could be made that the incentive did not create a situation in which the labor group was disproportionately burdened by the modifications in a CBA. Under current law, the court is required to schedule a hearing within fourteen days after the debtor files an application for rejection. All interested parties currently have the right to attend the hearing and be heard and must receive notice at least ten days before the hearing. The court must rule on the application within thirty days unless otherwise agreed to by the debtor and representative. If the court does not rule within the required time, the debtor may unilaterally modify or terminate the CBA pending the court's ruling. H.R. 3652 would extend the period required for notice to at least twenty-one days. The bill deletes, rather than modifies, the provision for holding the hearing within fourteen days of the filing date. The deletion may have been unintentionalâthe intent may have been to set the same time frame for notice as for hearing. On the other hand, the deletion may have been intended to avoid requiring an early hearing on an application for rejection, permitting additional time for continuing negotiation between the debtor and the authorized representative. The bill would restrict the parties who could appear and be heard, limiting them to only the debtor and the authorized representative. This may have the effect of streamlining the hearing process by eliminating consideration of other parties' concerns. Under both current and proposed law, the creditors would have an opportunity to approve or reject the reorganization plan, which would incorporate the results of the rejection hearing. Under the bill's proposals, there would be no time frame within which the court would be required to rule and no provision allowing the debtor to unilaterally modify a CBA while a ruling was pending. This appears to encourage continuing negotiations between the debtor and the authorized representative without a statutory deadline. The bill proposes no changes to this sectionâwhile parties continue to negotiate changes to a CBA, courts would continue to be allowed to approve interim modifications to a CBA "if essential to the continuation of the debtor's business, or in order to avoid irreparable damage to the estate." However, the addition of subsection (g) as proposed in the bill, allowing labor groups to strike or engage in other methods of "self-help" in response to court-ordered modifications under this subsection, may tend to reduce either the extent to which courts are willing to approve interim modifications or the potential benefit to the debtor of an interim modification. If so, it could lead to liquidations rather than reorganizations when interim modifications are essential for the company to remain in business. H.R. 3652 would not change the current language, but would add a provision regarding allowed administrative claims. Under the bill's proposal, all payments required under 11 U.S.C. § 1113 on or before the date of confirmation of the reorganization plan would be considered allowed administrative claims. That would mean that the plan would be required to provide for full payment of the claims. Currently there is no statute addressing whether court-approved rejection of a CBA gives rise to a claim for damages and courts have been divided on the subject. The bill would add a subsection that would define rejection of a CBA as a breach and would address the effect of rejection of a CBA, in terms of both money damages and "self-help"âthe right of affected employees to strike. This is one of the subsections where the use of a particular word may have import that is not immediately obvious. In general, rejection of executory contracts has been treated as a breach. However, recently, in Northwest Airlines Corporation v. Association of Flight Attendants , rejection of a CBA was characterized not as a breach but as an abrogation. As the court viewed it, an abrogation has a different legal effect than does a breach. While a breach would have a remedy, an abrogation under 11 U.S.C. § 1113 terminates the provisions of the CBA and allows substitution of court-approved provisions. It is possible that the word breach is used in this proposed subsection merely to identify the rationale for the prescribed remedy. On the other hand, it is possible that the word was used to legislate an effect of rejection that is different than that determined by the Northwest Airlines court. In evaluating which is more likely to be the case, one should consider that the court specifically contrasted the effect of rejection under 11 U.S.C. § 365 with that under 11 U.S.C. § 1113, stating, "Contract rejection under § 1113, unlike contract rejection under § 365, permits more than non-performance." According to the court, the purpose of 11 U.S.C. § 1113 is "to permit CBA rejection in favor of alternate terms without fear of liability after a final negotiation before, and authorization from, a bankruptcy court." This seems to imply that the Northwest Airlines court's position is not only that rejection is an abrogation rather than a breach, but also that there are no damages to be recovered from rejection of a CBA under 11 U.S.C.§ 1113. Under the bill, court-approved rejection would be a breach of contract with the same effect as rejection of any other executory contract under 11 U.S.C. § 365(g), but would exclude those damages from the limitations of 11 U.S.C. § 502(b)(7). Under 11 U.S.C. § 365(g), rejection of a contract is treated as a breach of contract immediately before the date the bankruptcy petition was filed. Section 502(b)(7) limits damages for termination of an employment contract to one year's compensation, without acceleration, plus any unpaid compensation. Although H.R. 3652 specifically excludes damages for rejected CBAs from the damage limitation of 11 U.S.C. § 501(b)(7), the explicit exclusion may not be necessary since courts have held that the subsection does not apply to CBAs. Section 365(g) of the Bankruptcy Code sets the date of the breach as just before the filing of the petition, which would make such claims pre-petition claims. Pre-petition claims are generally unsecured, nonpriority claims. However, this bill proposes to define administrative expenses, which are priority claims, as including all payments required under 11 U.S.C. § 1113 that must be paid on or before the date the reorganization plan is confirmed. Proposed subsection (g) does not actually mandate payment of the breach damages before the confirmation date, so it is unclear whether those damages are intended to be treated as an administrative expense and, therefore, a priority claim rather than as a pre-petition, nonpriority claim. If given the status of an administrative claim, it is difficult to foresee a situation in which a company could benefit from rejection of a CBA since it would appear likely that any financial gain garnered by rejecting the CBA would be lost through the breach damages for rejections. If those damages are treated as are other breach damages for rejection of executory contracts, they would be unsecured, nonpriority, pre-petition claims, and the reorganization plan could provide for partial rather than full payment of them, thereby allowing some economic benefit to the company in bankruptcy. Self-help by a labor group may consist of a strike or a threat of strike even though a strike could be an economic blow that a distressed company might arguably be unable to recover from. When a CBA is rejected in chapter 11 reorganization under the current provisions of 11 U.S.C. § 1113(c), labor groups' right to strike seems to depend upon whether the group is covered by the RLA or the NLRA. Groups covered by the NLRA may strike even if the rejected CBA contained a "no strike" clause. Since the CBA no longer exists after rejection, the "no strike" clause has no continuing effect. Airline transportation workers, however, are covered by the RLA, which requires that the parties exert every reasonable effort to negotiate agreements even after a court-approved rejection. Therefore, several recent cases involving the airlines have resulted in injunctions prohibiting the unions from striking. Modifications to CBAs under current 11 U.S.C. § 1113(d)(2) or (e) do not make the CBA ineffective in its entirety. Therefore, although a "no strike" clause would become ineffective after rejection of a CBA, it would remain in effect under current law when there are interim modifications to a CBA. H.R. 3652 would change the law so that all labor groups, even those controlled by the RLA would have the right to strike when a CBA was rejected. The right to strike would also exist if interim modifications were approved by a courtâapparently without reference to whether the CBA included a "no strike" clause. Since a strike might be a fatal economic blow to a distressed company and since interim modifications are approved by the court only when they are either "essential to the debtor's business []or . . . to avoid irreparable harm to the estate," codifying the right to strike after court-approved interim modifications might jeopardize both the debtor company's existence and its creditors' claims. The proposed subsection would, by its language, also preempt all other federal and state laws regarding labor groups' right to engage in self-help. Under current law, there is no provision for future modifications of a CBA if the debtor's financial condition improves. In negotiations over CBAs, representatives may ask for "snap-back" provisions that would provide for future modifications, but the absence of such a provision would not necessarily lead to a court's determination that the representative had good cause for rejecting the debtor's proposal. H.R. 3652 would add a subsection to assure that, based on changed circumstances, representatives could request modifications after CBAs were either rejected or modified. The bill would require the court to grant the request if the change would result in the new provisions being no more than the minimum savings needed for the debtor to reorganize successfully. Assurance of the possibility of future favorable modifications might make representatives more inclined to cooperate with debtors' proposals for modifications. However, under current law, while "snap-back" provisions have been available for modifications, they have not been required as part of either a negotiated modification or a court-approved rejection. Currently there is no provision for arbitration rather than a court hearing to rule on a motion for rejection of a CBA. H.R. 3652 would add a subsection to allow arbitration in lieu of a court hearing if requested by the authorized representative, so long as the court finds that arbitration would help the parties reach an agreement that was mutually satisfying. This could reduce the demand for courts' resources; however, only the authorized representative can make the request. The debtor cannot make the request, and the court cannot order arbitration without a request. Using arbitration to resolve a debtor's request to reject a CBA may open greater possibilities for finding a middle ground between complete rejection of a CBA and assumption of the existing CBA. It may also, however, increase the time required to resolve the issue. Under current law, unless otherwise agreed to by the debtor and representative, the court is required to hold hearings on requests for approval of rejection within no more than twenty-one days and to rule on the application no later than thirty days after the beginning of the hearing. As noted earlier, the proposed changes to § 1113 eliminate both of these deadlines. The bill does not directly address which party will pay for arbitration. It appears, however, that if all of the bill's provisions were to become law, the debtor would probably pay for the arbitration as an administrative expense since subsection (j) provides for reimbursing the representative for reasonable costs and fees incurred. Although current law includes provisions for allowing priority claims as administrative expenses for various expenses incurred in reorganization, there is no provision for reimbursing the authorized representative for fees and costs incurred in complying with the requirements of 11 U.S.C. § 1113. The bill would add subsection (j) to make these costs reimbursable upon request and notice and hearing. Under the bill's proposed changes, they would be considered administrative expenses. As administrative expenses, they would be priority claims whose payment in full must be provided for in the plan for reorganization. This provision could result in shorter negotiations or more flexible proposals by the debtor, who would need to balance the cost of continued negotiations with the economic benefit that might be gained through those negotiations. However, it could also lead to more liquidations if administrative expenses increased to the point that they could not be accommodated in a reorganization plan. When a debtor's reorganization plan involves either selling all or part of the business or ceasing some or all of the business, the bill would require the debtor and authorized representative to meet to determine the effects on the labor group. Any accrued obligations that were not assumed as part of a sale transaction would be treated as administrative expenses. Under current law, all post-petition obligations that are required by the CBA are considered administrative expenses. Additionally, where a CBA has been assumed, accrued pre-petition obligations under the CBA may also be administrative expenses. Although the bill would remove the word "assume" from 11 U.S.C. § 1113(a), it would add a subsection that would clearly state that assumption of CBAs are treated as are other executory contracts and assumed under 11 U.S.C. § 365. In its findings, the bill states that Congress finds that chapter 11 was enacted "to protect jobs and enhance enterprise value for all stakeholders," but is, instead, being used to "caus[e] the burdens of bankruptcy to fall disproportionately and overwhelmingly on employees and retirees." Revising the process for rejection of CBAs is one of the ways this bill proposes to rectify the inequities it asserts. For many companies in bankruptcy, expense for employees is the largest expense in the budget, and some modification of that expense may be essential to their successful reorganization. Section 1113, as it currently exists, has provided labor groups with protection from debtor companies' unfettered rejections of CBAs, but has also provided a method for debtor companies to reject CBAs when they could not reach a compromise with the authorized representatives of the labor groups. The proposed revisions to section 1113 would constrain both debtor companies and the courts when debtors file under chapter 11. The bill clearly contemplates allowing labor groups to have a greater, possibly definitive, role in determining the feasibility of reorganization. Labor groups, but not debtors, would be allowed to request arbitration rather than a court hearing to determine approval of a debtor's request to reject a CBA. In certain circumstances, the bill would allow labor groups to obtain future relief due to changed circumstances without having to bargain with the company. The bill would also extend the right to strike to all labor groups whenever a CBA was modified or rejected without their consent. Finally, the bill provides labor groups with a defined remedy for rejection of a CBA, though courts might differ in their interpretation of that remedy. Companies in financial distress may argue that the bill's proposed changes to chapter 11 are insufficiently flexible to allow successful reorganization. If that is their conclusion, they might try to resolve their financial difficulties outside of bankruptcy or choose to liquidate rather than reorganize. | Introduced in the 110 th Congress, the Protecting Employees and Retirees in Business Bankruptcies Act of 2007 ( H.R. 3652 ) proposes a number of changes to the U.S. Bankruptcy Code. According to the sponsors, the changes are needed to remedy inequities in the bankruptcy process and to recognize that employees and retirees have a unique investment in their companies through their labor. The bill contains many proposals for changing the Bankruptcy Code. This report focuses on the amendments and additions to 11 U.S.C. § 1113, which provides the procedures that are to be followed if a debtor in possession wants to reject a collective bargaining agreement (CBA). The changes proposed for § 1113 may be intended to promote negotiation between the debtor and the authorized representatives of labor groups that have existing CBAs with the debtor company. They also appear to constrain court involvement in the process. This could lead to more agreed-upon modifications and fewer rejections of CBAs. Alternatively, it could prolong the negotiation process and put burdens on the debtor that would make liquidation more feasible than reorganization. The bill prescribes the parameters of offers that may be made by the debtor in negotiations as well as the requirements that must be met before a court can approve rejection. It attempts to curtail what the sponsors have referred to as "excesses of executive pay" by making rejection of a CBA difficult if executives are to receive incentive pay and by requiring consideration of past concessions by the labor group in determining whether the labor group is being disproportionately burdened by proposed modifications to a CBA. H.R. 3652 appears to propose changes to § 1113 that would resolve some differences between courts in interpreting the requirements for modification or rejection of a CBA. It also clearly states that rejection of a CBA is a breach of contract, even when approved by the court, and clarifies the damages that are available. The bill provides an absolute right of all employees to strike if their CBA is modified or rejected. This contrasts with recent court decisions involving unions representing employees of financially distressed airlines in which the employees were enjoined from striking. |
On June 28, 2007, the United States and Panama signed a free trade agreement (FTA) after two and a half years and 10 rounds of negotiations. The U.S.-Panama FTA is a reciprocal and comprehensive trade agreement, replacing U.S. unilateral preferential trade treatment extended under the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), and the Generalized System of Preferences (GSP). Negotiations formally concluded on December 16, 2006, with an understanding that changes to environment, labor, and intellectual property rights chapters would be made pursuant to future congressional input. These changes were agreed to and the FTA was signed in time to be considered under Trade Promotion Authority (TPA) legislation, which expired on July 1, 2007. TPA allows Congress to consider certain trade agreement implementing bills under expedited procedures. Panama's legislature ratified the FTA 58 to 4 on July 11, 2007 (see Appendix A for Chronology of U.S.-Panama FTA Milestones), but neither the 110 th nor the 111 th Congress took up the agreement. The 112 th Congress considered the implementing bill when congressional leaders and the Obama Administration came to an understanding on how to proceed. On July 7, 2011, the House Ways and Means and Senate Finance Committees held simultaneous "mock markups," where they informally approved draft implementing bills. On October 3, 2011, the Administration transmitted to both houses of Congress final implementing legislation and supporting documents, as required under TPA. Following committee action, on October 12, 2011, the House agreed to the implementing bill ( H.R. 3079 ) 300-129, followed by the Senate 77-22. President Obama signed the implementing bill into law on October 21, 2011 ( P.L. 112-43 , 125 Stat. 427), but the FTA would not enter into force for another year. Panama required that time to complete changes in law necessary to bring it into compliance with the provisions of the FTA. On October 22, 2012, the United States Trade Representative (USTR) exchanged notes with Panama providing for entry into force of the FTA. President Obama implemented the agreement by proclamation on October 29, 2012, and the FTA entered into force on October 31, 2012. This report discusses issues surrounding the U.S.-Panama free trade agreement from the time formal negotiations began in April 2004 until it entered into force. It will not be updated. Congress delayed action on the U.S.-Panama FTA for nearly four years because of numerous concerns. Many issues were addressed by changes to the FTA based on principles outlined in the bipartisan agreement of May 10, 2007, crafted jointly by leadership in the 110 th Congress and the Bush Administration. These changes included adoption as fully enforceable commitments, the five basic labor rights defined in the International Labor Organization's (ILO's) Fundamental Principles and Rights at Work and its Follow-up (1998) Declaration , compulsory adherence to select multilateral environmental agreements, new pharmaceutical intellectual property rights provisions intended to facilitate Panama's access to generic drugs, and language on the investor-state issue clarifying that foreign investors will have no greater rights than U.S. domestic investors with respect to dispute resolution under the FTA. Other issues, however, cropped up that further hindered congressional action on the agreement, all falling outside the scope of the FTA. Soon after the May 10 th understanding was agreed to, the election of Pedro Miguel González Pinzón as president of Panama's National Assembly on September 3, 2007, contributed to another year of delay. Although a deputy in the National Assembly since 1999, his election to the head of the National Assembly raised his profile and drew the attention of Congress to his alleged role in the June 1992 murder of a U.S. serviceman in Panama. A Panamanian court acquitted him of the charge in 1997, but the United States does not recognize the verdict and maintains an outstanding warrant for his arrest. This issue was effectively resolved with respect to the FTA on September 1, 2008, when González Pinzón declined to run for a second term as president of the National Assembly. Despite the FTA's inclusion of labor principles based on the May 10 th agreement, the 112 th Congress raised concerns over four other specific labor statutes. First, the labor code prohibited Panamanian workers from striking against companies that had been in business for less than two years. Second, export processing zones were covered by separate labor provisions with more restrictive collective bargaining and right to strike language compared to the national labor code. Third, Panama, in creating the Barú Special Economic Zone, allowed firms there to (1) have a six-year moratorium on collective bargaining rights and (2) an extension from two to three years in the use of temporary workers. The National Assembly repealed these statutes in legislation passed in April 2011. A fourth labor issue involved the statutory limitation on the minimum number of workers required to start a union. Panama requires 40; the ILO recommends 20. This issue has been highlighted by the State Department and some Members of Congress. The Panamanian government did not act on the so-called "40/20 Issue" for lack of support by business, government, or labor constituencies in Panama. Historically, the United States has had an ongoing concern over problems with drug trafficking and money laundering through Panama, and critics have pointed to the need for greater tax transparency to help monitor and control related illicit financial transactions. Panama was placed on the so-called "Gray List" maintained by the Organization of Economic Cooperation and Development (OECD), which includes jurisdictions that have committed to an internationally agreed tax standard, but have yet to implement it. The Government Accountability Office (GAO) also listed Panama as one of 50 countries described as having "tax havens" or "financial privacy jurisdictions" according to a number of international organizations, and Panama had declined to enter into any agreements for the exchange of tax information. Although this issue falls outside the purview of the FTA, some Members of Congress and the Obama Administration wanted to delay consideration of the FTA until Panama signed a Tax Information and Exchange Agreement (TIEA) with the United States, and took other measures necessary to be removed from the OECD "Gray List," including implementing tax agreements with a minimum of 12 other countries. Panama and the United States came to a resolution on the tax transparency issue by agreeing to a TIEA, which Panama ratified on April 13, 2011. The TIEA permits either country to request information on most types of federal (U.S.) or national (Panama) taxes. To address the tax haven issue, Article 7 specifically allows for tax information exchange "under the existing Treaty on Mutual Legal Assistance in Criminal Matters," which covers money laundering among other illicit financial activities. To address the "Gray List" issue, Panama also entered into 14 double taxation agreements in addition to the TIEA with the United States. Twelve of these agreements were ratified prior to congressional action on the FTA, and Panama was formally removed from the OECD "Gray List" on July 6, 2011. Unlike the TIEA, the purpose of the double taxation agreements is to eliminate double national taxation in addition to taking on obligations of tax information and exchange, as set out by the OECD international tax standard. At the beginning of the 112 th Congress, consideration of FTA implementing bills for Colombia, Panama, and South Korea became part of a larger trade legislative agenda that included reauthorization of trade adjustment assistance (TAA) programs. Two issues had to be resolved if legislation were to move forward. First, Congress had to write a TAA bill that would garner sufficient bipartisan support in both houses. Second, because of strong differences of opinion and increasing distrust between legislative and executive branches, a legislative path was needed that would ensure passage of all three implementing bills and the TAA legislation, in tandem. An agreement was struck on a compromise TAA bill that both parties and houses of Congress eventually came to embrace. To address myriad concerns over assured passage of all four bills, congressional leaders and the White House agreed to an elaborate, fast-paced, and nuanced legislative process. The House began, passing a bill to reauthorize the Generalized System of Preferences ( H.R. 2832 ), which was then sent to the Senate. The Senate amended the bill with the addition of TAA reauthorization. On September 22, 2011, the Senate agreed to the amended bill, 70-27, after which it was sent to the House. In separate action, President Obama sent the three FTA implementing bills to both houses of Congress to be considered under rules provided in TPA. The House Ways and Means Committee favorably reported out all three FTA implementing bills on October 3, 2011. On October 6, 2011, the House Committee on Rules issued a closed rule covering all four bills. The U.S.-Panama FTA implementing bill was agreed to by both houses along with the other three trade bills on October 12, 2011. President Obama signed the bill into law on October 21, 2012 ( P.L. 112-43 ). After Panama completed legislative action necessary to bring Panamanian law into compliance with the agreement, the United States implemented the FTA by presidential proclamation, and it entered into force on October 31, 2012. The United States and Panama have entered into many agreements over the past 150 years, the most prominent ones defining their relative stakes in the canal that traverses the Central American isthmus, bisecting Panamanian territory. The canal has been a critical factor influencing Panamanian domestic and foreign affairs, and like earlier U.S.-Panama agreements, the FTA's significance is tied to a Panamanian economy that has formed largely around the canal. Since first explored by the Spanish at the turn of the 16 th century, interest in Panama has centered on its unique geographic characteristic: the slender distance separating the Atlantic and Pacific Oceans (see Figure 1 ). Because of the transit possibilities this presented (first for Peruvian gold and other colonial trade), Panama was a natural crossroads for the movement of commerce, a strategic position that grew as the world became ever more traveled and integrated. In fact, Panama's destiny became fused to its geography and the foreign interests that sought to take advantage of it, particularly the United States. Panama was swept to independence from Spain on November 28, 1821, becoming part of the Gran Colombia regional group. By this point, both the United States and Britain had openly coveted the prospect of an inter-oceanic connector. Well before construction of a canal could begin, the United States displaced Britain as the dominant foreign influence and completed a cross-isthmian railroad in 1855. This project was driven by the westward expansion of the United States, which included an anticipated southern water route to the west coast. To secure this transit system, as well as the safety of goods and people using it, the United States resorted to armed intervention in Panama some 14 times in the 19 th century. By the time the United States sought permission to construct a canal, a precedent had already been set to use military force for defense of U.S. interests in Panama. The U.S. effort to build a canal required a concession from Colombia that would allow the United States to complete the bankrupt French project abandoned in 1889. In early 1903, the details were set down in a treaty ratified by the U.S. Senate, but unanimously rejected by the Colombian legislature. The United States responded by reaching out to the growing Panamanian secessionist movement. On November 3, 1903, in a quick and bloodless move encouraged by the offshore presence of U.S. warships, Panama separated from Colombia. The United States immediately recognized Panama as an independent state, and in return, Panama signed the Hay-Buneau-Varilla Treaty, ceding to the United States the rights to construct a canal and control it "in perpetuity." The Panama Canal opened in 1914, leading to U.S. dominance in the economic and, at times, political life of Panama. Although both countries benefitted from its operations, the relationship was far from equal, which along with the perpetual U.S. presence generated a nagging resentment, frequent protests, and periodic violence over the tangible loss of national sovereignty. This tension remained a dominant feature of U.S.-Panamanian relations until the canal was ceded back to Panama in 1977 under terms defined in the Panama Canal Treaties signed by Presidents Jimmy Carter and Omar Torrijos. Tensions flared again in 1989 when the U.S. military invaded Panama to arrest then-chief of state General Manual Noriega on narcotics trafficking charges and for threatening U.S. personnel and property. The incursion, nonetheless, proved to be a catalyst for the return of democracy. Panama's decision to promote trade liberalization soon followed. The canal solidified Panama as a maritime economy and its return to Panamanian control raised expectations of greater economic benefits from its ownership. The canal operations by themselves account for approximately 6% of Panama's GDP, with the largest and fastest-growing traffic volume generated along the U.S. East Coast-to-Asia trade route (especially U.S.-China). About one-third of all cargo passing through the canal has its origin or destination in the United States. The canal's total economic impact, however, is far greater, supporting income and jobs in various services industries including warehousing, ship registry and repair, salvage operations, insurance, banking, and tourism. The two major ports at either end of the canal have been privatized and modernized, and a portion of the canal was widened in 2001, and Panama has undertaken a difficult and expensive challenge to enhance the capacity of the entire canal to accommodate much larger post-Panama ships. Panama held a national referendum on the $5.25 billion expansion on October 22, 2006. It passed by a wide margin and the expansion is underway. With transfer of the canal and its operations to Panama, the country also inherited a substantial amount of land and physical assets. The conversion of these assets to private use has been a boon to the Panamanian economy, but not without considerable costs and investment, as well. Privatization efforts eased the transformation of former U.S. government facilities to productive Panamanian use, which has included refurbishing of the Panamanian railroad by Kansas City Southern Railways, transforming the former Albrook base into residential housing, and developing a small foreign processing zone in the former Ft. Davis. The Panama-Pacific Special Economic Area (PPSEA) is perhaps the most ambitious of these projects. This public-private partnership, established in law, aspires to convert the former Howard Air Force Base into a "world class business center," with an emphasis on the export sector. Existing assets include housing and office buildings, a hospital, transportation infrastructure, fiber optic cable network, an 8,500-foot runway, and four hangar facilities. The government offers businesses various fiscal incentives and a streamlined regulatory process. Firms are required to commit to state-of-the-art practices that include adopting internationally accepted environment and labor standards. With the assistance of the International Finance Corporation (IFC) of the World Bank, Panama is relying on a large global financing package to cover the initial investment needs. The project aims at developing various businesses including computer technology, cell phone manufacturing, international call centers (Dell already operates one on site), aeronautical industry support, and others that require a well-trained work force. The IFC supports this project not only for its prospects as a business venture, but because it is forward looking rather than relying on the "maquiladora" business model common in much of the region. At the start of the 21 st century, the canal and close ties with the United States are still defining features of Panama's economy, but in the past these traits have hindered Panama's participation in regional integration. Although part of the Central American Integration System, a broadly focused political arrangement, Panama has declined to join the Central American Common Market, relying instead on the canal and the large U.S. economy as its economic anchors. Panama has had a fully dollarized monetary system since independence and is a beneficiary of U.S. unilateral trade preferences defined in the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), and the Generalized System of Preferences (GSP). These historical circumstances have given Panama little incentive to become a more open economy. Only since joining the World Trade Organization (WTO) in 1997 did Panama begin to reduce tariff rates, an important step in preparation for an FTA with the United States. Panama's subregional independence and reliance on U.S. economic ties has suited the United States as well, given its continuing interest in the canal. An FTA with Panama may be seen as one way for the United States to support long-established commercial interests and deepen bilateral relations, particularly if accepted as a mutually beneficial pact with reasonably balanced political and economic outcomes. Although many ships have outgrown the canal, its locale and prospects for enlarging the passageway continue to reinforce Panama's historic, albeit currently diminished, importance for the United States as a strategic trade passage. A bilateral FTA with Panama also supported the Bush Administration's "competitive liberalization" trade strategy, in which negotiations were pursued simultaneously on multilateral, regional, and bilateral levels. This multi-tiered strategy is predicated on an expectation that gains on one level of negotiation may encourage, if not compel, breakthroughs on others. Because of slow progress on the WTO Doha Round and failure of the Free Trade Area of the Americas (FTAA), this strategy played out through aggressive bilateral trade negotiations, of which the Panama FTA is one. Some, however, have questioned the bilateral approach for the asymmetrical negotiation power the United States wields, the negative effects it may have on non-participating countries, and the one-sided trading system that could be developing around a U.S. hub, as opposed to a truly large regional or multilateral system. For Panama, the FTA reinforces its many trade policy goals and supports continued U.S. foreign direct investment. The services sector is already globally competitive, but the manufacturing sector is small and the agricultural sector remains protected and uncompetitive (see below). For Panama, the chief concern was crafting an FTA that would balance the need to pursue openness for services, export growth and promotion for manufacturing, and adjustment time for agriculture to become more competitive, while minimizing social displacement. The incentive to negotiate was perhaps also enhanced by the desire to keep pace with other Latin American countries that already have or are negotiating FTAs with the United States. Panama is a country of 3.5 million people with a stable, diversified economy that has experienced strong growth despite the 2007-2008 global economic downturn. Panama's gross domestic product (GDP) expanded by an annual average of over 8% for the five years ending 2010. The economy grew by an robust 10.5% in 2011 (see Appendix B for selected macroeconomic data). Panama has the highest per capita income in the Central American region, but income distribution is highly skewed; poverty remains a nagging problem, especially in rural areas; and the unemployment rate has been moderately high. Inflation rose significantly in 2007-2008, but retreated in the following years. Unlike any other Latin American country, 77% of Panama's GDP is in services, developed around the transportation and commerce generated by canal traffic and the Colón Free Zone (CFZ). Industry is the second-most important sector, contributing 17% to GDP, followed by agriculture, contributing 6% to GDP. Trade is an increasingly important part of this largely services-based economy, but as seen in Table 1 , Panama has a historically large merchandise trade deficit, exporting relatively little compared to the amount of goods it imports. From 2001 to 2011, Panama's annual merchandise trade deficits ranged from $696 million to $6.8 billion. Panama's declining terms of trade are one factor affecting the trade balance (see Appendix B ), but the large increases beginning in 2007 reflect two developments. First, a large rise in oil imports driven by price and quantity, and an increase in construction machinery imports (derricks, dozers, cranes, etc.) related to Panama's strong economic growth, canal expansion, and other infrastructure investment. Panama tends to run a large services trade surplus, ranging from $890 million in 2001 to $3.4 billion in 2011. Such a large services component of the balance of payments is unusual for a Latin American country, but reflects the unique aspects of the Panamanian economy. In many years, the services surplus has balanced out most of the merchandise deficit. Since 2010, however, Panama has had much larger merchandise trade deficits, which may continue as long as energy and food prices remain high and the canal expansion accelerates. Panama's trade policy emphasizes increased exports as a driver of economic growth, pointing to the Panama Pacific Special Economic Area, Colón Free Zone (see below), and to a lesser extent, the small export processing zones and nontraditional agricultural products as opportunities to execute this vision. Panama is a global trader and since 2002 has ratified FTAs with Canada, Chile, Costa Rica, Cuba, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Singapore, and Taiwan. It is also a party to an Association (limited) agreement between Central America and the European Union. Trade agreement negotiations are in process with Colombia, Peru, and the European Free Trade Association (EFTA) countries. Panama has also expressed interest in negotiating agreements with South Korea, the Caribbean Community (CARICOM) countries, and Gulf Cooperation Council. In 2011, the United States was Panama's largest export market, accounting for 20.8% of Panamanian exports, down sharply from 42.6% in 2009 (see Figure 2 ). Canada and Asia, by contrast, represent 15.4% and 14.7% of total Panamanian exports, respectively, growing significantly in recent years. This shift in export shares reflects a large decline in the value of fish exports to the United States and large increases in the value of commodity exports to Canada (gold), China (aluminum and copper), and Taiwan (iron and steel). The high prices of commodities, particularly gold, are a driving factor in the changed relative importance of Panama's export markets. The Latin American countries collectively are Panama's second-largest trading partner with a 21.1% share of Panama's exports. The United States is also the largest import supplier to Panama, accounting for 24.9% of Panama's total imports, down from 29.1% in 2009. Latin America accounts for 20.7% of Panama's imports and Asia 13.4%. Panamanian trade has two distinct elements of importance on the import side. Nearly 12% of imports entered Panama through the Colon Free Zone (CFZ), discussed in detail below. In addition, another nearly 20% of imports reflect petroleum products entered through the Oil Import Zone (OIZ). Most of these imports originated in the United States, Latin America, and the Caribbean. Panama is closely tied to the United States as its dominant trading partner, and is one of the few Latin American countries with which the United States has a merchandise trade surplus. Although small relative to total U.S. trade, it is by far the largest in the region. Panama runs a sizeable trade deficit with Latin America as well. Its largest Latin American trade partners are Costa Rica, Mexico, and Colombia. Panama also imports significant quantities of oil from Trinidad and Tobago. Trade with Asia follows the fast-paced commodity export pattern seen in many Latin American countries, with relatively modest growth in Panamanian imports from the region. A distinct feature of Panama's trade regime is the Colón Free Zone (CFZ), which with the exception of Hong Kong is the largest duty free zone in the world. The vast trade volume that traverses the Panama Canal, multimodal transportation infrastructure, modern financial sector, and Panama's central location in the Americas make Colón a logical, if not ideal, place for a duty free zone. It serves as a "one stop shop" for both Latin American buyers and sellers from the rest of the world, including Asia and the United States. Sellers operate showrooms targeted at small- and medium-sized buyers, who make wholesale purchases of goods for retail sale in their respective countries. Goods are typically repackaged in smaller lots, priced in the local market currency, and transferred to the purchasing country without incurring income, value added, or transfer taxes. Most CFZ trade is in electronics, clothing, jewelry, and other luxury goods. Buyers benefit from the ability to purchase in small lots, reduced travel costs, consolidated shipping, improved shipping times, and credit offered by sellers. The sellers benefit from reaching smaller Latin American markets in one location and reduced tax and transaction costs. Panama benefits from the 20,000 direct jobs the CFZ creates and the public revenue they generate. CFZ trade is reported as a separate component of Panama's trade statistics and only those goods entering the Panamanian economy are recorded as imports. The CFZ is frequently associated with a number of illicit activities including money laundering, illegal transshipment, and trademark and other intellectual property violations. In part, this is a reputation that Panama as a whole has been fighting since the military dictatorship, which was widely known for its flagrant disrespect of the law, if not outright corruption. Panama's proximity to Colombia and increased transshipment of illegal drugs in the region also fueled this perception. The CFZ has attempted to counter this reputation. The zone itself is an enclosed commercial area, encircled by and under the supervision of customs and other law enforcement agencies of the Republic of Panama. In addition, both the Colón Free Zone User's Association and the CFZ Administration have a strict code of conduct and argue that illicit activity is also policed by individual companies because a bad reputation hurts those dedicated to making the CFZ a world class trading center. Even the accusation of an infraction can lead to a suspension of the license needed to operate in the zone. Cash accounts for only 10% of transactions and there is careful monitoring of all goods that move in and out of the zone through electronic tracking systems. U.S.-Panamanian merchandise trade is small, as seen in Table 2 . In 2011, the United States exported $8,252.6 million worth of goods and imported $389.2 million, producing a U.S. trade surplus of $7,863.4 million, the largest in the Western Hemisphere. Still, Panama ranked as only the 32 nd -largest export market for U.S. goods and 101 st for imports. Major U.S. exports include oil and mostly capital- and technology-intensive manufactured goods such as aircraft, machinery, electrical machinery, pharmaceuticals, and motor vehicles. The United States imports relatively little from Panama, accounting for the growing U.S. merchandise trade surplus. Most imports are primary products; 21% is seafood, mostly fresh fish and shrimp. Repaired goods account for one-third of total imports from Panama. Commodity trade includes precious metals (mostly gold), fruit, sugar, and coffee, which together account for one-third of total U.S. imports. Unlike the Central American countries, where U.S. sensitivities to textile and apparel trade run high, Panama trades little in this sector. Panama's agricultural exports, particularly sugar, presented one of the more difficult negotiation challenges. Panama has no formal restrictions on capital flows, does not discriminate between foreign and domestic investment, and maintains bilateral investment treaties with the United States and many European countries. Critics have pointed out, however, that the legal environment can be cumbersome and that Panama's relatively high labor costs (for the hemisphere) and inflexible labor laws can be a frustration if not an impediment to U.S. foreign direct investment (FDI). Still, U.S. companies are well represented in Panama, including the largest container port facility in the region, multiple financial institutions, transportation firms, and manufacturing facilities from various sectors. Like other countries pursuing an FTA with the United States, Panama seeks closer ties for the continued FDI that may be generated from having a permanent rules-based trade relationship with a large trading partner. U.S. FDI represents over a third of total FDI in Panama. Table 3 compares U.S. FDI in Panama to other regional destinations. The dollar value of U.S. investment in Panama is often nearly equal to that of the five Central American countries combined, and amounts to over 25% of Panama's GDP, compared to only 6% for Central America. The widening and expansion of the Panama Canal offers opportunity for some $5 billion of investment in the canal itself, and related large amounts of FDI for other sectors of the economy with a significant U.S. presence. Panama approached the United States for a stand-alone FTA, preferring to avoid a direct link to the U.S.-Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Panama wanted to maximize an FTA's potential to win U.S. congressional approval by emphasizing the historical and strategic nature of the U.S.-Panamanian relationship, while separating the negotiations from the divisive CAFTA-DR accord. Panama's service economy, small textile and apparel industry, and limited integration with the Central American economies also bolstered the case for separate negotiations. Another unique feature of the FTA negotiations was the treatment of business issues with respect to the Panama Canal Area. Its status as an autonomous legal entity under the Panamanian Constitution required separate negotiations for government procurement, labor, investment, and other areas. The agreement was completed in 10 rounds of negotiation, concluding on December 16, 2006, and in general follows the text framework of earlier FTAs. It was signed on June 28, 2007, following some significant last minute changes to the labor, environment, intellectual property rights, and government procurement chapters to accommodate new commitments agreed to by the Bush Administration and bipartisan congressional leadership (the May 10 th agreement). Market access schedules, drawn from previous FTA templates, reflect both U.S. and Panamanian interests, as do other market access provisions. Congress requires that the United States International Trade Commission (USITC) make an economic assessment of the potential impact of an FTA on the U.S. economy. The analysis usually is done with both a general equilibrium model to estimate economy-wide changes and a partial equilibrium model to estimate sector or industry-level changes. In Panama's case, there were insufficient data to make a meaningful estimate from a general equilibrium model, and so detailed estimates of how the FTA might affect U.S. economic growth, employment, trade, and income were not offered. In general, however, through other quantitative and qualitative indicators, the USITC concluded that because Panama's economy is very small relative to that of the United States, the likely overall effect on the U.S. economy will be similarly very small. At the sector level, the USITC finds that the "main effect" of the FTA would likely be to increase U.S. exports, while causing little growth in U.S. imports from Panama. In general, the estimates are in line with general expectations based on (1) the small amount of goods imported from Panama; (2) the small production capacity of Panama; and (3) the fact that most imports from Panama (96% by value) already enter the United States duty free through either normal trade relations (NTR) or preferences provided by the Caribbean Basin Initiative (CBI) programs or the Generalized System of Preferences (GSP). Detailed estimates suggest that when fully implemented, the largest growth potentially will accrue to U.S. exports of rice (145%), pork (96%), beef (94%), and passenger vehicles (43%). Again, these would amount to a very small dollar value increase given that, with the exception of rice, the U.S. exports of these goods to Panama represent less than two-tenths of one percent (0.2%) of U.S. exports to the world and even a smaller portion of U.S. production. With respect to the services provisions in the FTA, they exceed WTO commitments, but the gains for U.S. providers are also expected to be small, with the potential for further gains once the Panama Canal expansion project is fully underway. Below is a more detailed discussion of the major negotiation areas and an analysis of the issues that have been of particular interest to Panama and the United States, including the U.S. Congress. Where relevant, changes made pursuant to the May 10 bipartisan agreement are highlighted. Market access (chapter 3 of the FTA) covers provisions that govern barriers to trade such as tariffs, quotas, safeguards, other nontariff barriers, and rules of origin (chapter 4). The U.S.-Panama FTA replaces duty-free treatment extended selectively by unilateral trade preferences provided to Panama under the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), and the Generalized System of Preferences (GSP), under which some Panamanian goods enter the United States duty free. Most goods entering into the United States duty free do so under normal trade relations (NTR). Panamanian agricultural products, however, do face some of the highest barriers, particularly sugar, which is subject to a tariff rate quota (TRQ). Panama levies an average tariff of 7% on U.S. industrial and consumer goods, with tariff peaks of 81% for some goods. The average tariff on U.S. agricultural goods is 15%, with peaks as high as 260% on one product. Imports also face an additional 5% transfer tax, which applies to domestic goods as well. Market access provides for national treatment for traded goods of both parties, with a detailed schedule defining the progressive elimination of customs duties for manufactured and agricultural goods. There are nine staging categories that classify each country's goods based on the time to tariff elimination, with the most sensitive products given lengthier phase-out of tariffs. Tariffs on 88% of industrial and commercial goods go to zero immediately, with the remaining tariffs phased out over a 10-year period. Similarly, up to two-thirds of U.S. farm exports receive immediate duty free treatment. Tariffs on some agricultural goods remain in place longer, with some taking up to 17 years to be completely eliminated (20 years for rice). Safeguards have been retained for many products only for the period of duty phase-out, but antidumping and countervailing duties were not addressed, leaving these trade remedy laws fully operational, as required under TPA negotiating objectives. Rules of origin define which goods would be eligible for duty-free treatment based on the country of origin of their content. Rules of origin are intended to prevent transshipment of goods made from materials originating in countries outside the agreement. They are particularly pertinent to apparel and textile trade, of which there is very little exported from Panama. The United States has a small, but positive agricultural trade balance with Panama. Agriculture accounts for a small portion of total U.S. merchandise exports to Panama, but the United States captures some 51% of the Panamanian agricultural import market. While the average tariff on U.S. agricultural products is 15%, tariffs can peak as high as 260% for chicken leg quarters. Because both countries had products they wished to protect, agriculture market access was one of the most difficult issues to resolve. U.S. domestic agricultural support programs are not addressed in the FTA, which focuses on tariff reduction, quota definitions, and sanitary and phytosanitary (SPS) rules and enforcement measures. Market access was particularly difficult for four highly protected products: pork, poultry, rice, and sugar. The United States was basically "offensive" on pork, poultry, and rice, expecting to open Panama's markets further. It was "defensive" on sugar, attempting to limit increases in the sugar quota that might disrupt operations of the U.S. sugar program as defined in legislation. Panama's position was the reverse, pressing to minimize increases in U.S. exports of pork, poultry, and rice, and to increase its sugar export quota. The U.S. sugar program reflects a historical commitment to protect the income of sugar beet, sugar cane, and sugar processing firms with below-prime-rate loans, limitations on sales in the domestic market, and tariff rate quotas (TRQs). TRQs restrict imports with prohibitively high tariffs on imports above a defined quota amount, as permitted under WTO rules. In FY2008, the above-quota tariff rate was estimated to be 86% on raw cane sugar and 76% on refined sugar. For comparative purposes, on average, Panama harvests only a quarter of the sugar produced by each of the five Central American countries, but it still plays a disproportionally important role in the Panamanian agricultural sector. Sugar constitutes a third of Panama's total agricultural exports, compared to less than 10% for the Central American countries, and 41% of agricultural exports to the United States. The U.S. market consumes 76% of Panamanian sugar exports, compared to less than 10% of sugar exports from Central America. Given the dependence of Panamanian sugar producers on the U.S. market, in part driven by the industry's relatively high wage rates that make it cost prohibitive to produce for the world market, the Panamanians argued that even a relatively small quantitative increase in their portion of the U.S. sugar quota would have a large benefit for their industry. The U.S. sugar industry, however, continued to resist the inclusion of sugar in bilateral FTAs, arguing that the WTO is the forum for addressing domestic support programs and TRQs in the agricultural sector. For Panama, pork, rice, and poultry were the most sensitive products. These are also protected by TRQs, with in-quota tariffs of 15% and out-of-quota tariffs rising to 74%, 103%, and 273%, respectively. Pork and poultry have a special issue related to the consumption of white versus dark meat. The United States consumes considerably more white meat than dark, leaving a disproportional amount of dark cuts for export, which face the highest tariffs. In Panama, as with much of the world, dark meat is preferred. The concern revolved around U.S. producers' willingness to sell dark meat cuts at a low price in foreign markets, putting downward pressure on prices and hurting domestic producers in those countries. The Panamanians argued that because of the relatively high profit margins on white meat in the United States, on a cost allocation basis, U.S. producers can actually afford to sell the dark meat at below cost. The cost accounting can be debated, but concerns over the price effect in the Panamanian market remained unchanged. Panama's rice industry, which supplies over 90% of the domestic demand, also argued that opening the market to U.S. subsidized rice would decimate their industry, which, because of its protection, sells rice considerably above the world price. In fact, the USITC report estimates that when fully implemented, the FTA will have the greatest impact on U.S. rice exports. Although the rice provisions will not be fully implemented until year 20 of the agreement, for milled rice, the TRQ for the first year will be 20 times the current level of U.S. exports to Panama, which may be expected to affect rice growers shortly after implementation, perhaps causing them to shift production to other crops, or leave farming for alternative employment. Panamanian agriculture represents only 6% of GDP, but 17% of employment. These numbers point to both an inherent inefficiency, due in part to protection, but also the strong role agriculture plays in supporting rural employment and social stability. Agriculture's 17% of national employment actually supports 40% of the country's population living in rural areas, most of whom exist at or below the poverty line. Given the potential to dislocate much of the poor in the country, the Panamanians argued that opening the agricultural sector too quickly to the large production capacity of the United States would have been highly detrimental to the social structure of the rural economy, leading to increased unemployment, poverty, and rural-urban migration. For these reasons, Panama wanted a slow transition to open markets in the agriculture sector, as well as an increase in the sugar quota to boost employment. This would also buy time for Panama to develop its non-traditional export crops, such as melons, palm oil, and pineapples, which some view as the future of this sector. The compromise struck in the FTA provides duty-free treatment for over half of U.S. farm exports to Panama including high quality beef, poultry products, soybeans, most fresh fruits, and a number of processed goods. Remaining tariffs will be phased out between years 7 and 17 of the FTA. Rice tariffs, which protect one of Panama's most sensitive products, will remain in place until year 20 of the FTA. U.S. exports of rice and other products receive expanded quotas under the Panamanian tariff rate quota system. The United States agreed to give Panama an additional 7,000 metric tons of sugar imports in the first year under a three-tiered TRQ system, which will grow by 1% per year, capped eventually for some types of sugar. Other protective measures for agriculture were negotiated. Whereas export subsidies, voluntary restrain agreements, and import licensing are generally prohibited, the FTA allows for TRQs, safeguards, and a sugar compensation mechanism. The sugar mechanism gives the United States the option to compensate Panamanian sugar producers in lieu of giving their exports duty-free treatment. This option could be employed if the U.S. sugar program were threatened with disruption. SPS was one of the most difficult issues to resolve. Although understood as necessary to ensure the safety of agricultural imports, SPS standards can be a burden, and are often denounced as a veiled form of protectionism. Panama's SPS standards, on the whole, are considered to be very high and meet or exceed WTO standards. The USTR, however, has long raised concerns over procedural transparency with respect to phytosanitary permits and also Panama's requirement that imports of poultry, beef, and pork, its most protected products, come from processing plants that have been individually inspected by Panamanian officials. The United States contended that this process has often been cumbersome, drawn out, and ultimately very costly to U.S. producers. The United States wanted Panama to recognize the USDA certification process as equivalent to Panamanian standards for the purpose of securing unimpeded entry of U.S. meat exports. This issue became highly controversial during the ninth round of negotiations, when U.S. negotiators proposed this agreement be put into a formal side letter. Panama responded by noting that the SPS chapter had already been closed, that its meat inspection standards are among the highest in the world, and that a last minute effort to change SPS provisions raised sovereignty issues in Panama by potentially requiring Panama to lower its standards in some cases. As part of the resolution, Panamanian officials visited the United States to review the food safety inspection system for meat and poultry, and found that accepting the U.S. system would pose no sanitary threat to Panama. This understanding was formalized in a separate bilateral agreement between the two countries, along with a streamlined import documentation system. Signed and entered into force on December 20, 2006, the agreement states that for meat, poultry, dairy, and other processed products, Panama agrees to accept U.S. sanitary, phytosanitary, and regulatory systems as equivalent to those of Panama, and will no longer require individual plant inspections. Panama has since amended its laws accordingly. In general, textiles and apparel make for difficult market access negotiations, but Panama produces very little of these goods. The FTA would provide immediate duty-free access for all textile and apparel goods, subject to rules of origin (requiring use of fabric and yarn produced in Panama or the United States). The permanence of the provisions and more accommodating measures provide a benefit to the small Panamanian industry. Safeguard measures would allow duties to increase on imports in which a sudden increase in volume either threatens or actually harms U.S. producers. The text also provides for short supply lists of fabrics, yarns, and fibers that otherwise would face duties. The market access provisions were not the major apparel issue. Because Panama is a huge transshipment point for international trade and has its own duty free zone, the main concern was to assure U.S. apparel producers that there would be effective customs cooperation to deter illegal transshipment of goods that do not meet rules of origin. There is an extensive provision on consultation, monitoring, and onsite visit procedures in support of adhering to the rules of origin. Transparency in the bidding process for government contracts was listed as one of the most important issues by the U.S. Chamber of Commerce in Panama. Some of the concerns expressed were addressed in the 2006 amendments to the procurement law, which codified advancements such as allowing use of Internet procurement. These changes modernized and made more transparent procurement regulations, government purchasing information, and transactions. A separate administrative court for public contracting disputes was also created. These changes enhanced Panamanian laws that already require transparency in the bidding process. Panama has not acceded to the WTO Government Procurement Agreement, which the United States has encouraged. The government procurement chapter differs from earlier FTAs by stating that a firm's adherence to "acceptable" environmental and labor standards may be included as a standard in the bidding and procurement process. The technical specifications article states that it is not intended to preclude a procuring entity from using technical specifications to promote conservation of natural resources, or to require a supplier to comply with generally applicable laws regarding fundamental principles and rights to work; and acceptable conditions of work with respect to minimum wages, hours of work, and occupation safety and health in the territory in which the good is produced or the service is performed. Government procurement takes on a greater importance when considered in light of the Panama Canal expansion and related prospects for large long-term investments. The Panama Canal Authority (PCA) operates independently of the national government, and Panama required separate negotiation apart from the regular government procurement chapter. Panama negotiated to maintain the canal authority dispute settlement system within the FTA, as well as to keep small business set aside provisions for Panamanian firms. In addition, for 12 years after the agreement takes effect, Panama may set aside contracts let by the PCA to Panamanian firms subject to clear notice of intent to do so and limitations on the size of contracts. The text otherwise addresses U.S. concerns over nondiscriminatory, fair, and open government procurement procedures for all national government authorities. Like the PCA, subnational governments (e.g., states and municipalities) are not required to uphold the government procurement provisions, but those willing to do so appear in an appendix of the FTA. Panama has a well-developed financial services industry to support the flow of capital and is an important regional financial center. U.S. firms invest heavily in Panama relative to other Latin American countries, and a permanent rules-based trade agreement may be seen as enhancing this relationship. Panama signed a bilateral investment treaty with the United States in 1991, the first in the region, which includes investor-state provisions and further guarantees of the free flow of transfers under a 1998 law. Although the Panamanian government has been responsive to U.S. foreign investment interests, concerns have arisen in particular cases involving investment in highly regulated industries. Resolution of these concerns facilitated the FTA negotiations and the potential exists for further significant foreign investment in Panama, including the canal expansion and reverted areas of the former canal zone. The FTA text provides for clear and enforceable rules for foreign investments, which is largely accomplished by "standard" language requiring national and most-favored-nation (nondiscriminatory) treatment. It further clarifies rules on expropriation (including indirect expropriation) and compensation, investor-state dispute settlement, and the expeditious free flow of payments and transfers related to investments, with certain exceptions in cases subject to legal proceedings (e.g., bankruptcy, insolvency, criminal activity). Transparent and impartial dispute settlement procedures provide recourse to investors. Two investment issues stand out. First is the investor-state provision, which was controversial during the CAFTA-DR debate, but is commonly used in U.S. bilateral investment treaties (BITs) and in earlier FTAs. It allows investors alleging a breach in investment obligations to seek binding arbitration against the state through the dispute settlement mechanism defined in the Investment Chapter. U.S. investors have long supported the inclusion of investor-state rules to ensure that they have recourse in countries that may lack the institutional capacity to adequately protect the legal rights of foreign investors. Since bilateral investment treaties usually have been made with developing countries that have little foreign investment in the United States, it was not anticipated that these provisions would be applied in the United States. Circumstances changed under NAFTA, when investor-state provisions gave rise to "indirect expropriation" claims against subnational (state) governments in the United States over environmental and other regulations. Although none of the claimants filing against the United States has prevailed, Congress instructed in Trade Promotion Authority (TPA) legislation that future trade agreements ensure "that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors." In response, Annex 10-B of the U.S.-Panama FTA states that "except in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to protect legitimate welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations." This provision, along with one that allows for early elimination of "frivolous" suits, is intended to address these concerns, although some stakeholders remain skeptical. Second, Annex 10-F of the FTA seeks to reserve certain rights with respect to disputes filed under Section - B of the investment chapter that may affect the Panama Canal Authority (PCA). First, Annex 10-F clarifies that Panama has sole authority over the canal and its operations, and should a claim be made against the PCA, the dispute tribunal "may not order attachment or enjoin the application of a measure that has been adopted or maintained by the Panama Canal Authority in pursuance of" its responsibility for the canal. Second, a claim arising from acts of the PCA that alleges a breach of the investment agreement must first be made to the PCA, where it will have three months to respond before the claim may be made to the dispute settlement panel under the FTA. Services trade was negotiated in multiple chapters and includes financial services, shipping, telecommunications, professional services, and e-commerce. Panama is a service-based economy, has many competitive services industries, and is known for its "open regulatory environment for services." In general, the FTA provides for market access commitments in services that exceeds the WTO General Agreement on Trade in Services (GATS). With the possible exception of future canal expansion projects, the USITC estimates that the new commitments, although important changes, will have only a small economic impact on U.S. providers. Panama requires local licensing for many professionals to practice in the country, which the United States wanted to change, but was only partially successful in some cases (e.g., lawyers). Panama was the first country in Latin America to pass e-commerce legislation. It recognizes the legal standing of electronic transactions and provides for the creation of an oversight agency. The United States pressed for even greater transparency in regulatory procedures and U.S. business groups identified services as a critical negotiating area given U.S. competitive advantages and the large services sector in Panama. Equal ability to compete in retail trade, express delivery, and financial services, including insurance and portfolio management, was achieved in the FTA, an issue of primary importance to the United States. In particular, restrictions on investment in retail trade and access to contracts let by the Panama Canal Authority were either eliminated or reduced. Greater access to other professional services and transparency in licensing and other accreditation were clarified. To the extent that restrictions in these areas are reduced, U.S. firms are better able to compete in the largest sector of the Panamanian economy, the one most likely to grow with canal expansion and increased merchandise trade through the canal. Panama wanted greater transparency in the U.S. state-level financial services regulatory system to help ease the possible opening of Panamanian banks in select U.S. states. The United States government argued, however, that it was unable to make commitments on state-level financial services regulatory matters. Strengthening intellectual property rights (IPR) was a major U.S. priority, in particular by harmonizing standards at U.S. levels, and by securing Panama's commitment to join an array of international agreements related to IPR protection. The most contentious IPR issues revolved around patent and data exclusivity issues related to pharmaceutical products, but Internet piracy also became a serious problem. The USTR reports that Panama's IPR laws and institutional support have improved with the creation of courts dedicated specifically to IPR cases. Panama updated its patent law in 1996 and has a law governing trademark protection. Panama signed on to the World Intellectual Property Organization (WIPO) Copyright Treaty and Performances and Phonographs Treaty. The 1994 copyright law improved protection and increased the options to prosecute violators. The United States continues to encourage Panama to accede to additional IPR treaties, as now required in the FTA, and to remain vigilant in its antipiracy commitment, a primary concern given the large amount of goods that are shipped through the Canal Free Zone. IPR provisions in the FTA exceed those in the WTO. They provide that all businesses receive equal treatment and that Panama ratify or accede to various international IP agreements. Trademark registration is better enforced through a transparent online process and special system to resolve disputes over Internet domain issues, among other requirements. Copyright provisions clarify use of digital materials (exceeding TRIPS standards) including rights over temporary copies of works on computers (music, videos, software, text), sole author rights for making their work available online, extended terms of protection for copyrighted materials, strong anti-circumvention provisions to prohibit tampering with technologies, the requirement that governments use only legitimate computer software, the prohibition of unauthorized receipt or distribution of encrypted satellite signals, and rules for liability of Internet service providers for copyright infringement. Patents and trade secrets rules conform more closely with U.S. norms. End-user piracy is criminalized and all parties are required to authorize the seizure, forfeiture, and destruction of counterfeit and pirated goods. The text also mandates statutory damages for abuse of copyrighted material. The U.S.-Panama FTA adopts new IPR pharmaceutical standards that reflect a bipartisan understanding as developed by congressional leadership and the USTR in the May 10, 2007, agreement. They affect three important issues. The first and perhaps most complicated issue is data exclusivity . To bring a patented drug to market, a drug company must demonstrate through clinical trials that the drug is both safe and effective, a time-consuming and costly process. Under U.S. law, the data used to establish these claims are protected for a period of five years from the time the patented drug is approved for use in a country's market, the so-called data exclusivity term. Under this protection, regulatory agencies cannot use these data or rely on references to such data in the certification of a generic version of the medicine or drug until the data exclusivity period ends. This issue was raised by Members of Congress and others during the CAFTA-DR debate, but was only partially addressed in a side agreement ("understanding") assuring that relevant WTO rules would be in force. Critics, however, wanted the side agreement to include an explicit exception to the data protection requirement for cases where compulsory licensing under the WTO rules might be invoked, and to include the language in the body of the FTA. Congressional input led to significant changes to the Panama text. The IPR chapter provides that if a company files to bring to market a new drug in a foreign country (e.g., Panama), and the foreign regulatory agency relies on marketing approval of the initial filing in the home country (e.g., the United States) for approval in Panama, and the Panamanian regulatory agency approves the drug within six months of that filing, the data exclusivity term begins at the time the drug was approved in the United States, not Panama. This provision is intended to speed the entry of generic drugs into Panama's market by encouraging both drug companies and foreign governments to engage in the approval process as quickly and efficiently as possible. Because the six-month rule effectively reduces the data exclusivity term in Panama, drug companies are encouraged to file as soon as feasible to maximize the time their data may be protected in Panama after receiving market approval. Because countries must approve within the sixth-month rule to benefit from it, they are encouraged to put in place an efficient drug certification process. In addition, there is language in the IPR chapter stating that in cases such as epidemics, extreme urgency or national emergency, and other cases of public non-commercial use, a waiver from the data exclusivity laws would be allowed. The WTO public health provisions allow for compulsory licensing, circumventing patents in public health emergencies or other circumstances of public use deemed necessary. In the case of the U.S.-Panama FTA, which requires a period of data exclusivity not mandated by the WTO, the waiver is extended to the data exclusivity term as well. A second issue is patent term restoration , which allows for the retroactive application of patents in cases where the approval process for a patent extends beyond some legal- or regulatory-determined standard period of time. Although there are provisions that require term restoration for patents in general, in the case of pharmaceutical products, term extension is only optional. The third issue is patent linkage . This term refers to linking the sanitary registration process (done, for example, by the Food and Drug Administration in the United States) with the patent registration process. U.S. firms effectively wanted mandatory linkage that would automatically check for patent infringement when an application for bringing a drug to market is made in a foreign country sanitary registration office. The Panama agreement was amended to make patent linkage voluntary, and allows for administrative or judicial remedies to expedite patent challenges. Public health advocates have long pushed for re-balancing international rules in ways that would facilitate the introduction of lower-cost generic equivalents into developing countries. The revised IPR chapter in the Panama FTA supports congressional interest in pursuing this goal, although not to the full satisfaction of some public health advocates. Drug originating pharmaceutical companies, by contrast, lobbied against these changes, arguing that they bear their full cost through cumbersome administration and lost revenue by the earlier introduction of generic competition. They further argued that they count on this revenue to offset the high costs of research and development that allow new drugs to be properly tested and approved in the first place. Labor and environmental provisions have been highly contentious issues in trade agreements, with considerable disagreement in Congress and elsewhere over how aggressive language in trade agreements should be in accommodating these concerns. An important aspect of the U.S.-Panama FTA is that it adopts new standards for both the labor and environment chapters that reflect a 2007 bipartisan understanding as developed by congressional leadership and the USTR. Despite the bipartisan nature of the agreement, some Members continue to express reservations about the effectiveness of labor provisions, as well as the overall benefits of bilateral FTAs. The debate over labor and environmental standards reflects differences in both economic and political perspectives. From an economic perspective, it has been argued that developing country firms may have an "unfair" competitive advantage because their lower standards are a basis for their lower costs, which in turn are reflected in lower prices for goods that may compete with those produced in developed countries. It follows from this argument that the difference in costs may be an inducement to move U.S. investment and jobs abroad. In addition, critics have also argued that trade agreements should not support production standards that lead to unacceptable working conditions or severe environmental degradation. On the other hand, some studies have suggested that cost differentials are usually not high enough to determine business location alone, and that productivity is the more important factor. Further, many economists view trade liberalization as part of the overall development process that, in and of itself, can promote improved social and economic conditions over the long run. Developing countries are also concerned with the possible loss of sovereignty should specific standards be defined in trade agreements, as well as with the possibility that such provisions can be misused as a disguised form of protectionism. Preliminary drafts of the U.S.-Panama FTA adopted the CAFTA-DR labor chapter language verbatim. Many Members of Congress and others objected to four key aspects of this language. First, it emphasized that a country must effectively "enforce its own labor laws," rather than define specific labor standards to be codified and enforced. Second, this was the only provision in the labor chapter subject to the FTA's labor dispute resolution process (other commitments were unenforceable). Third, labor (and environment) provisions had their own dispute settlement mechanism separate from the process used for commercial and other disputes. Critics charged that the labor dispute mechanism was inferior for many reasons. Fourth, language that required Parties to the agreement only to "strive to ensure" that they do not waive or derogate from their labor law commitments was considered both inadequate and unenforceable. In short, there existed a basic criticism that the labor provisions in the bilateral FTAs did not reflect the intent of Congress in defining labor negotiating objectives in Trade Promotion Authority (TPA) legislation, were a step backward in U.S. policy on this issue that conditions trade benefits on meeting basic ILO labor commitments as defined in the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP), and were effectively meaningless without a credible enforcement mechanism. Although supporters of the CAFTA-DR model prevailed in earlier agreements, a new bipartisan consensus emerged with the 110 th congressional leadership that led to a significantly changed model for bilateral FTA labor chapters. The principles of this change, as defined in the May 10, 2007, agreement, were incorporated into the labor chapters for U.S. bilateral FTAs with Panama, Peru, Colombia, and South Korea. The major changes from the CAFTA-DR model state that each country shall adopt and maintain in its statutes, regulations and practices as rights, the five core ILO labor principles: freedom of association; the effective recognition of the right to collective bargaining; the elimination of all forms of compulsory or forced labor; the effective abolition of child labor and, for purposes of this Agreement, a prohibition on the worst forms of child labor; and, the elimination of discrimination in respect of employment and occupation; shall not waive or otherwise derogate from, or offer to do so, in a manner affecting trade or investment between the countries in implementing the above commitment; shall not fail to effectively enforce its labor laws in accordance with the above commitment and that each party retains the right to the reasonable exercise of discretion in using resources to achieve this goal, provided the exercise of such discretion is not inconsistent with the obligations of the chapter, and; will be required to use the dispute settlement process defined for the entire agreement (rather than a separate process for labor disputes as defined in the CAFTA-DR). The change in language is intended to make commitments to ILO basic principles binding and enforceable to the same extent as all other commitments in the FTA, including having recourse to trade sanctions. The rest of the labor chapter conforms largely to commitments in previous bilateral FTAs. These include procedural guarantees of transparency and fairness in the use of tribunals to enforce a Party's labor laws and institutional arrangements that include creation of a joint Labor Affairs Council to oversee implementation and review of commitments made in the Labor Chapter. A new Labor Cooperation and Capacity Building Mechanism is also to be established. Panama has higher wage rates, stronger labor laws, and fewer impediments to union formation than many countries in the region. The business community, including U.S. firms operating in Panama, argues that the labor laws are too generous with respect to firing or downsizing the labor force, which can actually encourage unintended responses by business, such as extended use of temporary workers. In 1970, Panama created the Tripartite Council on Union Freedom and Participation in Economic and Social Development with representatives from the government, labor, and business. Its primary function is to oversee that workers' rights are being observed in Panama. The U.S. State Department notes that Panama's labor laws guarantee all the ILO basic principles. All private-sector and most public-sector employees have the right to organize, bargain collectively, and strike (limited for the public sector). In general, major violations of labor laws have not been found, but the ILO has raised concerns about a number of ongoing practices. These include the widespread use of temporary workers to circumvent the labor code, the minimum requirement of 40 workers to form a union, and the use of child labor, particularly in agricultural areas during harvest times and for domestic employment. Lax enforcement of health and safety standards was also cited as a continuing problem. Some of these issues were cited by Members of Congress as needing to be addressed before the FTA could be considered (see " U.S. Congressional Action "). Environmental specialists have stressed the need to achieve multiple goals in U.S. reciprocal FTAs. These include protecting and assuring strong enforcement of existing domestic environmental standards, ensuring that multilateral environmental agreements are not undermined by trade rules, promoting strong environmental initiatives to evaluate and raise performance, developing a systematic program of capacity-building assistance, and assuring that environmental provisions in FTAs are subject to the same dispute resolution and enforcement mechanisms as are other aspects of the agreements. At issue is identifying and attempting to ameliorate the environmental effects of trade, particularly in developing countries that may have weak laws and lax enforcement mechanisms. Even among environmental experts, opinions vary. Some have suggested that thus far trade agreements have not led to catastrophic pollution nor encouraged a "regulatory race to the bottom." There has also been a certain acknowledged degree of success in having environmental issues addressed in the body of FTAs, in side agreements on environmental cooperation, and through technical assistance programs, which developing countries can use to respond to specific problems. Advocates and many Members of Congress still note that much can be improved, such as clarifying obligations, tightening enforcement language, and ensuring that the United States allocates financial resources to back up promises of technical assistance. As with the FTA labor chapter, revisions made pursuant to ideas outlined in the arrangement of May 10, 2007, reflect a bipartisan sense of that although the text recognizes sovereign rights and responsibilities with respect to the management of natural resources, that trade and environmental policies should be mutually supportive and dedicated to the objective of sustainable development. The new language, therefore, strengthens the commitments to environmental obligations and their enforcement, requiring that each country adopt, maintain, and implement laws, regulations, and other measures to fulfill their obligations under selected multilateral environmental agreements (MEAs) listed in Annex 18.2; shall not fail to effectively enforce environmental laws and regulations, including those adopted as signatories to the MEAs; shall not waive or otherwise derogate from, or offer thereto, from such laws (replacing the "strive to ensure" language with "shall not"); adopt a commitment to policies that will promote conservation and sustainable use of biological diversity; subject disputes to the FTA's overall dispute settlement mechanism rather than a mechanism developed solely to deal with labor and environmental disagreements that was used in previous FTAs; and meet obligations for formal cooperation among governments on environmental issues and use of the consultation and dispute resolution mechanism in a way that is transparent and involves public input. As required under TPA, the USTR conducted an environmental review of the potential environmental effects possibly attributable to the FTA. It noted that Panama "faces a number of challenges in protecting its environment as it supports its economic and population growth." Deforestation, land degradation, loss of wildlife, and threats to water quality and wetlands, among other problems, are serious issues for Panama. The Panama Canal also places severe water use requirements on the country. Panama has responded through the public policy process, establishing environmental standards in law and entering into international and U.S. bilateral environmental cooperation agreements. These issues were already factors in Panama's development process prior to the negotiation of the FTA. Thus, the environmental review maintains that the marginal effects of the FTA on environmental standards would be small, whether in terms of projected impacts on the United States or on Panama. The environmental review further notes that Panama's service-oriented economy and the small trade volume with the United States are unlikely to be greatly affected by the FTA and so will little change production and trade. Still, the FTA may have both positive and negative effects. The negative effects of pollution, environmental degradation, and endangering wildlife would come mostly from increased agricultural trade and production, which might be addressed with increased environmental oversight and policies. The positive effect of the FTA could include improvements in environmental standards that may be encouraged by the provisions of the agreement and the consultative and cooperation agreements attached to the FTA. Panama's environmental regulatory agency points out that Panama is increasingly using environmental impact studies, but realizes it has enforcement capacity issues that may require time to remedy, which could be accommodated in the FTA. The FTA would create a Committee on Trade Capacity Building (TCB) designed to assist Panama with the transition to freer trade with the United States. In general, the committee's mission includes providing technical assistance and coordinating financing to accelerate the transition period in expectation of increasing the gains of trade while minimizing the adjustment costs. The TCB Committee would help coordinate technical assistance provided by U.S., regional, and multilateral agencies in helping Panama meet its obligations under the FTA. Panama prioritized TCB needs in its national trade capacity building strategy. The overriding goal is to formulate a strategy that would allow Panama to assume all the commitments under the FTA, in the context of also meeting the country's development needs. The National TCB Strategy places strong emphasis on sectoral adjustment strategies, recognizing that some industries are already competitive by international standards (e.g., financial services), whereas others will need considerable assistance when faced with increased competition from the United States (e.g., agriculture). Emphasis is also placed on supporting existing and potentially new micro, small, and medium-sized businesses, which may need the most assistance and constitute a significant portion of the Panamanian economy, as well as government capacity to administer trade-related activities. The major goals identified include inter-sectoral coordination, increasing exports to the United States, enhancing the investment climate, better integrating education and innovation into the business community, and improving government trade facilitation (processing imports and exports). The strategy identifies 18 action plans covering major trade and trade-related issues, ranging from market access and rules of origin, to labor, environment, transparency, and trade agreement administration. In each case, the status of Panama's commitments under the FTA is identified along with action items that may need to be pursued to improve capacity in the respective area. Successful implementation of the strategy, however, requires financial and technical resources coordinated among international and U.S. aid agencies. Already in place is a U.S. Agency for International Development (USAID) project to support Panama's transition to more open trade. It has two major initiatives: supporting implementation of the FTA and assisting Panama with sectoral adjustment to the increased competitiveness arising from international trade. In the first case, the USAID project has helped prepare and disseminate a product that explains the benefits of the FTA and how Panama might better access the U.S. market with its specific products. The second initiative focuses on helping three major sectors of the economy, each with a differing level of product complexity, to increase their exposure and market share in the United States. Specifically, agro-industry, information and communications technology, and artisan products were identified as sectors with potential to benefit from the FTA. Sector strategies range from targeted product design, to "hands on" assistance in participating in trade fairs, and building contacts and linkages with venture capitalists and other key business facilitation professionals. Appendix A. Chronology of U.S.-Panama FTA Milestones Appendix B. Panama: Selected Economic Indicators | On June 28, 2007, the United States and Panama signed a free trade agreement (FTA) after two and a half years and 10 rounds of negotiations. Negotiations formally concluded on December 16, 2006, with an understanding that changes to labor, environment, and intellectual property rights chapters would be made pursuant to future congressional input. These changes were agreed to and the FTA was signed in time to be considered under Trade Promotion Authority (TPA) legislation, which expired on July 1, 2007. TPA allows Congress to consider certain trade agreement implementing bills under expedited procedures. Panama's legislature ratified the FTA 58 to 4 on July 11, 2007, but neither the 110th nor the 111th Congress took up the agreement. Eventually, the 112th Congress considered the FTA implementing bill. On July 7, 2011, the House Ways and Means and Senate Finance Committees held simultaneous "mock markups," where they informally approved draft implementing bills. On October 3, 2011, the Obama Administration transmitted final implementing legislation and supporting documents to both houses, as required under TPA. Following committee action, on October 12, 2011, the House agreed to the implementing bill (H.R. 3079) 300-129, followed by the Senate 77-22. President Obama signed the implementing bill into law on October 21, 2011 (P.L. 112-43, 125 Stat. 427), but the FTA would not enter into force for another year. Panama required that time to complete changes in law necessary to bring it into compliance with the provisions of the FTA. On October 22, 2012, the United States Trade Representative (USTR) exchanged notes with Panama providing for entry into force of the FTA. President Obama implemented the agreement by proclamation on October 29, 2012, and the FTA entered into force on October 31, 2012. The U.S.-Panama FTA is a comprehensive and reciprocal trade agreement, replacing U.S. unilateral preferential trade treatment extended under the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), and the Generalized System of Preferences (GSP). Some 88% of U.S. commercial and industrial exports will become duty-free upon implementation, with remaining tariffs phased out over a 10-year period. Over 50% of U.S. farm exports to Panama also will achieve immediate duty-free status, with tariffs and tariff rate quotas (TRQs) on select farm products to be phased out by year 17 of the agreement (year 20 for rice). The FTA also consummates understandings on telecommunications, services trade, government procurement, investment, and intellectual property rights. The final text of the U.S.-Panama FTA incorporates changes based on the bipartisan agreement of May 10, 2007, crafted by the Bush Administration and leadership in the 110th Congress. These include adoption of enforceable labor standards, compulsory membership in multilateral environmental agreements, and an easing of restrictions on developing country access to generic drugs, provisions that go beyond those in previous U.S. bilateral FTAs and multilateral trade rules. Concerns raised in Congress on labor and tax transparency issues were also addressed by Panama in statute and by ratification of a Tax Information and Exchange Agreement (TIEA) with the United States. The TIEA provides greater tax transparency in support of curbing illicit financial transactions associated with money laundering activities. This report covers issues related to the U.S.-Panama FTA from the beginning of the negotiations in April 2004 until the FTA entered into force on October 31, 2012. |
A number of federal laws prohibit discrimination in employment decisions, including hiring and firing of employees. Generally, these laws also include statutory exceptions for the employment of ministers within religious institutions and organizations. This protection arises most often in the context of employment legislation, but it has also been recognized in other contexts. The exceptions in these laws for religious organizations reflect a constitutional protection commonly known as the ministerial exception. This exception has been used to ensure that enforcement of nondiscrimination legislation does not violate the constitutional rights of religious entities to exercise freely their religious practices and to avoid government interference in internal matters. In 2012, the U.S. Supreme Court recognized the ministerial exception as a protection grounded in the Free Exercise and Establishment Clauses of the First Amendment in Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC . However, the Court did not define the scope of the exception, and a number of questions still remain unanswered in how it may be applied in future cases. This report analyzes the constitutional bases of the ministerial exception and examines selected statutory provisions reflecting its protections under federal employment laws. The report addresses critical questions involved in the application of the ministerial exception, including which employees qualify as ministers, the extent to which courts may defer to religious entities claiming the exception, and whether the exception may apply to any claim brought against a religious entity. A number of federal laws prohibit discrimination in employment, each protecting separate classes of individuals. Congress has included explicit statutory recognition of the hiring rights of religious organizations in these laws. Two prominent examples of legislation that include religious exemptions for prohibitions on discrimination are Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act (ADA). However, other nondiscrimination statutes, like the Age Discrimination in Employment Act and the Equal Pay Act, may also affect religious organizations' rights under the First Amendment. These exemptions are sometimes referred to as ministerial exceptions, but they differ from the constitutional ministerial exception as discussed in this report. Title VII prohibits discrimination in employment on the basis of race, color, religion, national origin, or sex. It is the most well-known statutory protection for religious discrimination and often is used as a model for other nondiscrimination legislation. Title VII generally prohibits employers from treating employees of one religion differently from employees of another religion. However, Title VII includes several exceptions that allow certain employers to consider religion in employment decisions, such as hiring, termination, etc. Specifically, Title VII's prohibition against religious discrimination does not apply to "a religious corporation, association, educational institution, or society with respect to the employment [i.e., hiring and retention] of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution, or society of its activities." A separate, but similar, exemption applies specifically to religious educational institutions, allowing such institutions "to hire and employ employees of a particular religion if [the institution] is, in whole or in substantial part, owned, supported, controlled, or managed by a particular religion or by a particular [organization], or if the curriculum of [the institution] is directed toward the propagation of a particular religion." Exemptions for religious organizations in the context of Title VII are not absolute. Once an organization qualifies as an entity eligible for a Title VII exemption, it is permitted to discriminate on the basis of religion in its employment decisions, but it may not discriminate on any other basis forbidden by Title VII. The ADA provides broad nondiscrimination protection in a variety of contexts, including employment, public services, public accommodations and services operated by private entities, transportation, and telecommunications for individuals with disabilities. It bars discrimination against qualified individuals because of the individual's disability in a range of employment decisions including application procedures, hiring, promotion, discharge, compensation, and other terms and conditions of employment. The ADA includes exemptions for religious organizations. Accordingly, the ADA's prohibition on nondiscrimination based on disability does not bar "a religious corporation, association, educational institution, or society from giving preference in employment to individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution, or society of its activities." Furthermore, the ADA permits religious organizations to "require that all applicants and employees conform to the religious tenets of such organization." Before Congress enacted statutory exemptions for religious organizations' hiring decisions, the U.S. Supreme Court recognized that the "freedom to select the clergy" has constitutional protection under the First Amendment. Statutory nondiscrimination provisions, for example, Title VII's prohibition on discrimination in employment on the basis of sex, would appear to interfere with this constitutional freedom though. The so-called "ministerial exception" reconciles statutory nondiscrimination provisions with constitutional freedom of religion protections by allowing religious organizations to select clergy without regard to such statutory restrictions. In 2012, the Court explicitly recognized the ministerial exception as a constitutional protection grounded under both the Establishment Clause and the Free Exercise Clause: "The Establishment Clause prevents the Government from appointing ministers, and the Free Exercise Clause prevents it from interfering with the freedom of religious groups to select their own [ministers]." The Supreme Court's justification of the ministerial exception relies upon its historical understanding that it must avoid intervening in the internal matters of church operation. The Court has long recognized that churches and other religious institutions have a right under the First Amendment to address their internal matters independently and without interference from government institutions. Furthermore, such action by courts would entangle the legal system in an inquiry of religious authority and doctrine, suggesting the type of probing interference contemplated by the entanglement prong of the Lemon test. Accordingly, the Court has barred interference in religious practices through decisions prohibiting the government from deciding disputes concerning religious authority or policies. In 1872, the Court recognized that matters of religious doctrine should be determined within the authority of the particular church and should be separate from any secular legal interpretation: The law knows no heresy, and is committed to the support of no dogma, the establishment of no sect. … All who united themselves to such a body [the general church] do so with an implied consent to [its] government, and are bound to submit to it. But it would be a vain consent and would lead to total subversion of such religious bodies, if any one aggrieved by one of their decisions could appeal to the secular courts and have them [sic] reversed. It is of the essence of these religious unions, and of their right to establish tribunals for the decision of questions arising among themselves, that those decisions should be binding in all cases of ecclesiastical cognizance, subject only to such appeals as the organism itself provides for. Thus, the Court established the principle that determinations of church doctrine and practice were to be free of government control well before it had even developed other aspects of its First Amendment jurisprudence. In 1952, noting its historic recognition of a prohibition on government interference in matters of religion, the Court reiterated its earlier understanding of "a spirit of freedom for religious organizations, an independence from secular control or manipulation—in short, power to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine." The Court accordingly granted federal constitutional protection for the independent choice of churches for self-governance "as a part of the free exercise of religion against state interference" when it held that a legislature was constitutionally barred from determining the proper religious authority of the Russian Orthodox Church. On a number of occasions, the Court has reiterated the First Amendment limitations on the government's authority to decide matters of church internal disputes and practices. Just as it invalidated the legislature from doing so, it has also limited courts from overstepping their constitutional authority in making civil determinations of the propriety of church actions. The Court has held that "because of the religious nature of [disputes related to control of church property, doctrine, and practice], civil courts should decide them according to the principles that do not interfere with the free exercise of religion in accordance with church polity and doctrine." Recognizing that the authors of the First Amendment understood that "establishment of a religion connoted sponsorship, financial support, and active involvement of the sovereign in religious activity," the Court has interpreted the Establishment Clause to prohibit laws from fostering an "excessive entanglement" between government and religion. The Court has explained the bar on entanglement as an inquiry of whether the disputed government action would "establish or interfere with religious beliefs and practices or have the effect of doing so" or would create "the kind of involvement that would tip the balance toward government control of churches or governmental restraint on religious practice." Courts have generally addressed matters involving religious doctrine quite carefully. Litigation of employment discrimination claims in which religious organizations assert their freedom to hire clergy according to religious doctrine almost inevitably raises concerns that a legal decision on the merits of the case may lead to judicial interference with church decisions. In addition to avoiding making determinations on the validity of internal church policies and practices, the Court has refused to define religious practices or what may constitute religion, holding that courts may not judge the truth or falsity of religious beliefs. It has explained that the First Amendment ensures the freedom to believe, even if those beliefs cannot be proven. While courts must avoid determining the validity of religious beliefs, they must at times identify whether an individual's beliefs would qualify as religious for certain purposes, that is, religious exemptions for statutory requirements. To do so, the Court has stated a test for whether a belief qualifies as religious: "a sincere and meaningful belief which occupies in the life of its possessor a place parallel to that filled by the God of those admittedly qualifying for the exemption.... " In other words, the court will look at whether an individual's beliefs "are sincerely held and whether they are, in his own scheme of things, religious." As a result, courts generally examine whether an individual applies a particular belief consistently in his or her own practices. The beliefs of an individual seeking protection under the First Amendment are not required to conform with the beliefs of other members of his or her religious group. Furthermore, the individual is not even required to be a member of a religious group at all. The Court has been deferential to the individual's claim that a belief "is an essential part of a religious faith." It has recognized that beliefs are a matter of personal decision, which may vary greatly among different individuals or groups, but it has not allowed total deference to the individual's claim, however. Though the Court gives significant weight to an individual's characterization of his or her beliefs, that characterization is not dispositive in the analysis. The Court has explained that an individual's understanding of what might qualify as a religious view may not be reliable and courts may assess the nature of the belief independent of the individual's characterization. Attempts to define religion for certain statutory purposes have reflected courts' aversion to state explicitly the parameters of religious belief or practice. Often times, statutory definitions related to religion use the word to define itself. For instance, under Title VII, religion is defined to include "all aspects of religious observance and practice, as well as belief.... " Religious practices and observances are then defined "to include moral or ethical beliefs as to what is right and wrong which are sincerely held with the strength of traditional religious views." Under the tax code, individuals may claim an exemption based on religion if they can demonstrate themselves to be "a member of a recognized religious sect or division thereof and [ ] an adherent of established tenets or teachings of such sect or division by reason of which he is conscientiously opposed" to benefits that would otherwise be received. These definitions do not provide absolute clarity on what qualifies as "religion" or "religious." In a 1972 case recognizing a constitutional ministerial exception to employment discrimination laws, the U.S. Court of Appeals for the Fifth Circuit held the employment relationship between a church and its minister was beyond the reach of governmental regulation. In McClure v. Salvation Army , a woman who had been commissioned as a minister in the Salvation Army alleged that the organization discriminated against her based on her sex. The court recognized that the organization's action was constitutionally protected under the ministerial exception. It explained: The relationship between an organized church and its ministers is its lifeblood. The minister is the chief instrument by which the church seeks to fulfill its purpose. Matters touching this relationship must necessarily be recognized as of prime ecclesiastical concern. Just as the initial function of selecting a minister is a matter of church administration and government, so are the functions which accompany such a selection. If the government regulated the relationship between a church and its minister, it would be forced to review practices and decisions of a religious organization and unlawfully "intrude upon matters of church administration and government." To avoid the risk of such unconstitutional interference, the court recognized a ministerial exception to insulate decisions regarding those employment relationships from governmental review. Each of the federal circuit courts to consider the ministerial exception recognized its application to some extent, but the courts have differed on the scope of its application. Federal courts are generally in agreement that the ministerial exception bars lawsuits by clergy and religious leaders—regardless of the particular religious sect or denomination to which they minister—seeking redress for employment discrimination by their religious organization. The circuits differ, however, in how to apply the ministerial exception to other employees who may serve religious functions in the organization. Until 2012, when the Supreme Court considered the issue, the most commonly applied test applied by circuit courts in ministerial exception cases was the primary duties test (sometimes called the primary functions test). Under this test, ministerial employees are not identified by their job titles or ordination status, but rather by the function of their position. To apply the exception, a court must "determine whether a position is important to the spiritual and pastoral mission of the church." Courts applying the primary duties test have adopted the following standard as a general rule: "If the employee's primary duties consist of teaching, spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship, he or she should be considered clergy." Several courts agreed that the ministerial exception may apply with regard to any employees who "perform particular spiritual functions." Some courts looked at other factors, in addition to the employee's primary functions, such as the nature of the claim asserted. Other courts decided ministerial exception cases on a case-by-case basis without applying a particular standard. In 2012, the Supreme Court issued its decision in Hosanna-Tabor Evangelical Church and School v. EEOC , a case which gave the Court an opportunity to recognize and clarify the application of the ministerial exception. In this case, a teacher with both religious and secular duties at a religiously affiliated school sought protection under the ADA after being terminated following her disability leave. The teacher claimed that her termination was improperly based on her disability and barred by the ADA. The school claimed that its decision was based on internal religious policies regarding its spiritual leaders, which included some teachers. The case required the Court to determine whether a teacher at a religious school qualified as a minister for purposes of the ministerial exception. In Hosanna-Tabor , Cheryl Perich, a "called" teacher at the school, had taken a disability leave of absence, but attempted to return to her position later in the school year. The school informed Perich that her position had been filled by a lay teacher for the remainder of the school year and offered her "a 'peaceful release' from her call, whereby the congregation would pay a portion of her health insurance premiums in exchange for her resignation as a called teacher." When Perich refused to resign, she was informed that she would likely be fired, and in response she notified the school that she intended to file a claim under the ADA. Hosanna-Tabor rescinded Perich's "call" and terminated her teaching position, citing "insubordination and disruptive behavior" and her threat of legal action against the institution. The Court's decision noted the significance of the specific position held by the teacher. Hosanna-Tabor Evangelical Lutheran Church and School hires two types of teachers: called teachers and lay teachers. Called teachers are deemed to have been called by God to teach and must meet certain qualifications, which include post-secondary theological study, endorsement by local church authority, and completion of an oral examination. Upon meeting these qualifications, called teachers receive the title of "Minister of Religion, Commissioned" and serve an open-ended term at the school. Lay teachers are not required to meet such qualifications and may not be trained by the church or even share the same affiliation. Lay teachers serve under one-year renewable contracts. The Court held that Perich qualified as a minister for purposes of the ministerial exception and therefore could not enforce the protections that would be available to other employees under the ADA. Notably, the Court's opinion in Hosanna-Tabor was unanimous, a rare occurrence for the current Court in First Amendment cases. However, agreement among the Justices is not particularly surprising given the narrow scope of the Court's opinion, which only recognized the widely accepted constitutional exception. It agreed with the circuit courts that the First Amendment provides protection for a religious organization's decisions regarding employment of its ministers. It also agreed "that the ministerial exception is not limited to the head of a religious congregation." However, the Court stopped short of defining what a minister is for purposes of the exception—the more contentious issue associated with the ministerial exception—stating its "[reluctance] … to adopt a rigid formula for deciding when an employee qualifies as a minister." Instead, the Court treated the case as one of first impression limited only to the challenge in question, alluding that later legal challenges would allow it to consider the parameters of the exception. The Court explained that Hosanna-Tabor designated the employee as a minister, which required a number of religiously significant qualifications to be met. The employee regarded herself as a minister based on her position and accepted privileges available only to ministerial employees. Furthermore, the duties of the position "reflected a role in conveying the Church's message and carrying out its mission" and indicated that the employee "performed an important role in transmitting the Lutheran faith to the next generation." Accordingly, the Court held that the employee would qualify as a ministerial employee and Hosanna-Tabor's decision was not subject to the ADA. The statutory exemptions for religious organizations provided by Congress differ from the constitutional ministerial exception, though both are rooted in the same principles of non-interference in the internal decisions of church authority and operations. The constitutional exception protects religious organizations from liability for decisions regarding only ministerial employees, but may be applied to decisions made on any basis. The statutory exemptions generally exempt religious employers from liability for decisions regarding other employees, but are limited to decisions made on the basis of religion. To invoke the constitutional ministerial exception, an employer must be a religious organization and the employee must be a minister or ministerial employee. However, the religious employer does not need a religious basis for its decision. Rather, courts have indicated that the inquiry should focus on the action itself, rather than the motives: "The exception precludes any inquiry whatsoever into the reasons behind a church's ministerial employment decision. The church need not, for example, proffer any religious justification for its decision, for the Free Exercise Clause 'protects the act of a decision rather than a motivation behind it.'" Under the constitutional exception, courts have upheld the termination of a college chaplain who claimed her termination was a result of gender discrimination; a hospital chaplain who claimed her termination was a result of discrimination based on a disability; and a priest who claimed his termination resulted from race discrimination. Various circuit courts determined in each of these examples that the employee qualified as a ministerial employee and that the religious employer's decision was accordingly beyond the review of the court. Congress has extended the recognition of noninterference in employment decisions through statutory exemptions, but has limited the exemptions to avoid undermining the purpose of the legislation. Statutory exemptions apply only to religious employers making decisions based on religion. One federal court has explained that the statutory exemption is significantly distinct from the constitutional protections to such religious organizations because the "statutory exemption applies to one particular reason for employment decision—that based on religious preference." A number of federal circuit courts have noted that the statutory exemption allows religious organizations to make employment decisions based on religious preferences, but does not permit those decisions to be based on other preferences, like race, sex, or national origin. The statutory exemptions also differ from the constitutional exception because the statutory exceptions exempt employers from liability for decisions regarding any employee, rather than being limited to ministers and ministerial employees. For example, the religious exemption under Title VII has been held to allow a religious organization to terminate the employment of an employee with no religious duties. In 1987, the Supreme Court upheld the Title VII exemption when a religious employer discharged a building engineer because the employee failed to qualify for membership in the church that operated the facility for which he worked. The Court explained that the exemption was neutral and its purpose to limit governmental interference in religious matters was permissible. In light of the split among the circuit courts over the standard for determining the scope of the ministerial exception, it seemed likely in Hosanna-Tabor that the U.S. Supreme Court would clarify the analysis of how courts should define minister in future employment discrimination lawsuits involving religious organizations. Often, the Court accepts cases for review because a different standard is applied across the various circuits, which, if left unreviewed, means that the application of law is determined by the geography of the court in which the claim is filed rather than by a uniform national standard. The Court did not resolve the split among the circuits, however. Instead, it only announced its recognition of the ministerial exception as a constitutional protection for religious entities and explained that it could be applied to more than just the nominal head of the congregation. Many questions still remain regarding the scope of the ministerial exception: Who qualifies as a ministerial employee? Which legal claims might the ministerial exception apply to? What options does Congress have to affect the outcome of such cases? Although the Court did not provide the definitive clarification of the ministerial exception that many were expecting, its decision nonetheless indicates its preferred direction of the constitutional analysis for future cases. In Hosanna-Tabor , as discussed earlier, the Court declined to announce a uniform standard for applying the ministerial exception, noting its reluctance "to adopt a rigid formula for deciding when an employee qualifies as a minister," and decided only the facts of the case before it. The Court relied upon four general considerations in its decision: (1) the formal title given to the employee by the religious institution; (2) the substantive actions reflected by the title (i.e., the qualifications required to be granted such a title); (3) the employee's understanding and use of the title; and (4) the important religious functions performed by employees holding the title. Rejecting the primary duties test, the Court explained that the factors relied upon by the U.S. Court of Appeals for the Sixth Circuit may be relevant to the applicability of the ministerial exception, but they should not be treated as dispositive. For example, the Court disagreed with the Sixth Circuit that the title of commissioned minister was irrelevant. Rather, the Court stated that "although such a title, by itself, does not automatically ensure coverage, [it] is surely relevant, as is the fact that significant religious training and a recognized religious mission underlie the description of the employee's position." Likewise, according to the Court, the comparison of duties between similar positions and the proportion of religious duties versus secular duties may be relevant, but are not conclusive in the determination of ministerial employees: [T]hough relevant, it cannot be dispositive that others not formally recognized as ministers by the church perform the same functions—particularly when, as here, they did so only because commissioned ministers were unavailable. ... The amount of time an employee spends on particular activities is relevant in assessing that employee's status, but that factor cannot be considered in isolation, without regard to the nature of the religious functions performed and the other considerations discussed above. The Court's decision not to announce a formal standard for determining ministerial employees means that future decisions in lower courts may still be decided based on different standards. However, the Court's rejection of the application of the primary duties test provides a strong indication that at least courts in judicial circuits in which the test had prevailed will now be guided by factors considered significant to the Court in Hosanna-Tabor . The Court's decision indicated a significant amount of deference to religious authorities when identifying ministerial employees, relying on the school's understanding of its relationship with its called teachers. The Court noted that "although teachers at the school generally performed the same duties regardless of whether they were lay or called, lay teachers were hired only when called teachers were unavailable." Citing a long history of avoidance of determining matters of religion, the Court relied on historical precedent "[confirming] that it is impermissible for the government to contradict a church's determination of who can act as its ministers." The Court also deferred to the school's reason for termination, explaining that the exception applies regardless of whether the reason for termination is based on religion. During the lawsuit, Hosanna-Tabor maintained that "Perich was a minister, and she had been fired for a religious reason—namely, that her threat to sue the Church violated the Synod's belief that Christians should resolve their disputes internally." The Court emphasized that the purpose of the ministerial exception is to ensure that employment decisions of ministers and ministerial employees remains within the sole authority of the religious institution. Accordingly, the Court's opinion suggests that religious employers may make decisions regarding employment of ministers or ministerial employees for any reason it deems necessary to adherence to its beliefs, regardless of whether the stated reason is pretextual. Although the Court's decision was unanimous, Justice Thomas's concurring opinion, joined by Justice Alito, provides further support of the Court's deference to religious institutions when defining ministerial employees. Justice Thomas stated that the institution's "right to choose its ministers would be hollow … if secular courts could second-guess the organization's sincere determination that a given employee is a 'minister' under the organization's theological tenets." The opinion also warned against the adoption of a strict definition in the future. If courts attempt to create a definitive standard for what positions qualify as ministerial, some religious groups, particularly those "whose beliefs, practices and membership are outside of the 'Mainstream' or unpalatable to some," would be disadvantaged because traditional definitions may not be easily applied to them. A definitive standard may raise constitutional concerns if a religious group feels pressed "to conform its beliefs and practices regarding 'ministers' to the prevailing secular understanding." The Court's opinions reflect the long-standing aversion to interpreting what religious tenets require. Just as the Court has recognized that it may not judge the veracity of beliefs or what constitutes religion, it has now indicated that it may be similarly improper for courts to decide who is a minister within a particular religion. It seems possible that, even with further litigation of the scope of the ministerial exception, the Court will defer to a religious institution's understanding of which employees function as ministers. Such deference would allow courts to avoid interpreting the religious doctrine of the institution and defining what constitutes spiritual leadership within the institution. Although it reflects long-standing and widely accepted principles of noninterference in the internal governance of religious institutions, the ministerial exception nonetheless raises concerns regarding the degree to which such institutions may operate without legal recourse to those with whom they may interact. In other words, if courts are prohibited from reviewing a church's decisions regarding its employees to avoid unconstitutional interference with religious operations, might they also be prohibited from hearing other challenges involving the church's decisions? The Court limited its decision in Hosanna-Tabor , holding only that the ministerial exception bars employment discrimination suits brought on behalf of a minister challenging a religious institution's decisions to terminate his or her employment. The Court expressly stated that it was expressing "no view on whether the exception bars other types of suits, including actions by employees alleging breach of contract or tortuous conduct by their religious employers," leaving such decisions to be determined in later cases. Thus, under Hosanna-Tabor , the ministerial exception applies, at a minimum, to employment discrimination lawsuits alleging improper termination of a minister by a religious institution, regardless of whether the reason given was based on religion or another factor. Lower court decisions have indicated some uncertainty in the applicability of the ministerial exception to other types of cases. As one federal court has stated, religious organizations "are not—and should not be—above the law" and "may be held liable for their torts and upon their valid contracts." This court also emphasized that such organizations remain subject to Title VII in cases that do not involve the organization's religious functions. Thus, according to some interpretations, even if the ministerial exception bars certain claims, other claims in the same case may proceed. For example, a university chaplain filed claims against her employer after the university decided to restructure her department and removed her from her position. The lawsuit asserted a variety of claims, including employment discrimination, breach of contract, and state tort claims (e.g., negligent supervision and retention). The U.S. Court of Appeals for the Third Circuit held that the ministerial exception barred any decision on the employment discrimination claims. The court also explained that the First Amendment protected the university's right to determine its internal structure and therefore the court could not consider the tort claim of negligent supervision and retention which resulted from the university's decision to restructure. However, because some of the chaplain's claims did not implicate the university's "freedom to select its ministers," judicial resolution of other claims, such as breach of contract, was not barred by the ministerial exception. In another example of a court applying the ministerial exception to cases challenging actions other than termination, the U.S. Court of Appeals for the Ninth Circuit applied the ministerial exception to a challenge filed by a seminarian over the sufficiency of the wages he received from his employing church. The court noted that the individual was challenging wages received in his capacity as a seminarian in which he was assisting with the administration of religious services, not for employment or duties outside the scope of seminary training. The court determined that the challenge was of a ministerial nature, and therefore it could not interfere with the church's decision. Some federal courts have indicated that the nature of the dispute is a critical factor in determining whether the ministerial exception applies. According to the U.S. Court of Appeals for the Second Circuit, the ministerial exception is not an absolute bar to legal challenges, indicating that a court must consider the nature of the dispute before it, in addition to the employee's position, when deciding whether or not to apply the exception. The U.S. Court of Appeals for the Ninth Circuit has stated that a court may consider a case if it is limited in a manner that allows for controlled discovery and avoids "wide-ranging intrusion into sensitive religious matters." Sexual harassment claims have been of particular concern in the debate over the applicability of the ministerial exception. Like any other claim, whether a court decides the merits of such cases likely depends on whether the accused institution claims religious justification for its actions. For example, the U.S. Court of Appeals for the Ninth Circuit permitted an ordained minister to pursue a sexual harassment claim against her church. The court explained that the ministerial exception applied only to the church's ministerial employment decisions, and that the sexual harassment claim was "narrower and thus viable" because it did not implicate a protected employment decision. The court noted that "the Church could invoke First Amendment protection … if it claimed doctrinal reasons for tolerating or failing to stop the sexual harassment." Because the church did not defend its actions based on religious doctrine, the court explained that the issues for judicial resolution were limited to "a restricted, secular inquiry" and were appropriate for the court to consider. The Court's decision in Hosanna-Tabor did not address the scope of the statutory exception of the ADA. Rather, it was grounded in the constitutional protections afforded to religious organizations under the First Amendment. In other words, regardless of the explicit statutory protection for religious organizations like Hosanna-Tabor in the ADA, the school still was able to exercise its constitutional right to terminate Perich's employment without affording her the legislative protections of the ADA. Accordingly, the legislative options for Congress in response to the Court's decision in Hosanna-Tabor are extremely limited. Congress may seek to include a preferred standard of review in its religious exceptions to nondiscrimination legislation, but such clarification must comport with the requirements of the constitutional exception. The most probable method for clarification of the proper standard for the constitutional exception is further litigation, as the Court alluded in its decision. | Congress has enacted a number of federal laws banning discrimination in employment decisions, including hiring and firing of employees. For example, Title VII of the Civil Rights Act of 1964 prohibits discrimination in employment if the discrimination is based on race, color, religion, national origin, or sex. The Americans with Disabilities Act (ADA) prohibits discrimination based on disability. The Age Discrimination in Employment Act prohibits discrimination in employment based on age. Exceptions in these laws for religious organizations have reflected long-standing recognition of the autonomy of religious organizations in certain employment decisions. While these statutory provisions protect religious organizations in selected contexts, religious organizations also have constitutional protection, known as the ministerial exception. The ministerial exception protects the employment relationship between a religious entity and its ministerial employees. Courts have long held that the First Amendment of the U.S. Constitution bars the government from interfering with internal governance of religious organizations, including decisions regarding employment of ministers or ministerial employees. This exception has generally been framed relatively narrowly to avoid undermining the public policy goals of nondiscrimination legislation. Thus, only religious institutions may claim the ministerial exception and may only do so if the employee functions as a minister or ministerial employee. The boundaries of the exception are not yet settled though. In 2012, the U.S. Supreme Court recognized the ministerial exception as a necessary outgrowth of its jurisprudence on non-interference in the internal governance of religious organizations (Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC). However, the Court did not define the scope of the exception and declined to identify a standard for determining whether an employee could be labeled as ministerial. This report analyzes the history and constitutional bases for the ministerial exception and examines selected statutory provisions reflecting its protections under federal employment laws. The report examines the distinction between the constitutional and statutory protections for religious organizations and addresses critical questions involved in judicial consideration of the ministerial exception. It analyzes which employees may qualify as ministerial, the extent to which courts may defer to religious entities claiming the exception, and whether the exception may apply to any claim brought against a religious entity. |
Information about contracts and other award types related to Hurricanes Katrina and Rita is available from several sources, including: Federal Procurement Data System (FPDS), at https://www.fpds.gov . Department of Homeland Security (DHS), at http://www.dhs.gov/dhspublic/interapp/editorial/editorial_0729.xml . (Information about contracts awarded by the Federal Emergency Management Agency (FEMA) is available at this website.) U.S. Army Corps of Engineers (USACE), at http://www.usace.army.mil . U.S. Navy, Military Sealift Command (MSC), at http://www.procurement.msc.navy.mil/Contract/Welcome.jsp . (The Military Sealift Command is the agency that awarded four contracts for four cruise ships to house evacuees in the Gulf Region. ) The Federal Procurement Data System is a government database that contains detailed information about contracts that have been awarded; task, delivery, and purchase orders that have been issued; and purchases that have been made under blanket purchase agreements (BPAs). Three spreadsheets are available on the FPDS website: Hurricane Katrina contract information, Hurricane Rita contract information, and contract information for other disasters that occurred in 2005. Although agencies are required to submit information to FPDS about contracts and other types of awards that exceed $2,500 in value, it is likely, as noted at the beginning of the three spreadsheets available on the FPDS website, that not all contracting actions have been entered into FPDS yet. Nevertheless, with more than 2,500 contracting actions listed by late October from many different agencies, and the use of 50 FPDS data elements to describe the contracting actions, FPDS spreadsheets offer the most comprehensive picture of emergency contracting. Contracting information available from the other three sources—FEMA (via the DHS website), USACE, and MSC—is not included in the FPDS spreadsheets. As noted on the FPDS spreadsheets, some contracting officials may not have access to the necessary computer systems or may not have time to submit information to FPDS. This caveat may also apply to FEMA. In the case of USACE and MSC, the Department of Defense (DOD) has not completed its connections to FPDS, though it expects to do so sometime in FY2006. Thus, very few DOD contracting actions are listed on the Hurricane Katrina spreadsheet. While the information presented here applies to government procurements generally, the information is provided to aid specifically in understanding the FPDS spreadsheets. Information listed on the FPDS spreadsheets includes the date that a transaction was signed; the date that the parties (that is, the government and a company) agreed would be the starting date for the contract's requirements, which may be the same as the date signed; the current completion date, which is the completion date of the base contract plus any options that have been exercised; the dollar value of the contract or other award; and the name and location of the vendor. Although the definition of "current completion date" does not mention, for example, delivery orders (DOs), it seems likely that completion date entries for DOs indicate the date by which deliveries are to be completed. The type of award an agency makes for a particular procurement depends, at a minimum, on whether the required items or services are available from an existing contract, a federal supply schedule, or a blanket purchase agreement. A blanket purchase agreement (BPA) is a "charge account" with qualified sources of supply. Generally, BPAs are used by agencies to fill anticipated repetitive needs for supplies or services. A contract is a mutually binding legal relationship which obligates a vendor to provide goods or services and the government to pay for them. A delivery order or a task order (TO) is used to purchase supplies or services, respectively, from an established government contract or with government sources. When this procurement vehicle is used, it is said that the agency "placed a task (or delivery) order against a contract." A purchase order (PO) is an offer by the government to buy supplies or services, under specified terms and conditions and using simplified acquisition procedures, from a vendor. Several different types of contracts are available to contracting officers and contractors, and contracting officers have many factors to consider when selecting which type of contract to use for a particular procurement. Factors include type and complexity of the agency's requirement, urgency of the requirement, performance period, and the extent and nature of proposed subcontracting. The following contracts have different pricing arrangements: Fixed-price contracts "provide for a firm price or, in appropriate cases, an adjustable price.... A fixed-price contract with economic price adjustment provides for upward or downward revision of the stated contract price upon the occurrence of specified contingencies." Cost-reimbursement contracts "provide for payment of allowable incurred costs, to the extent prescribed in the contract." Time-and-materials contracts provide "for acquiring supplies or services on the basis of—(1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and (2) Materials at cost, including, if appropriate, material handling costs as part of material costs." Labor-hour contracts are "a variation of the time-and-materials contract, differing only in that materials are not supplied by the contractor." A fixed price or cost-reimbursement contract that includes an incentive may be referred to as an "incentive contract." Incentive contracts "are appropriate when ... the required supplies or services can be acquired at lower costs and, in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under the contract to the contractor's performance." Another variation is called the "indefinite-delivery contract," which is "used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award," and which is sometimes referred to as an "indefinite-delivery/indefinite-quantity (IDIQ) contract." For every contracting action reported to FPDS, the procuring agency must assign a unique identifier—a procurement instrument identifier (PIID). Agencies are responsible for developing their own PIID coding schemes, but they must use alphabetical characters in the first positions to indicate the agency; assign alphanumeric characters to identify the appropriate office or administrative subdivision; and, similar to the assignment of numbers sequentially to public laws, assign numbers sequentially to contracting actions. Agencies may add other information, such as fiscal year, to their PIIDs. The Federal Procurement Data Center is required to maintain a registry of agencies' coding schemes and validate their use in all transactions. Full and open competition, which "means that all responsible sources are permitted to compete," is the policy of the federal government. However, exceptions are permitted. One category of exceptions provides for full and open competition after exclusion of sources. Procurements that are set aside for certain types of small businesses belong to this category, because large businesses are excluded from competition. Other than full and open competition, which is popularly referred to as "no bid" or "sole source" contracting, is permitted under seven circumstances: only one responsible source exists, and no other supplies or services will satisfy agency requirements; an unusual and compelling urgency for supplies or services exists; the government needs to achieve industrial mobilization, establish or maintain an essential engineering or research and development capability, or obtain expert services; an international agreement or treaty precludes full and open competition; a statute authorizes or requires that supplies or services be procured through another agency or from a specified source; disclosure of an agency's needs could compromise national security; and it is in the public interest not to conduct a full and open competition. Two columns on the FPDS spreadsheets—"Extent Competed" and "Reason Not Competed"—provide competition information about each procurement. While some spreadsheet entries include the phrase "other than full and open competition" or "full and open after exclusion of sources" for the former column, and the appropriate reason why there was no or limited competition, other entries refer to other types of limitations on procurements. For example, an agency might indicate that a particular procurement was "not available for competition," and then, as the reason, cite the Javits-Wagner-O'Day (JWOD) Act, which mandates that organizations that employ individuals who are blind or severely disabled are a required source of supplies and services for federal agencies. The FPDS data dictionary provides descriptions for the different entries permitted in these two columns. The term "interagency contracting" has several meanings. Perhaps the best known example is when agencies purchase goods and services from a federal supply schedule that has been established and is maintained by another federal agency, such as the General Services Administration (GSA). Another type of interagency contracting occurs when agency A purchases goods or services on behalf of agency B, which funds the purchase. An examination of the FPDS spreadsheets indicate that numerous purchases were made using this method. The purchasing department, and agency or office, if applicable, are listed in columns A and B, respectively. The funding agency code is located in column M. Apparently, if there is no entry in column M for a particular procurement, the department identified in column A funded the procurement. Conversely, there are many procurements for which the entry in column M does not match the department and agency identified in columns A and B. For example, GSA purchased goods and services that were paid for by the Air Force, the Army, DHS, FEMA, the Navy, and an office within the Department of Health and Human Services. A useful feature of FPDS is that it allows agencies to identify a contractor by type of organization or business, such as tribal government, small disadvantaged business, educational institution, woman-owned business, veteran-owned business, and nonprofit organization. The three hurricane-related spreadsheets available at FPDS use this information to show what type of organization was involved in each procurement. The data provided through the FPDS website and the other websites listed above provide a degree of transparency in what is often a murky process and can be used to analyze hurricane-related recovery procurements. | Information about contracts and other types of government procurements made in support of hurricane recovery efforts may be obtained online from the Federal Procurement Data System (FPDS), the Department of Homeland Security, the U.S. Army Corps of Engineers, and the U.S. Navy's Military Sealift Command websites. The government-wide database, FPDS, provides the most comprehensive and detailed information, but the other three websites include contracts not currently listed in FPDS. Available information about government procurements includes, among other things, the type of award (for example, a contract or a delivery order), the type of contract, and the extent of competition. |
The Substance Abuse and Mental Health Services Administration (SAMHSA), within the Department of Health and Human Services (HHS), is the lead federal agency for increasing access to behavioral health services. SAMHSA funds community-based mental health and substance abuse treatment and prevention services and collects information on the incidence and prevalence of mental illness and substance abuse at the national and state level. These activities support SAMHSA's mission to improve the lives of people with substance abuse disorders and mental illnesses. SAMHSA funds mental health and substance abuse services through formula and competitive grants. SAMHSA provides formula funding to states, U.S. territories, and the Red Lake Indian tribe, while competitive funding is awarded through numerous grant programs to states, territories, tribal organizations, local communities, and private entities. Under SAMHSA's charitable choice provisions, religious organizations are eligible to receive funding in order to provide substance abuse services without altering their religious character. SAMHSA's two largest programs are the $1.8 billion Substance Abuse Prevention and Treatment (SAPT) block grant and the $421 million Community Mental Health Services (CMHS) block grant, which account for more than 60% of the agency's budget in FY2010. The SAPT block grant provides approximately 40% of the expenses of state agencies responsible for substance abuse prevention and treatment services. By comparison, the CMHS block grant funds on average 2% of the expenses of state mental health agencies. The difference reflects the historical role federal and state governments have played in funding services in these two areas, with states providing a much larger portion of mental health funding than substance abuse funding. SAMHSA also collects data on mental health and substance abuse at the national and state level. These data provide information on the incidence and prevalence of mental illness and substance abuse, the availability and utilization of treatment services, and the outcomes of mental health and substance abuse prevention and treatment services. SAMHSA uses this information to monitor mental health and substance abuse trends and to help determine how resources should be directed. In addition, performance and outcome data are used to measure the impact of programs and interventions. This report provides an overview of SAMHSA's organization and programs and includes some analysis of the agency's funding over the past decade. It also highlights some of the issues that may be addressed by Congress when it next considers legislation to reauthorize SAMHSA and its programs. SAMHSA was last reauthorized in 2000. Authorizations of appropriations for most of SAMHSA's grant programs expired at the end of FY2003, though many of them continue to receive funding. Comprehensive reauthorization of SAMHSA was discussed during the 110 th Congress, and reauthorizing legislation was introduced in the 111 th Congress. Possible reauthorization issues include increased performance measurement and accountability for SAMHSA grants, granting specific authority for the Access to Recovery program, improving the ability of communities to provide behavioral health services during disaster response, requiring collaboration between SAMHSA and other federal agencies, increasing SAMHSA's level of emphasis on primary prevention, increasing SAMHSA's role in expanding the number and diversity of the behavioral health provider workforce, and ensuring fairness of the formula used to distribute SAMHSA's block grants. This report will be updated as warranted by legislative and other developments. SAMHSA and most of its programs and activities are authorized under Title V of the Public Health Service Act (PHSA). The SAPT and CMHS block grants are separately authorized under PHSA Title XIX Part B. SAMHSA has authority to administer several specific formula and competitive grant programs to support mental health and substance abuse prevention and treatment services, as well as general authorities for activities in these areas. Appropriations for the agency were reauthorized in 2000, as part of the Children's Health Act. The act amended SAMHSA's existing authorities under Title V, added several new authorities, and authorized appropriations through FY2003. Congress has not taken up comprehensive reauthorization legislation since 2000, though it has added some new authorities to Title V and otherwise expanded the agency's programs and activities (see " New Authorizations Since 2000 " below). PHSA Title V authorizes SAMHSA programs under three centers: the Center for Mental Health Services (CMHS), the Center for Substance Abuse Treatment (CSAT), and the Center for Substance Abuse Prevention (CSAP). The PHSA also directs SAMHSA to conduct data collection and analysis activities related to mental health and substance abuse. These activities are centrally coordinated in the Center for Behavioral Health Statistics and Quality. SAMHSA funds competitive and formula grant programs. While the majority of SAMHSA programs provide funding through a competitive grant process, together these programs account for only one-third of the agency's budget. The five formula grants—primarily the two block grants—account for the other two-thirds of SAMHSA's budget. This mix of funding provides flexibility at both the federal and state levels. The formula block grants allow states the flexibility to allocate funding to address specific issues and populations within their jurisdictions, but they do not allow funding levels to be easily adjusted based on changing levels of need due to fixed statutory funding formulas (see " Block Grant Formula " below). By comparison, competitive grant programs are generally issue-specific. These grants allow SAMHSA to allocate funding for a particular issue, such as suicide prevention, to areas and populations with the greatest need. Title V authorizes numerous competitive grant programs, some, but not all, of which receive funding through the annual appropriations process. For instance, Early Intervention Services for Children and Adolescents and Grants for Emergency Mental Health Centers have never received funds. In addition to the grant programs with specific statutory authority, which are often referred to as categorical grants, each center also has general authority, called Programs of Regional and National Significance (PRNS), to fund states and communities to address priority substance abuse and mental health needs. PRNS authorizes the center to fund projects that (1) translate promising new research findings to community-based prevention and treatment services; (2) provide training and technical assistance; and (3) target resources to increase service capacity where it is most needed. Each center funds several grant programs that were created under its general (i.e., PRNS) authority. Examples of such PRNS programs include the Access to Recovery program and the Strategic Prevention Framework, described below. Most SAMHSA programs are administered by one of the three centers and focus on mental health, substance abuse prevention, or substance abuse treatment. This structure encourages the development of programs that fit within a center, and can make it more difficult to implement programs that focus on both mental health and substance abuse. Several cross-cutting programs receive support separately from all three centers, including the National Registry of Evidence-based Programs and Practices, the SAMHSA Health Information Network, the Minority AIDS Program, and the Minority Fellowship Program. To better address cross-cutting issues, SAMHSA has also created connections between centers for programs with both mental health and substance abuse components. For instance, the co-occurring state incentive grant, which supports improvements to infrastructure and capacity for treating individuals with both mental health and substance abuse conditions, is administered by both CMHS and CSAT. A brief description of each center follows, including a list of significant programs. As noted above, some programs are specifically authorized, and others are created and funded under the general PRNS authority. Table A -1 in Appendix A at the end of the report includes a description of SAMHSA's program authorities—including current funding and appropriations history—within each of SAMHSA's centers. In addition, Appendix C includes links to SAMHSA websites with additional information on the agency's centers, programs, and grants. CSAT is authorized to develop, evaluate, and implement effective substance abuse treatment programs, and to improve the quality of services and access to services. CSAT administers the formula-based SAPT block grant, as well as a much smaller formula grant for prescription drug monitoring. The center also administers several competitive grant programs that focus on treatment and recovery support services, homeless individuals, early detection, and criminal justice populations. Included below are brief descriptions of significant programs within CSAT that account for most of the center's funding. See Table A -1 for a full list of authorized programs and funding within CSAT. Substance Abuse Prevention and Treatment Block Grant : Formula grants to states to plan, carry out, and evaluate activities to prevent and treat substance abuse. Access to Recovery (ATR) : Grants to states and tribal organizations to evaluate individuals with substance abuse issues and provide vouchers for treatment and recovery support services that can be redeemed with approved providers. This program is discussed below in the " Access to Recovery " section. Screening, Brief Intervention, and Referral to Treatment (SBIRT) : Grants to states and tribal organizations to integrate substance abuse screening, brief intervention, referral, and treatment services within general medical and primary care settings in order to identify individuals with or at risk for a substance abuse disorder. Treatment Drug Courts : Grants to adult, juvenile, and family drug courts and providers to fund substance abuse treatment, assessment, case management, and program coordination for those referred by the drug courts. Grants for the Benefit of Homeless Individuals: Grants to organizations to provide services for homeless individuals with a substance use disorder or who have co-occurring substance abuse and mental health disorders. Minority AIDS: Grants to community-based organizations to provide substance abuse treatment and related HIV/AIDS services targeting high-risk substance abusing populations. Targeted Capacity Expansion : Grants to states, local governments, and tribal entities to expand or enhance a community's ability to respond to a specific, well-documented substance abuse capacity problem. CSAP is authorized to support efforts to prevent substance abuse through public education, training, technical assistance, and data collection. The center provides states with grants to support their strategic planning activities for substance abuse prevention, and maintains a registry of evidence-based prevention practices. It also administers competitive grant programs that focus on improving and expanding community-based substance abuse prevention activities, and preventing underage drinking, fetal alcohol disorders, and substance abuse in high-risk populations. Finally, CSAP administers a 20% prevention set-aside from the SAPT block grant. Included below are brief descriptions of significant programs within CSAP. See Table A -1 for a full list of authorized programs and funding within CSAP. Substance Abuse Prevention and Treatment Block Grant (20% prevention set-aside) : Formula funding to support six primary prevention strategies: information dissemination, education, alternatives, problem identification and referral, community-based processes, and environmental strategies. Strategic Prevention Framework : Grants to states, territories, and tribal organizations to implement a public health approach to substance abuse prevention through needs assessment, capacity building, strategic planning, evidence-based practices, and program evaluation. Sober Truth on Preventing Underage Drinking (STOP) : Grants to community based coalitions for underage-drinking programs in communities, and funding for the underage drinking prevention media campaign. Minority AIDS: Grants to organizations to s upport the delivery and sustainability of substance abuse and HIV prevention services in minority communities. Fetal Alcohol Spectrum Disorder Center of Excellence : Identifies and disseminates information about innovative techniques and effective strategies for preventing fetal alcohol spectrum disorder. CMHS is authorized to prevent mental illness and promote mental health by providing funds to evaluate, improve, and implement effective treatment practices; address violence among children; provide technical assistance to state and local mental health agencies; and collect data. CMHS administers the formula-based CMHS block grant, as well as two other smaller formula grant programs that fund advocacy activities and homeless services. The center also administers several competitive grant programs focusing on children's mental health, youth violence prevention, support for the homeless, suicide and other prevention services, and mental health care system transformation. Included below are brief descriptions of significant programs within CMHS. See Table A -1 for a full list of authorized programs and funding within CMHS. Community Mental Health Services Block Grant : Formula grants to states and territories to support community mental health services for adults with serious mental illness and children with serious emotional disturbance. Protection and Advocacy for Individuals with Mental Illness (PAIMI) : Formula grants to independent protection and advocacy agencies identified by states and territories to protect the mentally ill from abuse, neglect, and violations of their civil rights. Projects for Assistance in Transition from Homelessness (PATH) : Formula grants to states and territories to provide outreach, mental health, and other support services to homeless people with serious mental illness. Services in Supportive Housing : Grants to provide mental health and related wrap-around services for individuals and families experiencing chronic homelessness in coordination with existing housing programs. Children's Mental Health Services : Six-year grants to implement, improve, and expand systems of care to meet the needs of children with serious emotional disturbances and their families. National Child Traumatic Stress Network : Funds a national network of experts to collaboratively develop and promote effective community practices for children and adolescents exposed to traumatic events. Safe Schools/Healthy Students : Grants to local educational agencies through the Department of Education to implement programs and services that focus on promoting healthy childhood development and preventing violence and alcohol and other drug abuse. Youth Suicide Prevention : Programs include suicide prevention grants to states, tribal organizations, and institutions of higher learning; a suicide prevention hotline; and a national suicide resource center. Mental Health System Transformation Grants: Grants to local communities to promote the adoption and implementation of permanent transformative changes in how communities manage and deliver mental health services. The Center for Behavioral Health Statistics and Quality (CBHSQ), formerly the Office of Applied Studies (OAS), collects and analyzes national and state-level data on mental health and substance abuse, including information on the incidence of substance abuse and mental health conditions in the United States, and the characteristics of those who suffer from these problems. CBHSQ also collects information on substance abuse prevention and treatment providers, including the cost, quality, and effectiveness of services. This information is collected using a variety of surveys, surveillance systems, and other studies, which are summarized below. National Survey on Drug Use and Health (NSDUH) : Annual survey that collects data on illicit drug use, non-medical use of prescription drugs, and alcohol and tobacco use among individuals ages 12 and over. NSDUH is the primary source of information on the prevalence, patterns, and consequences of alcohol, tobacco, and illegal drug use in the general U.S. civilian, non-institutionalized population. Drug Abuse Warning Network (DAWN) : A public health surveillance system that provides estimates of the number of drug-related visits to hospital emergency departments in large metropolitan areas and provides information on drug-related deaths in 40 metropolitan areas based on medical examiner data. Drug and Alcohol Services Information System (DASIS) : This system provides information collected through the following three components: Treatment Episode Data Set (TEDS): Data submitted by states on the demographic and substance abuse characteristics of admissions to facilities that are licensed or certified by the state substance abuse agency to provide treatment services. National Survey of Substance Abuse Treatment Services (N-SSATS): Annual survey that collects data on private and public alcohol and drug abuse treatment facilities and services across the country. Inventory of Substance Abuse Treatment Services (I-SATS): A listing of public and private substance abuse treatment facilities in the United States. SAMHSA's budget totaled $3.563 billion in FY2010, and the agency's budget request for FY2011 would add an additional $111 million to that total. Substance abuse activities account for 69% of the funding in SAMHSA's budget, while 28% of the funding is for mental health activities. The remaining 3% of funding supports program management. For both substance abuse and mental health activities, the two block grants constitute the largest portion of funding, and together made up 62% of SAMHSA's budget in FY2010. Table A -2 in Appendix A shows SAMHSA funding for the period from FY2000 through the FY2011 budget request, including funding totals for mental health and substance abuse activities and funding for major programs. Figure 1 compares SAMHSA's funding from FY2000 through FY2010 before and after adjusting for inflation. While actual SAMHSA funding has increased most years since FY2000, the trend line for inflation-adjusted agency funding is relatively flat between FY2000 and FY2010. Overall, the agency's funding in actual dollars increased by 34% over the period FY2000-FY2010. In real (i.e., inflation-adjusted) dollars, however, the funding increase over that period was only 6%. Within SAMHSA, funding growth since FY2000 varies significantly among programs. Figure 2 below shows the percentage increase in SAMHSA's funding from FY2000 to FY2010, including funding for specific programs, program areas, and the agency's overall budget. The dotted line shows the 27% increase in funding needed to keep pace with inflation over that 10-year period. Programs with funding increases under the dotted line have experienced a decline in real (i.e., inflation-adjusted) funding since FY2000. Overall, CMHS-administered mental health programs have grown at more than twice the rate of substance abuse programs, which are administered by CSAT and CSAP. In addition, program management funding, which supports SAMHSA staff, has grown more than funding for mental health and substance abuse programs. On the program level, funding for both the mental health and substance abuse block grants has increased very little since FY2000, with growth rates below the 27% needed to keep up with inflation. In contrast, programs under the PRNS budget lines, which include all competitive grant programs except Children's Mental Health, have received the largest funding increases. From FY2000 to FY2010, mental health PRNS grew by 166% and substance abuse treatment PRNS grew by 112%. Substance abuse prevention PRNS grew much less, increasing by 37% from FY2000 to FY2010. Unlike the block grant funding, which is largely directed by states, the PRNS funding primarily supports priorities identified by SAMHSA. After the PRNS funding, the PATH formula grant grew the most, with a 110% increase in funding from FY2000 to FY2010. See Table A -2 in Appendix A for funding levels by program area for each year. As already noted, SAMHSA was last reauthorized in 2000. The reauthorization language was incorporated in the Children's Health Act of 2000 (see text box below). The act amended SAMHSA's existing authorities under Title V, added several new authorities, and authorized appropriations through FY2003. Congress has not taken up comprehensive reauthorization legislation since 2000, though it has enacted a number of laws that have added new authorities to Title V and otherwise expanded the agency's programs and activities (see " New Authorizations Since 2000 " below). The following key provisions were included in the 2000 reauthorization, which increased flexibility for SAMHSA to direct mental health and substance abuse funding by rewriting and standardizing the general authority (i.e., PRNS) for each center and eliminating several existing categorical grant programs; increased flexibility for states to direct the use of block grant funds to treat mental health and substance abuse disorders; added new categorical grant programs, primarily with a focus on expanding and improving mental health and substance abuse services for children and adolescents; and added "charitable choice" provisions that allow religious organizations to receive funding from SAMHSA for the provision of substance abuse prevention and treatment services (see "Charitable Choice" text box below). The new categorical programs included ones to support community-based prevention and treatment services for youth at risk due to violence, substance abuse, or mental illness, and to support services for youth in the justice and child welfare systems. Other SAMHSA programs created during the reauthorization provide support for homeless individuals and adults in the justice system with substance abuse and/or mental illness, and authorize funding for the prevention and treatment of methamphetamine abuse. See Table A -1 for a description of all authorized programs within SAMHSA. Additionally, the Children's Health Act included two sets of provisions related to the use of restraint and seclusion on residents at certain types of facilities. The first set of provisions, which apply to hospitals, nursing homes, and other medical facilities that receive federal funding, specify that restraint and seclusion may only be used to ensure the physical safety of a patient and can only be implemented under the written order of a physician or other qualified provider. These facilities are required to report deaths resulting from restraint and seclusion to the appropriate agency specified by the Secretary within one week of the death. The second set of provisions, which applies to community-based residential treatment centers for youth, specifies that restraint and seclusion may only be used in emergencies and to ensure immediate safety, and it prohibits the use of mechanical restraints. These facilities are required to report deaths occurring as a result of use of restraint to an agency specified by the Secretary within 24 hours of the death. The 2000 reauthorization law also required SAMHSA to produce two reports for Congress. The first report, released in 2002, is on the efforts of the agency and the states to provide coordinated prevention and treatment services for co-occurring substance abuse and mental health problems. In the report, SAMHSA identified barriers to treatment for co-occurring disorders, summarized the best practices for treatment of people with co-occurring disorders, and provided a five-year plan for improving services for these people. The plan focused on implementation of best practices for prevention and treatment of co-occurring disorders in states and communities with support from SAMHSA, including funding from the block grants and a new co-occurring disorder grant program. The second report, delivered in 2005, discusses SAMHSA's efforts to improve the flexibility and accountability of the block grants. The report describes the extent to which states can direct block grant funding to priority mental health and substance abuse services in order to meet the specific needs in that state. It also describes the performance data that SAMHSA collects to measure the effect of the block grant funding on patient outcomes in each state. See the " Performance Measurement and Accountability " section later in this report for additional information. The 2000 reauthorization legislation incorporated two additional titles, both of which impact SAMHSA. First, the Drug Addiction Treatment Act (DATA) of 2000 expanded the options for treating opioid (heroin) addiction beyond traditional treatment programs (i.e., methadone maintenance clinics). The act permits qualified physicians to dispense or prescribe specifically approved opioid treatment medications in their offices. SAMHSA is responsible for approving physicians to participate in the program. Second, the Methamphetamine Anti-Proliferation Act of 2000 established several new programs to combat methamphetamine abuse, including increased criminal penalties, enhanced law enforcement, and new research. The act also authorized a new SAMHSA grant program to expand methamphetamine treatment services in areas with high levels of abuse. In addition, it required the SAMHSA-administered National Survey on Drug Use and Health to collect information on methamphetamine and other illicit drug use in rural and metropolitan areas. Congress has enacted a number of laws since the 2000 reauthorization that have further expanded SAMHSA's statutory authority. These new authorizations have built on existing programs that focus on specific issues, such as suicide prevention, underage drinking, and prescription drug abuse. In addition, the Patient Protection and Affordable Care Act of 2010 (PPACA), as amended by the Health Care and Education Reconciliation Act (HCERA), contained new authorizations for SAMHSA, as well as additional provisions related to mental health and substance abuse, which are discussed in the next section of this report. The Garrett Lee Smith Memorial Act of 2004 authorized three significant suicide prevention programs at SAMHSA—two grant programs and a resource center. These programs support the planning, implementation, and evaluation of organized activities involving statewide youth suicide early intervention and prevention strategies; provide grants to institutions of higher education to reduce student mental and behavioral health problems; support a national suicide prevention hotline; and fund a national technical assistance center for suicide prevention. For links to information on Garrett Lee Smith grantee activities, see Appendix C . In addition, two laws passed since 2000 authorize efforts to reduce and prevent underage drinking. The No Child Left Behind Act of 2001 required SAMHSA to provide consultation to the Secretary of Education in awarding grants to local educational agencies for reducing alcohol abuse in secondary schools. In addition, the 2005 Sober Truth on Preventing Underage Drinking (STOP) Act authorized SAMHSA to award grants for designing, evaluating, and disseminating community-wide approaches to preventing and reducing underage drinking, and for preventing underage drinking at institutions of higher education. This act also required SAMHSA to participate in the Interagency Coordinating Committee on the Prevention of Underage Drinking, which is intended to guide federal policy and program development related to underage drinking. SAMHSA has been providing leadership for this committee. The National All Schedules Prescription Electronic Reporting Act (NASPER) of 2005, which was enacted in response to growing concern about the abuse of prescription drugs regulated under the Controlled Substances Act, authorized a SAMHSA formula grant program for states to establish or improve an existing prescription drug monitoring program (PDMP). A PDMP is a statewide electronic database that collects prescriber and patient information on controlled substances dispensed by pharmacists in order to monitor prescription drug abuse, addiction, and diversion. SAMHSA's NASPER program is similar to a grant program administered by the U.S. Department of Justice, the Harold Rogers Prescription Drug Monitoring Program (HRPDMP). The HRPDMP provides grants to states for planning, implementation, or enhancement of PDMPs. PPACA ( P.L. 111-148 ) contained several provisions relating to mental health and substance abuse services, including new SAMHSA authorities. Other provisions not directly related to SAMHSA still change the landscape of mental health and substance abuse services, which in turn could impact SAMHSA programs. PPACA provisions directly related to SAMHSA include three new programs and new grant requirements for Indian tribes and tribal organizations. PPACA authorizes SAMHSA to establish national centers of excellence for depression to focus on treatment of depressive disorders, and to establish demonstration projects to provide coordinated and integrated services through the co-location of primary and specialty care services in community-based mental and behavioral health settings. In addition, through reauthorization of the Indian Health Care Improvement Act, PPACA requires SAMHSA to simplify access to grant funding for Indian tribes, and authorizes the agency to establish a demonstration program to test the effectiveness of a culturally compatible, school-based, life skills curriculum for the prevention of Indian and Alaska Native adolescent suicide. Other mental health and substance abuse provisions in PPACA focus on expanding the behavioral health workforce and improving access to behavioral health services. Workforce provisions include grant programs for recruitment and education of behavioral health providers, as well as a grant program to educate primary care providers about preventive medicine, health promotion, chronic disease management, evidence-based therapies and techniques, and mental and behavioral health services in order to encourage primary care providers to incorporate these elements into their practice. These workforce provisions are subject to appropriations. PPACA also requires that the health plans available through state-based exchanges, beginning in 2014, include mental health and substance abuse services, and that they be offered at parity with medical/surgical coverage. SAMHSA has been guided by two long-term planning documents that addressed its strategic direction through FY2011 with regard to allocation of its discretionary funds and evaluation of its grant programs. These documents are the SAMHSA Strategic Plan, FY2006-FY2011 , and the Data Strategy Plan, FY2007-FY2011 . In October 2010, SAMHSA released a new document – Leading Change: A Plan for SAMHSA's Roles and Actions , 2011-2014 . This new plan outlines eight strategic initiatives that the agency will use to guide its work over the next few years. The strategic initiatives capture many of the priorities in the earlier strategic plan, but also include newly emerging issues. SAMHSA's Strategic Plan contains a Priorities Matrix, which lists the mental health and substance abuse priority areas addressed by the agency, along with the cross-cutting principles SAMHSA applies to each issue area. Most of the priority areas in this matrix are policy issues that span the work of its three centers. They include individual health concerns like co-occurring mental health and substance abuse disorders, suicide, behavioral health issues for individuals with hepatitis and HIV/AIDS; societal issues like homelessness, and criminal justice; and systems-level issues like treatment capacity and workforce development. The principles that cut across these priorities include use of evidence-based practices, evaluation, collaboration, cultural competence, stigma reduction, and cost-effectiveness. The Data Strategy Plan discusses SAMHSA's National Outcome Measures (NOMs) (see Appendix B ). The NOMs are a set of performance measures that track mental health and substance abuse outcomes on the state and program level. SAMHSA introduced the NOMs in order to monitor progress in mental health and substance abuse and to help determine the impact of the block grant funding and other grant programs. The NOMs are organized across 10 domains and apply to the agency's mental health, substance abuse prevention, and substance abuse treatment activities. The domains include reduced morbidity, employment/education, crime and criminal justice, stability in housing, social connectedness, access/capacity, retention, perception of care, cost effectiveness, and use of evidence-based practices. For additional discussion of data and performance, see the " Performance Measurement and Accountability " section below. SAMHSA's eight strategic initiatives (see text box below), which are described in Leading Change: A Plan for SAMHSA's Roles and Action s , echo many of the priorities and cross- cutting principles found in the Strategic Plan and Data Strategy, such as prevention, justice, homelessness, data and outcomes, and public support. However, the initiatives also reflect new priorities, such as military families, health care reform, and jobs and the economy. SAMHSA chose these initiatives in order to focus resources on areas where they could have the greatest impact. For each of the eight initiatives, SAMHSA has identified a lead within the agency responsible for that initiative. SAMHSA's FY2011 budget request reflects priorities from the strategic initiatives with proposals focusing on prevention, homelessness, and data collection. It has been a decade since Congress passed comprehensive SAMHSA reauthorization legislation. As shown in Table A -1 in Appendix A , most of the authorizations of appropriations for SAMHSA's programs expired at the end of FY2003. Legislation to reauthorize SAMHSA was introduced in the 111 th Congress, but has not moved out of committee. This last section of the report briefly describes several issues that could be considered during congressional debate on SAMHSA reauthorization. Issues that may be of interest during reauthorization of SAMHSA include increased performance measurement and accountability for SAMHSA grants and programs, granting specific authority for the Access To Recovery program that provides vouchers for individuals to seek treatment services and that was created under SAMHSA's general authority, improving the ability of communities to provide behavioral health services during disaster response, requiring collaboration between SAMHSA and other federal agencies, increasing SAMHSA's level of emphasis on primary prevention, increasing SAMHSA's role in expanding the number and diversity of the behavioral health provider workforce, and ensuring fairness of the formula used to distribute SAMHSA's block grants. The National Outcome Measures (NOMs) were developed by SAMHSA in order to create a standard set of measures and definitions by which to track the progress of states and programs in improving mental health and reducing substance abuse. The NOMs are organized across 10 domains and apply to the agency's mental health, substance abuse prevention, and substance abuse treatment activities. For instance, substance abuse prevention NOMs under the reduced mortality domain measure alcohol use in the past 30 days, perceived risk of harm from alcohol use, disapproval of peer alcohol use, and age of first alcohol use. See Appendix B for the complete matrix of NOMs, by domain. In FY2008, SAMHSA began requiring states to report state-level NOMs data as a condition of receiving block grant funding. SAMHSA also uses the NOMs, as well as other performance measures, to track and manage each of its programs. Currently, SAMHSA, as well as the states themselves, use the NOMs to monitor progress on improving mental health and substance abuse services, and to identify areas in need of additional attention. SAMHSA currently does not tie state funding to the mental health and substance abuse outcomes reported in the NOMs data. Holding states accountable for the mental health and substance abuse services by linking NOMs performance to funding could improve program performance and state outcomes. Options for applying an accountability system include establishing national goals for some or all of the NOMs and setting state-specific goals for the NOMs. However, given the variability in data collection among the states, as well as variability in the types and severity of substance abuse problems within each state, requiring states to meet a national goal may not be realistic. Each state could instead be required to show improvement on performance measures over time. That would allow SAMHSA to take into account the baseline performance and the different mental health and substance abuse landscape in each state. The Access to Recovery (ATR) program is an initiative proposed by former President George W. Bush in FY2003 that awards grants to states and tribes for providing vouchers to clients for the purchase of substance abuse clinical treatment services and recovery support services. Recovery support services are those services that support individuals as they obtain treatment for substance abuse. They include care coordination, child care, transportation, and work preparation. The ATR program is not directly authorized in statute, instead it is carried out under CSAT's general PRNS authority. Funding for the program has remained flat at just under $100 million each year since it began in FY2004. However, SAMHSA has requested an increase of almost $10 million for FY2011 to fund up to four new ATR grants. In FY2004, SAMHSA awarded three-year ATR grants to an initial cohort of 15 grantees. Another round of three-year grants were awarded to 24 grantees in FY2007. SAMHSA recently announced that it was awarding 30 new ATR grants, each one for up to four years. The annual amount of each grant ranges from $2 million to $4 million. In FY2007, SAMHSA began an assessment to determine the effectiveness of the ATR program. SAMHSA anticipates releasing the results of the assessment in late 2010. A centerpiece of the ATR program is the use of vouchers to fund substance abuse treatment and support services, which is different from other SAMHSA programs that provide states or other entities with direct grant funding for services and programs. Under the ATR program, states use program funds to evaluate patients and provide vouchers for the patient to obtain treatment services from an approved provider of his or her choice. Because ATR's vouchers represent an indirect source of federal funding for service providers, faith-based providers may participate in the program without restrictions on the incorporation of religious activities. For more information on the conditions under which faith-based providers may receive SAMHSA funding, see the text box on the agency's charitable choice provisions. SAMHSA played a significant role in providing mental health and substance abuse services after hurricanes Katrina and Rita hit the Gulf Coast states in 2005. During 2010, the Haiti earthquake and the Deepwater Horizon oil spill in the Gulf of Mexico again highlighted the mental health impact of disasters and the resulting need for services. In the wake of these recent incidents, some experts believe that effective disaster assistance must build upon the existing behavioral health resources in affected communities. However, many communities may not have the necessary infrastructure to support the surge in need after a disaster. SAMHSA currently has authority to provide emergency behavioral health assistance through three mechanisms: the Crisis Counseling Assistance and Training Program (CCP), SAMHSA Emergency Response Grants (SERG), and supplemental appropriations. The CCP provides short-term federal assistance to state and local governments to address mental health needs when there is a presidentially declared disaster. States apply for funds by preparing a formula-based needs assessment within 10 days of the date of the disaster declaration. There is no matching requirement, and requested CCP funds must supplement, not supplant, existing local or state resources. While CCP provides funds for up to nine months after a disaster, the regulations permit extensions in certain cases. SAMHSA may also redirect some of its funding through the SERG authority to make non-competitive grants to address emergency substance abuse or mental health needs in communities without a presidentially declared disaster. In order to receive funding, a state must certify that a mental health or substance abuse emergency exists, and the emergency must be the direct consequence of a clear precipitating event, such as a natural disaster. Like CCP funding, states may receive SERG grants only if no other resources are available to adequately address the need. Apart from CCP and SERG, if Congress provides SAMHSA with supplemental funds for disaster response, these funds could be used under SAMHSA's existing authorities to support behavioral health treatment services. In addition to the disaster-specific authorities described above, SAMHSA has multiple programs that focus on building local mental health and substance abuse infrastructure and capacity. For instance, the Mental Health System Transformation Grant supports transformative changes in how communities manage and deliver mental health services, and the Targeted Capacity Expansion program provides funding for communities to build capacity to address gaps in substance abuse treatment services. These programs do not have specific authorizations, but are instead administered under SAMHSA's general authorities (i.e., PRNS). By improving the availability and delivery of behavioral health services in states and communities, these programs also build a stronger base for providing services after a disaster. Numerous federal agencies play a role in the provision of mental health and substance abuse services. While SAMHSA focuses on community-based prevention and treatment services for individuals with mental health and substance abuse conditions, other federal agencies, such as the Department of Education (ED) and the Indian Health Service (IHS), also support and/or provide these services to specific populations or provide related services, such as housing and education. There are few statutory requirements by which these federal agencies are required to work with SAMHSA. However, some experts believe that due to the wide range of socioeconomic risk factors for mental health and substance abuse disorders, as well as the negative socioeconomic effects of these disorders, there needs to be more collaboration between SAMHSA and other federal agencies. Collaboration between SAMHSA and other federal agencies has been used to prevent duplication of efforts and provide a platform for sharing expertise. For example, SAMHSA and the Department of Veterans Affairs (VA) work together to provide a 24-hour suicide prevention hotline for veterans. The VA built upon the existing national suicide hotline administered by SAMHSA in order to create veteran-specific suicide prevention services. The veteran suicide hotline utilizes the national hotline number and training resources, but routes veterans to counselors with additional training in working with veterans. In addition, SAMHSA works with the ED to administer the Safe Schools/Healthy Students program, which provides grants to schools for violence and substance abuse prevention activities. Additional collaboration with federal agencies, including those described below, may improve SAMHSA's ability to reach at-risk populations and provide support services to those with mental health and substance abuse conditions. The Department of Justice and ED serve youth with substance abuse and mental health problems who are also the focus of many SAMHSA programs. The Centers for Disease Control and Prevention's (CDC) Injury Prevention and Control Program works on prevention and surveillance in the fields of violence, suicide, and mental health. IHS also serves a population that has significant substance abuse problems, along with issues of access to mental health care. VA provides health care to veterans many of whom suffer from mental illness and substance abuse. In addition, the U.S. Department of Housing and Urban Development provides housing services, a support service also provided through some SAMHSA programs for individuals with mental health and substance abuse conditions, including homeless individuals (see Table A -1 ). The 1999 Surgeon General's Report on Mental Health and the 2003 President's New Freedom Commission Report framed mental health as a public health issue. The reports advised applying a public health approach that would emphasize prevention and early intervention, rather than focusing on individuals who have become severely ill and expensive to treat. The reports also recommended a wholesale transformation of the nation's approach to mental health care involving consumers and providers, policymakers at all levels of government, and both the public and private sectors. These recommendations are echoed in a 2009 report by the Institute of Medicine (IOM) on preventing mental, emotional, and behavioral health problems among young people. Several years after the Surgeon General's Report and the President's New Freedom Commission, the IOM report stated: "No concerted federal presence or clear national leadership currently exists to advance the use of prevention and promotion approaches to benefit the mental health of the nation's young people." In response to these and other reports, SAMHSA has implemented a number of new prevention initiatives for mental health and substance abuse. For instance, the agency has funded states to develop plans that would transform the individual-focused behavioral health care system into a more public health oriented system. SAMHSA also created the Strategic Prevention Framework (SPF) in 2004, which includes a five-step process for preventing substance abuse in communities. This framework has been applied through the SPF State Incentive Grants, the prevention set-aside in the SAPT block grant, and the HIV prevention program in CSAP. In 2008, SAMHSA launched the Linking Actions for Unmet Needs in Children's Health (LAUNCH) Initiative, which provides grants to states and tribal organizations to promote and enhance the wellness of young children by increasing capacity to develop infrastructure and implement prevention/promotion strategies necessary to promote wellness for young children aged zero to eight. This program currently focuses on mental health; however, SAMHSA has proposed expanding the focus to include substance abuse prevention in FY2011. SAMHSA also supports some early intervention efforts. In order to identify and treat mental illness and substance abuse early, SAMHSA encourages states to reduce system fragmentation and increase services available to people living with mental illness. SAMHSA also funds treatment programs that function as a safety net for at-risk populations such as pregnant and postpartum women, vulnerable youth, and homeless individuals. Notwithstanding recent efforts to increase prevention and early intervention activities, SAMHSA's budget still reflects a greater emphasis on substance abuse treatment over prevention, with more overall funding and larger increases over the past ten years for treatment services. As shown in Figure 2 , funding for substance abuse prevention PRNS has grown 37% in the past decade, a relatively flat funding trend after accounting for inflation, while funding for substance abuse treatment PRNS has more than doubled. In FY2010, funding for substance abuse treatment PRNS was more than twice the level of funding for substance abuse prevention PRNS (see Table A -2 ). SAMHSA's budget does not similarly break out treatment and prevention for mental health. A 2006 IOM report identified the inadequacy of the training and number of mental health and substance abuse treatment providers and recommended building, maintaining, and ensuring a competent and qualified behavioral health workforce. While SAMHSA has the authority to collect and analyze workforce data as well as support training programs for providers, historically, the agency has provided limited support for workforce training through the relatively small Minority Fellowship Program (MFP), which provides fellowships for minority mental health care providers. This program falls under SAMHSA's general authority (i.e., PRNS), and its funding level is subject to annual congressional appropriations. As discussed above, PPACA contained several provisions aimed at increasing and improving the health workforce, including the behavioral health workforce. While not located within SAMHSA, these newly authorized programs could mitigate some of the issues identified in the 2005 IOM report regarding the shortage of mental health and substance abuse providers. However, these programs are also subject to the annual appropriations process. SAMHSA's mental health and substance abuse prevention and treatment block grants are distributed using a formula that is in statute. As detailed later in this section, concerns have been raised by economists and health policy experts about the appropriateness of this formula to ensure that the distribution of block grant funding to the states matches the need in each state. The Alcohol, Drug, and Mental Health Services (ADMHS) block grant was one of seven block grants established by the Omnibus Budget Reconciliation Act of 1981 (OBRA). This block grant consolidated several existing categorical grant programs for substance abuse and community mental health services in order to provide state and local governments with more flexibility and control over funding, to enhance their ability to meet localized needs, to end duplication of effort in delivering services, and to enable more coordination. OBRA authorized ADMHS block grant funds for FY1982 through FY1984 in proportion to the historical funding patterns of the original categorical grants. To better match block grant funding with the need in each state, OBRA also directed HHS to conduct a study that would produce a funding allocation formula, considering population and state fiscal capacity. The 1984 ADAMHA Amendments included an allocation formula and reauthorized funding for the block grants for three years with a "minor equity adjustment" to hold harmless states that would have otherwise received decreased funding under the new calculation. Funds above the hold-harmless level (i.e., the amount states received in FY1984) were to be allocated using a formula based equally on state population and relative per capita income. The law also required a non-governmental entity to provide recommendations on the formula proposed by HHS. The resulting recommendations, from the Institute for Health and Aging (IHA), included phasing out the hold-harmless provisions, allocating funds based on populations at risk, and incorporating a state fiscal capacity measure. The 1988 Anti-Drug Abuse Act revised the block grant formula, based on the IHA recommendations, to phase out the hold-harmless provision, use total taxable resources as the measure of state fiscal capacity, and incorporate weighted age cohorts as a measure of population at risk. The high-risk age cohorts, determined using an IHA study, were 25-64 years for alcohol abuse, 18-24 years for other drug abuse, and 25-44 for selected mental disorders. Later studies indicated that the inequalities in matching block grant funding to need persisted even after the IHA recommendations were implemented. The 1992 ADAMHA Reorganization Act split the ADMHS block grant into two separate block grants, one for community mental health services (CMHS block grant) and another for substance abuse prevention and treatment services (SAPT block grant). The population-at-risk component of the formula was further adjusted to reflect the differences in the population in need of mental health and substance abuse services. The 2000 Children's Health Act again revised the block grant formulas by reintroducing hold-harmless provisions for both block grants. For the SAPT block grant, the new provisions specify that a state must receive no less than the previous year's allocation plus a defined portion of any funding increase for the program. If there is a decrease in appropriations for the SAPT block grant, each state gets a proportionate decrease in their block grant allocation. For the CMHS block grant, the new provisions provide only that a state must not receive less than the FY1998 allotment. The formula for calculating a state's SAPT and CMHS block grant allocations takes into account three measures: (1) the population-at-risk in the state; (2) the costs of services in the state; and (3) the fiscal capacity of the state. The first factor, population-at-risk, is intended to be a proxy for the extent of need for services in a state. For the SAPT block grant, this factor is an average of two ratios equally weighted. The first ratio is the number of individuals age 18-24 plus the number of individuals of the same age group who reside in urban areas in a state, divided by the sum of the same populations for all the states. The second ratio is the number of individuals ages 25-64 in a state divided by the sum of the same populations of all the states. For the CMHS block grant, this factor is calculated based on the state population of individuals ages 18-24, 25-44, 45-64, and over 65, with a different weight applied to each age group. The second factor, cost of services, is derived from the 1990 report of Health and Economics Research, Inc., and ranges from 0.9 to 1.1. The third factor, which is the fiscal capacity of the state, is intended to adjust for differences in state capacity to pay for these services. This factor uses the three-year mean of the total taxable revenue of the state. The three factors mentioned above are multiplied to produce a score for the state. To calculate the grant amount for a given state, the state's score is divided by the sum of all the states' (and District of Columbia's) scores and that value is then multiplied by the total amount appropriated for the grant program. The formula can be written as: {i(state) = 1, 2, ..., 51} where G i = grant amount for the i th state A = total funds appropriated for distribution among the states X i = score for the i th state A number of issues have been raised regarding the current formula. First, the formula does not consider variations in numbers of uninsured individuals across the states, nor does it take into account other federal funding (e.g., Medicare and Medicaid) that a state may also receive for mental health and substance abuse services. Second, experts recommend using data from national surveys that measure the level of mental illness and substance abuse in a state (rather than population age distribution) to determine the population in need of services. These surveys include the National Comorbidity Survey-Replication for mental health needs, and NSDUH for substance abuse needs, both of which are administered by SAMHSA. Third, research indicates that the currently used cost-of-services measure does not adequately represent interstate wage variations in occupations related to substance abuse and mental health. Appendix A. SAMHSA Authorizations and Funding Table A -1 below summarizes the statutory authorizations for each of SAMHSA's programs. The table is organized by the three operating centers within SAMHSA—the Center for Substance Abuse Treatment (CSAT), the Center for Substance Abuse Prevention (CSAP), and the Center for Mental Health Services (CMHS)—which mimics the organization of the authorizations under PHSA Title V. Authorizations not within Title V (e.g., block grants) are listed at the end of each section and at the end of the table. Each table entry includes the PHSA section number (or relevant public law and section number for the few authorizations not in the PHSA), the title and a brief description of the program's authorization, and the year it was created. Here is a list of the authorizing legislation for the programs summarized in the table, organized by year: 1986: Protection and Advocacy for Individuals with Mental Illness Act, P.L. 99-319 1988: Anti-Drug Abuse Act, P.L. 100-690 1990: Stewart B. McKinney Homeless Assistance Amendments Act, P.L. 101-645 1992: Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA) Reorganization Act, P.L. 102-321 2000: Children's Health Act, P.L. 106-310 2004: Garrett Lee Smith Memorial Act, P.L. 108-355 2005: National All Schedules Prescription Electronic Reporting Act, P.L. 109-60 2005: Sober Truth on Preventing Underage Drinking (STOP) Act, P.L. 109-422 2010: Patient Protection and Affordable Care Act, P.L. 111-148 The final three columns show the authorization of appropriations for each program, the FY2010 funding level, and a list of the fiscal years for which funding has been appropriated since FY2000, which is when many of the programs were created. Typically, an authorization of appropriations specifies the funding level for the first fiscal year, and authorizes the appropriation of "such sums as may be necessary" (SSN) in subsequent fiscal years. Almost all of the authorizations of appropriations expired in FY2003; however, funding continues to be appropriated for these programs. If funding was not appropriated for FY2010, the table notes this with an "NF" for not funded. It is also noted if the program has not received any funding since FY2000. In several instances, programs created in FY2000 have never received funding. Table A -2 below shows SAMHSA funding, by program area, for the period FY2000 through the FY2011 budget request. The funding amounts shown in the table include direct appropriations to SAMHSA plus additional funds transferred to the agency by the HHS Secretary under the PHS Program Evaluation Set-Aside, authorized by PHSA Sec. 241. Appendix B. SAMHSA National Outcome Measures Appendix C. Useful SAMHSA Resources SAMHSA Website: http://www.samhsa.gov SAMHSA Grant Awards by State: http://www.samhsa.gov/ statesummaries/ index.aspx FY2011 Budget Justification: http://samhsa.gov/ Budget/ FY2011/ SAMHSA_FY11CJ.pdf National Outcome Measures: http://www.nationaloutcomemeasures.samhsa.gov 2000 Reauthorization Language: http://www.samhsa.gov/ legislate/ Sept01/ childhealth_toc.htm Center for Mental Health Services: http://www.samhsa.gov/ about/ cmhs.aspx Center for Substance Abuse Prevention: http://www.samhsa.gov/ about/ csap.aspx Center for Substance Abuse Treatment: http://www.samhsa.gov/ about/ csat.aspx Center for Behavioral Health Statistics and Quality: http://www.samhsa.gov/ about/ cbhsq.aspx SAMHSA Report on Co-occurring Disorders: http://www.oas.samhsa.gov/ CoD/ CoD.pdf SAMHSA Report on Performance Partnerships: http://www.nationaloutcomemeasures.samhsa.gov/ ./ PDF/ performance_partnership.pdf SAMHSA Funding Opportunities: http://www.samhsa.gov/ grants/ Garrett Lee Smith Grantee Activities: http://www.sprc.org/ grantees/ statetribe/ desc/ showAllState.asp (state grantees) http://www.sprc.org/ grantees/ statetribe/ desc/ showAllTribal.asp (tribal grantees) http://www.sprc.org/ grantees/ campus/ desc/ show_alldescription.asp (campus grantees) | The Substance Abuse and Mental Health Services Administration (SAMHSA), within the Department of Health and Human Services (HHS), provides federal funding to support community-based mental health and substance abuse prevention and treatment services. SAMHSA awards formula and competitive grants under its authorities in Title V of the Public Health Service Act (PHSA). The agency also administers the $1.8 billion Substance Abuse Prevention and Treatment (SAPT) block grant and the $420 million Community Mental Health Services (CMHS) block grant, both of which are authorized in PHSA Title XIX. SAMHSA's funding totaled almost $3.6 billion in FY2010. The agency's budget increased by 34% from FY2000 to FY2010. In real (i.e., inflation-adjusted) dollars, however, the funding increase over that period was only 6%. Funding for SAMHSA's two block grants, which together account for 62% of the agency's budget, has grown at a much slower pace than funding for its competitive grant programs. SAMHSA was reauthorized in 2000, as part of the Children's Health Act (P.L. 106-310). The act amended SAMHSA's existing authorities to give the agency more flexibility to direct mental health and substance abuse funding; increased state flexibility to direct the use of block grant funds, creating several new competitive grant programs to expand mental health and substance abuse services for children and adolescents; and authorized appropriations through FY2003. It also added charitable choice provisions that allow faith-based organizations to compete for SAMHSA substance abuse funding without impairing their religious character. P.L. 106-310 required SAMHSA to submit two reports to Congress, one on providing coordinated care to individuals with co-occurring mental illness and substance abuse, and the other on efforts to improve the flexibility and accountability of the block grants. Comprehensive reauthorization has not occurred since 2000. However, several laws have further expanded the agency's programs and activities in suicide prevention, underage drinking, and prescription drug abuse. The Patient Protection and Affordable Care Act of 2010 (P.L. 111-148) contained new authorizations for SAMHSA related to depression and behavioral health services for American Indians and Alaskan Natives, as well as additional provisions related to mental health and substance abuse. While reauthorization has not moved out of committee, issues that may be of interest during the next reauthorization of SAMHSA include increased performance measurement and accountability for SAMHSA grants and programs, granting specific authority for the Access To Recovery program that provides vouchers for individuals to seek treatment services, improving the ability of communities to provide behavioral health services during disaster response, requiring collaboration between SAMHSA and other federal agencies, increasing SAMHSA's level of emphasis on primary prevention, increasing SAMHSA's role in expanding the number and diversity of the behavioral health provider workforce, and ensuring fairness of the formula used to distribute SAMHSA's block grants. This report describes SAMHSA's history, organization, authority, and programs, and analyzes some of the issues that may be considered by Congress during a reauthorization of the agency. The appendixes include a table describing SAMHSA's authorizations and appropriations, a table with SAMHSA's funding from FY2000-FY2010, a matrix of SAMHSA's National Outcome Measures that aim to evaluate progress on substance abuse and mental health prevention and treatment indicators, and a list of SAMHSA resources. |
On March 8, 2006, then U.S. Trade Representative (USTR) Rob Portman announced and notified Congress of the Administration's intent to negotiate a free trade agreement (FTA) with Malaysia.. At the time, then USTR Portman indicated that he thought the negotiations could be completed "within a year." The first round of negotiations was held June 12-16, 2006, in Malaysia with at least five rounds anticipated. Since then, eight separate rounds of talks have been held. A proposed ninth round of talks were postponed until after President Barack Obama's inauguration. If and when the negotiations are completed, the proposed FTA will have to be submitted to Congress for consideration if it is to go into effect. Conserted efforts to complete the negotiations of the free trade agreement (FTA) before the end of the Bush Administration were unsuccessful as talks foundered on a number of key issues. These include Malaysia's government procurement policies (which give preferential treatment to bumiputera -owned companies), market access for U.S. companies into Malaysia's services sectors (in particular, financial services), provisions for intellectual property rights (IPR) protection, and market access for U.S. exports of automobiles and agricultural crops. During a media roundtable discussion in December 2008, U.S. Ambassador to Malaysia James Keith indicated that there were 23 trading issues still to be resolved in the negotiations. The FTA negotiations continued to be a controversial topic in Malaysia in 2008. An ad-hoc meeting of senior government officials reconfirmed its support for continuing FTA negotiations on certain topics, including government procurement, competition policy, intellectual property rights, and labor conditions. However, some issues – such as rice imports – remained off the table. In addition, the financial crisis in the United States apparently raised some concerns in Malaysia about discussions over opening up Malaysia's financial markets to U.S. companies. Also, various interest groups in Malaysia – including an organization representing Malaysia's small and medium-sized enterprises (SMEs) – reiterated their call for the Malaysian government to terminate the FTA negotiations, claiming that the proposed agreement would do irreparable harm to thousands of Malaysia's SMEs. In November 2008, Tony Pua of Parti Tindakan Demokratik (Democratic Action Party, or DAP), a major opposition party, suggested the government prepare a "white paper" outlining the details of the FTA negotiations to be presented to Malaysia's parliament to assure that the negotiation team was abiding by the agreed government policies. The future status of the proposed FTA were further complicated by Israel's military operation in Gaza. After Israel launched "Operation Cast Lead" on December 27, 2008, various political figures and interest groups in Malaysia called for a boycott of U.S. products and the suspension of the FTA talks to protest U.S. support for Israel's military operations in Gaza. On January 12, 2009, Malaysia's Minister of International Trade and Industry, Muhyiddin Yassin, said that FTA talks with the United States were temporarily being stopped until the ministry received further instructions from Malaysia's Cabinet. Minister Muhyiddin added that Malaysia would not be hasty to conclude the FTA negotiations at a time when the United States was supporting "Israel's cruelty to Palestinian people." There have been some indications from the Obama Administration about its intentions regarding the U.S.-Malaysia FTA negotiations. Following the U.S. presidential elections, Minister Muhyiddin stated that the Malaysian government had been informed by representatives of the incoming Obama Administration that negotiations would recommence sometime after the inauguration. There have also been signals from President Obama that workers rights and environmental issues will play a more prominent role in trade negotiations during his Administration. In his announcement to nominate Ron Kirk as U.S. Trade Representative, then President-Elect Obama stated, "As a leader, negotiator, and principled proponent of trade, Ron will help make sure that any agreements I sign as President protect the rights of all workers, promote the interests of all Americans, and preserve the planet we all share." At one time, there were to be three rounds of talks in 2008, to be held in January, July and November, respectively. In the end, only two rounds of talks were held (in January and July as planned), but the third round of talks were postponed at the request of the United States. Following the failure to complete FTA negotiations in 2007, there was a perception in Malaysia that the Bush Administration did not see relations with Malaysia or the conclusion of FTA negotiations as a priority. During a press interview in December 2007, Ambassador Keith was asked if the failure of U.S. Secretary of State Condoleezza Rice to attend ASEAN meetings, as well as the "low-level delegation" sent by the United States to Malaysia's 50 th National Day celebrations, was an indication that Malaysia had "moved down the list of priorities for the U.S. State Department." Ambassador Keith reassured the press of the U.S. commitment to the region and to Malaysia, pointing to the passage on September 17, 2007 of House Resolution 518 commemorating Malaysia's 50 th anniversary as evidence. On December 30, 2007, U.S. Assistant Trade Representative Barbara Weisel confirmed that "the U.S. continues to seek to conclude the agreement by this summer, which we believe is achievable…" Weisel also said that the Bush Administration would seek an "appropriate vehicle" to obtain congressional approval of the proposed FTA once the negotiations were completed. On January 14, 2008, Malaysia and the United States began their seventh round of formal negotiations in Kuala Lumpur over the terms of a possible U.S.-Malaysia Free Trade Agreement. In a statement to the press on the day the talks began, U.S. embassy spokeswoman Kathryn Taylor said the United States was seeking "real, demonstrable progress" during the seventh round of talks, but also pointed out that "there is no deadline" for completing the agreement. However, in an interview with the press that same day, Ambassador Keith stated he was hoping that the negotiations would be completed by the middle of 2008. Assessments of the outcome of the seventh round of talks were mixed. A news story from China reported that four key issues were discussed during the talks—investment, trade in goods and services, intellectual property rights, and "legal issues." According to Xinhua , the United States was "hopeful of concluding its free trade agreement with Malaysia by this summer ... " Malaysia's official news agency, Bernama , provided a similar positive assessment of the seventh round of talks, quoting Assistant USTR Weisel, "We have largely reached the goal set for the week. The two sides have moved significantly on a wide range of issues ... progress we made this week is encouraging." The New Strait s Times of Malaysia published a similar story on the talks on January 18, 2008, referring to the progress that had been made and possibility of concluding the negotiations by summer. Press accounts of the status of the FTA talks turned less optimistic a few days later. On January 24, 2008, Bernama printed two separate stories on the FTA negotiations. The first article reported that then Minister of International Trade and Industry Rafidah Abdul Aziz saw no need for a deadline for concluding the trade talks. The second article stated that Ambassador Keith had indicated that if the FTA with Malaysia were not completed by the end of July, the United States would focus its attention on other FTA agreements. Ambassador Keith was quoted as saying, "We will turn our attention to seal the pacts with South Korea and Columbia before the end of the Bush Administration. There will be no hard feelings." Another negative sign about the status of the negotiations was the lack of a decision on the date and place to hold the next round of talks. The United States stated that there was agreement on "the next steps"—communicating on a full set of issues still to be resolved and setting the dates for the next round of talks. However, Minister Rafidah reportedly said on the status of the negotiations, "Whatever issues that can be cleared first, they have cleared. We don't have to meet again." The eighth round of negotiations were held in Washington, DC on July 14 – 18, 2008. Heading the Malaysian delegation was the Secretary General of the Minister of International Trade and Industry (MITI), Abdul Rahman Mamat. The chief negotiator for the U.S. government was Assistant USTR Weisel. The negotiations focused on the topics of six working groups addressing trade in agricultural goods, trade in services, investment, IPR, sanitary and phytosanitary (SPS) measures, and legal provisions. Political events in both nations overshadowed the negotiations. The upcoming U.S. presidential elections and the resulting change in administration influenced the talks, as did the the poor showing of the ruling Barisan Nasional (BN) in Malaysia's general elections of March 8, 2008. In addition, the uncertain status of the proposed U.S. FTAs with Colombia and South Korea may have had an impact on the talks. While the Bush Administration has expressed a desire to conclude the negotiations prior to the end of its term, the Malaysian government had indicated that it saw no need to rush to conclude the talks in 2008. For the United States, the key issue for the July 2008 talks was greater foreign access to Malaysian government procurement contracts. According to Malaysia, while the topics of competition policy, environment, labor, and financial services could be discussed, any agreement reached on these topics would be non-binding. Other areas under discussion were market access for U.S. agricultural exports and service providers. Prior to the meetings, the newly-appointed Minister of International Trade and Industry, Muhyiddin Yassin, stated that Malaysia would not compromise in "several sensitive areas, such as agriculture." Malaysia has specifically excluded rice from consideration in the FTA negotiations. There were indications of some progress during the eighth round of negotiations. In a press statement following the talks, MITI indicated that the two nations were "exploring possibilities of business collaboration and capacity-building in the services sector within the framework of the Malaysia-U.S. FTA." Assistant USTR Weisel said that the United States hoped that Malaysia's proposed reforms of its government procurement process may help advance FTA negotiations on the issue. U.S. hopes received some encouragement in October 2008, when Minister Muhyiddin announced that Malaysia's Cabinet had indicated its willingness to move government procurement from the list of "no talk" issues to one where non-binding discussions would be allowed. The Malaysian Institute of Economic Research (MIER) observed after the July 2008 negotiations that the United States had adopted a "pragmatic approach," possibly due to its problems with its proposed FTAs with South Korea and Thailand. MIER Executive Director Mohamed Ariff Abdul Kareem indicated, however, that the U.S. tendency to use its FTA with Singapore as a model in other negotiations is causing problems in its talks with Malaysia. Plans to hold the ninth round of negotiations in late 2008 were postponed following the U.S. presidential elections. In July 2008, Minister Muhyiddin announced that the ninth round would be held in Kuala Lumpur in November 2008. However, on November 7, 2008, Deputy Prime Minister Najib Razak said, "Malaysia was not able to conclude the FTA with the present U.S. administration," and that Malaysia will have to wait to see the policies of the new Obama Administration. On November 26, 2008, Minister Muhyiddin told an audience of Malaysian manufacturers that he had been told by the U.S. government that it wanted to postpone further negotiations on the FTA until after the Obama Administration was in place. On December 15, 2008, U.S. Ambassador Keith, stated that the United States was interested in concluding the FTA negotiations "as early as possible in the new administration." As a predominantly Muslim nation, Malaysia has a long history of support for what it sees as the Palestinian peoples' struggle for freedom from Israeli oppression. The day after Israel began Operation Cast Lead, Malaysia's Prime Minister Abdullah Ahmad Badawi said in an official statement, "Malaysia deplores the disproportionate use of military power by Israel against the people of Gaza." The following day, the Ministry of Foreign Affairs (MoFA) issued a statement that Malaysia "strongly condemns" Israel's military actions in Gaza asserting that "there is no excuse for the disproportionate, indiscriminate and excessive use of force in Gaza…" In the weeks following, popular opposition in Malaysia to Israel's military operations in Gaza grew and its focus spread to include the United States. Calls for a boycott of U.S. goods and services emerged from various sources within Malaysia, including former Prime Minister Mahathir Mohamad, members of parliament, political parties and public interest groups. Specific U.S. boycott targets include Coca Cola, KFC, McDonalds, and Starbucks. There are also anti-boycott voices in Malaysia who claim that the boycott will hurt Malaysian-owned businesses and workers more than the parent U.S. companies. On January 10, 2009, the Malaysian Bar Council urged a "review" of the FTA negotiations with the United States to protest what was seen as U.S. support for "Israeli atrocities against Palestinians." Other groups also called for the suspension of FTA talks. Two days later, Minister Muhyiddin stated that the Ministry of International Trade and Industry (MITI) was suspending the FTA negotiations until it received orders and guidance from Malaysia's Cabinet. There were indications that MITI's decision was at least partially in response to the events in Gaza. The next day, Prime Minister Badawi requested that Minister Muhyiddin formally brief the Cabinet of the decision to suspend the FTA talks. On January 15, 2009, Minister Muhyiddin indicated that the FTA negotiations had been postponed at the request of the United States until after the presidential inauguration. He also said in regards to the proposed boycott of U.S. products, "If there are any Malaysians who want to take such an action, it is their right. As for the government, we have not taken any decision on the matter." Over the last three years, several issues have emerged as difficult topics in the negotiations. The main topics still to be resolved include intellectual property rights (IPR) protection, market access for U.S. automobiles and agricultural goods in Malaysia, trade in services, and government procurement policies. An issue of interest to many U.S. exporters, and in particular software and pharmaceutical companies, is Malaysian IPR regulations and enforcement. Malaysia has recently tightened its laws on and stepped up enforcement of protection of intellectual property, but problems still remain. The Business Software Alliance (BSA) estimated 59% of the software in Malaysia in 2007 was pirated, resulting in industry losses of $311 million. Malaysia has remained on the Special 301 Watch List since October 2001 as part of an effort by the USTR to monitor Malaysia's efforts to improve its IPR regime. In its 200 8 Special 301 Report , the USTR stated that "Malaysia continued to show a strong commitment to strengthening IPR protection and enforcement this past year, but still needs to make further IPR improvements. IPR enforcement improvements during 2007 included the creation of a specialized IPR court, which began hearing cases in 2007. The USTR also stated that it would be "pressing IPR issues through the ongoing U.S.-Malaysia Free Trade Agreement negotiations." With regard to IPR protection for pharmaceuticals, Malaysia is concerned about the U.S. preference for "TRIPs plus" provisions in the U.S.-Malaysia FTA. The United States reportedly would like tighter restrictions on the use of compulsory licensing (CL) and wishes to include data exclusivity provisions in the FTA. Malaysia is reluctant to accept terms that would undermine its ability to utilize the CL provisions of TRIPs for drugs deemed necessary to prevent the spread of an epidemic or avoid a national health emergecy. Opposition has appeared in Malaysia among people concerned about the treatment of HIV/AIDS. They claim that a U.S.-Malaysia FTA would more than likely patent anti-retroviral AIDS drugs for five years, "making [them] far too costly for them [HIV/AIDS patients] to buy." Others believe that stricter enforcement of drug patents could discourage pharmaceutical companies from introducing new anti-retroviral drugs in Malaysia. Malaysia has used the CL provisions of TRIPs to provide low-cost anti-retroviral drugs to HIV/AIDS patients in Malaysia. Malaysia has a growing automobile industry. For many years, the Malaysian government has promoted the development of a domestic automobile industry as a sign of its emergence as a modern industrial nation. Its automobile manufacturers, such as Proton and Perodua, market their vehicles in over 40 countries around the world, and its motorcycle manufacturer, Modenas, is a popular brand in Argentina, Greece, Iran, Singapore, Malta, Mauritius, Turkey, and Vietnam. Malaysia's automobile components and parts industry is also quite successful on the world market. Malaysia has long protected its automobile manufacturing industry from foreign competition using high tariffs and non-tariff trade barriers. Government policies also distinguish between national cars (i.e., made by domestic producers, such as Proton and Perodua) and non-national cars, which include most vehicles manufactured in Malaysia by non-Malaysian owned firms. The firms making national cars, for example, receive 50% rebates on their excise taxes. B umiputera also are favored in receiving permits to import or distribute motor vehicles. The government has, however, begun to dismantle some of its protections in order to meet its commitments to the WTO and the ASEAN Free Trade Agreement. In January 2004, the government completely eliminated local content requirements that were inconsistent with its obligations under the WTO, but government policies (particularly its excise taxes on automobiles) continue to block open trade in the automotive sector. Malaysia imposes 30% tariffs on assembled vehicles from outside the ASEAN region and up to 10% on completely knocked-down vehicle kits. Excise taxes on both assembled vehicles and kits are 80-200% on automobiles, 55-160% on multipurpose vehicles, and 20-50% on motorcycles. During negotiations, Malaysia is likely to raise the issue of U.S. measures protecting its domestic automobile industry. For example, the United States currently maintains a special 25% tariff on imports of pickup trucks. At a May 2006 Trade Policy Staff Committee hearing, a representative of the U.S. Automotive Trade Policy Council (ATPC), which represents the U.S. big three automakers, said the Council supports the proposed FTA and sees it as an opportunity to break into a market that has historically protected domestic producers and discriminated against foreign manufacturers. From the outset of the negotiations, Malaysia has stated that rice was considered "strategic crop" and would not be included in the FTA and that tariffs on other agricultural goods (such as poultry) would not be lowered in order to protect its "farmers, planter, and fishermen." On November 13, 2008, Minister of Agriculture and Agro-based Industry Mustapa Mohamad said that Malaysia was "steadfast" in its decision to designate rice as a "strategic crop" that would not be included in any FTA with the United States. Malaysia has also expressed concerns about U.S. SPS regulations, which have been criticized by several nations as forming a non-tariff trade barrier. The United States reportedly continues to press Malaysia to remove or reduce its restrictions on the trade of agricultural goods. Trade in agricultural goods was reportedly discussed during the July 2008 talks, including SPS measures. Financial services also appear to be a difficult issue to resolve in the negotiations. Malaysia limits foreign ownership to 30% of commercial banks and 49% of investment banks. Foreign commercial banks also are allowed to open new branches only if they also add other branches as directed by Bank Negara, Malaysia's central bank. Malaysia maintains a 51% cap on foreign ownership of insurance companies already established in Malaysia prior to 1998 as well as a foreign ownership limit of 30% for new entrants seeking access. Malaysia has not enforced the 51% cap except in cases of companies who seek the right to establish branches. In the lead-up to the launch of the FTA negotiations, Malaysia reportedly attempted to keep financial services out of the negotiations completely, but the country did agree to include such services in the FTA talks. Malaysia, however, has lifted requirements that foreign banks obtain 50% of their credit from local banks, has allowed them to seek any amount of ringgit (the domestic currency) credit without approval, has allowed the ringgit exchange value to float rather than be strictly pegged to the dollar, and allowed foreign banks to open four additional branches in 2006. However, the recent financial crisis in the United States has reignited concerns in Malaysia about the risks associated with greater foreign participation in its financial sector. In telecommunications, foreign companies are allowed to acquire up to a 30% equity stake in existing fixed line operations. Value-added telecommunications service suppliers likewise are limited to 30% foreign equity. These restrictions arguably benefit the government-controlled firm, Telekom Malaysia. Licensed professionals, such as lawyers and architects, also are restricted in Malaysia. Foreign lawyers may not practice Malaysian law nor affiliate with local firms. Foreign law firms may take an operating stake of up to 30% in a local law firm. A foreign architectural firm may operate in Malaysia only as a joint venture participant in a specific project, and foreign architects may not be licensed in Malaysia. Foreign engineers may be licensed only for specific projects. Foreign accounting firms must work through Malaysian affiliates. In services, the United States has used the negative list approach in determining which sectors are excluded from the agreement. Malaysia prefers to use a positive list approach in which service sectors are excluded unless listed in the agreement. Malaysia is not a signatory of the WTO Government Procurement Agreement. As part of its "New Economic Program," Malaysia seeks to raise the participation of bumiputera in the economy. Foreign companies, in many cases, are required to take on a local partner before their bids are considered. The awarding process for procurement contracts also is considered to be non-transparent. After the second round of negotiations in July 2006, it became apparent that Malaysian government procurement restrictions that reserve a certain share of Malaysian business for bumiputera were emerging as a major sticking point in the negotiations. Malaysian negotiators reportedly had not been authorized by the Malaysian Cabinet to agree to an opening of the government procurement market. In addition, there is strong interest in segments of the Malaysian business community to obtain preferential access to the U.S. government procurement process. Tan Sri Yong, president of the Federation of Malaysian Manufacturers (FMM), commented, "At the moment, Malaysian companies cannot access the American government procurement, which is 65 times larger than ours. This means our furniture and computers cannot be supplied to the U.S. government." The United States has apparently offered limited access to its government procurement – the opportunity to bid on approximately $250 billion in contracts – to keep the comparative value of market access proportional. The Malaysia government procurement market has an estimated value of approximately $20 billion. The government procurement issue was apparently not a major topic of negotations during the two rounds of talks held in 2008.Following the January 2008 round of negotiations, U.S. Assistant Trade Representative Weisel reported that the government procurement was not discussed because the Malaysian government was reviewing its position. The proposed U.S.-Malaysia FTA is of interest to Congress because: (1) it requires congressional approval; (2) it would continue the past trend toward greater trade liberalization and globalization; (3) it may include controversial provisions; and (4) it would affect certain trade flows that would, in turn, affect U.S. businesses or farmers, particularly import-competing industries and those exporting to Malaysia. Among the initial responses to the USTR's 2006 FTA announcement were a statement by Senator Max Baucus welcoming the agreement, and statements by Representatives Jim Kolbe and Dan Burton hailing the launch of the negotiations. The National Association of Manufacturers indicated that it has been a leading advocate of an FTA with Malaysia, and a U.S.-Malaysia Free Trade Agreement (FTA) Business Coalition was organized on March 8, 2006. Objections to the proposed FTA have come from some Malaysian and U.S. labor unions, farmers, fishermen and academics. Malaysia plays into U.S. interests through its economy and trade; its role in countering radical Islamic organizations; the example it sets as a democratic secular Muslim state; its position as a member of ASEAN, Asia Pacific Economic Cooperation (APEC), and other multilateral fora; its shared interest in dealing with a rising China; and the common goal of securing a safe shipping channel through the Strait of Malacca. A U.S.-Malaysia FTA was part of the Bush Administration's strategy to press for regional and bilateral trade initiatives in order to "ignite a new era of global economic growth through free markets and free trade." In a broader sense, the proposed FTA would be a step toward realization of APEC's "Bogor Vision," under which the United States and APEC's other 21 members are working toward "free and open trade in the Pacific." At the 2006 APEC meetings, the United States proposed that APEC consider forming a Free Trade Area of the Asia Pacific that would accomplish this goal. With the Doha Round of multilateral trade talks under the World Trade Organization (WTO) encountering problems, some see FTAs as a plausible alternative. When announcing the proposed negotiations, the USTR listed four major goals associated with a U.S.-Malaysia FTA. These were: (1) to create new opportunities for U.S. manufacturers, farmers, and service providers; (2) to strengthen U.S. competitiveness and generate high-paying jobs; (3) to strengthen U.S. economic partnerships in the region; and (4) to advance broader U.S. strategic goals. Other benefits mentioned for the proposed FTA included: (5) to cement a vibrant U.S.-Malaysia economic relationship; (6) to increase U.S. exports; (7) to diversify U.S. exports; (8) to increase investment; (9) to increase the sharing of knowledge and know-how between U.S. companies and Malaysian companies; (10) to enhance economic growth and job creation; and (11) to lower costs and create more competitive companies. In Malaysia, the Ministry of International Trade and is leading the negotiations. The Ministry lists as its FTA objectives to: (1) seek better market access for Malaysian goods and services; (2) further facilitate and promote bilateral trade and investment flows as well as economic development; (3) enhance the competitiveness of Malaysian producers and exporters through collaboration; and (4) build capacity in specific targeted areas thorough technical cooperation. The Ministry also views the proposed FTA as comprehensive and covering liberalization of the goods and services sector; trade and investment promotion and facilitation activities; investment protection; economic and technical cooperation programs; and having appropriate flexibility to facilitate development objectives. The Ministry also noted that it would seek "flexibility and longer phase-in periods for sensitive sectors." Several Malaysian industries have been generally supportive of the proposed FTA, principally because they believe that they will benefit from greater access to the U.S. market. Among these industries are clothing and textiles, ceramics, lumber, rubber and consumer electronics. In addition, Malaysia hopes the FTA will increase inward foreign direct investment (FDI) from the United States and other nations because of Malaysia's improved access to the U.S. market. A U.S.-Malaysia FTA would also improve U.S. access to the economies of Southeast Asia. Malaysia already has FTAs with Indonesia, Brunei, Singapore, the Philippines, and Vietnam under the ASEAN free trade area, and ASEAN is nearing completion of an FTA with India. It has FTAs with South Korea and Pakistan, an economic partnership agreement with Japan covering most goods trade, a partial FTA with China, and it is negotiating FTAs with Australia and New Zealand, and discussing an FTA with India. On April 19, 2007, Chile and Malaysia announced they would start negotiations on the establishment of a bilateral FTA in June, with the first round of talks held in Kuala Lumpur. When announcing the initiation of FTA negotiations, the USTR indicated that via the proposed FTA, the U.S. government is hoping to further build the broader relations with a country that has been on the "forefront of Asia's economic transformation and is a leader in the region and beyond." The USTR hoped that this FTA would strengthen U.S. cooperation with Malaysia in multilateral and regional fora, reinforce a strong U.S.-ASEAN relationship, and advance U.S. commercial and strategic interests in Asia. As a moderate, democratic Muslim nation, Malaysia plays a strategic role in U.S. foreign policy. In 2005, Prime Minister Abdullah urged Muslims around the world to guard against extremism and improve ties with the West while promoting his nation's moderate version of Islam. The Bush Administration also hoped that the proposed FTA would reinforce the shared interests of the United States and Malaysia, promote common values, and facilitate cooperation in counterterrorism, defense, counter-narcotics, education, and in other areas. Malaysia (along with Indonesia, Singapore, and Thailand) plays a key role in protecting vital maritime shipping lanes in the Strait of Malacca from pirates and terrorism. In the United States, opposition to the proposed FTA has emerged from labor unions and environmental protection organizations, as well as "anti-globalization" groups. In Malaysia, voices opposing the FTA have arisen from labor unions, farmers, fishermen and other groups, as well as from opposition political parties. In some cases, opponents to a U.S.-Malaysia FTA from both nations have formed coalitions. With respect to labor interests, the AFL-CIO opposes additional FTAs unless they contain meaningful protections for workers' rights and environmental standards. Its position is that the Bush Administration launched or concluded bilateral free trade agreements that include no enforceable protections for core workers' rights, and move "backwards from previous accords on workers' rights, and contain many of the same flawed rules that have worsened our trade deficit" under the North American Free Trade Agreement (NAFTA). Labor organizations also are interested in ensuring that labor laws in the bilateral trading partner country are brought up to International Labor Organization (ILO) standards and that a dispute settlement or enforcement mechanism is included in agreements that would preclude partner countries from reversing labor gains or weakening labor laws following congressional approval and implementation of their respective FTAs. During the presidential campaign, Barack Obama expressed some support for the labor unions' concerns about the labor provisions of the negotiated FTAs with Colombia and South Korea. Labor conditions in Malaysia have been the subject of some international criticism. According to Malaysian law, workers are afforded a variety of rights and most workers have the right to engage in trade union activity. However, according to the latest U.S. State Department country report on Malaysia, only 9.5% of the labor force was represented by trade unions. In addition, Malaysian trade union officials report extended delays of up to four years in obtaining legal recognition of their union. A specific area of international concern has been the working conditions of Malaysia's estimated 2.5 million immigrant workers—most from Indonesia—who reportedly face abuse and exploitation by employers and recruitment agencies. There has also been organized opposition to a U.S.-Malaysia FTA from Malaysians. On January 11, 2007, an anti-FTA campaign in northern Malaysia resulted in petitions with over 20,000 farmer and fishermen signatures being submitted to Malaysia's Prime Minister Abdullah and Malaysia's Ministry of International Trade and Industry. The petitions state that the proposed FTA would harm Malaysia's rice farmers and fishing industry. In October 2006, a coalition of opposition parties, workers, and small businesses in Malaysia called for the cessation of negotiations with the United States until a study of the economic and social impact of the proposed FTA was conducted. Opposition to an FTA also may arise from various special interest groups. For example, Public Citizen, a nonprofit consumer advocacy organization in the United States, maintains that the FTA with Central America is "based on the same failed neoliberal NAFTA model, which has caused the 'race to the bottom' in labor and environmental standards and promotes privatization and deregulation of key public services." In Malaysia, people concerned about the cost of pharmaceutical drugs, especially treatment for HIV/AIDS, are opposed to possible provisions in the FTA that they believe will raise the cost of prescription drugs in Malaysia. Another possible issue complicating the negotiations could be U.S. relations with Israel. Malaysia currently does not have diplomatic relations with Israel and requires export licenses for all goods sent to Israel. U.S. law currently contains several provisions designed to undermine official boycotts and trade embargoes aimed at Israel. As previously mentioned, U.S. support for Israel's military operations in Gaza have given rise to a boycott of U.S. products and calls to suspend the FTA negotiations. During recent congressional consideration of other proposed FTAs, opposition concerns have been addressed either in the implementing legislation or by securing various commitments in writing from the Administration. For example, in congressional consideration of the Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA), the Bush Administration assuaged opposition from labor, sugar, and textile interests by promising certain actions to ameliorate adverse effects of the proposed FTA. In a letter, the Administration promised to allocate $40 million of FY2006 foreign operations appropriations for "labor and environmental enforcement capacity building assistance," and to continue to request this level of funding in budgets for fiscal years 2007 through 2009. The Bush Administration also stated that it would not allow the DR-CAFTA to interfere with the operation of the sugar program through FY2007 as the program is defined in the Farm Security and Rural Investment Act of 2002. For the textile and apparel industry, promises were made related to rules of origin, stricter customs enforcement with respect to Mexican inputs used in DR-CAFTA textile and apparel products, and actions to increase use of U.S. fabric. The usual goal of free trade agreements is to reduce barriers to trade and investment. In addition to eliminating or reducing tariffs on both sides, FTAs often eliminate or reduce import quotas and other non-tariff barriers to trade. They also usually provide access to services, open markets for investment, contain provisions strengthening protection of intellectual property, address certain types of government regulations and practices, provide for a dispute settlement process, and can touch on issues such as business visas, competition policy, and a variety of policies or practices that affect economic activity. FTAs also create winners and losers. In general, the ones who gain from FTAs tend to be exporters, investors, and consumers, while those who lose tend to be companies and workers in import-competing industries. In addition, non-party countries could the FTA can be affected by the terms of the agreement, as trade is created or diverted between nations. An FTA with Malaysia would be the third FTA negotiation by the United States with a Southeast Asian nation, following the U.S.-Singapore FTA that came into effect on January 1, 2004, and a proposed U.S.-Thailand FTA whose negotiations are currently stalled. The United States also has an FTA with Australia and is negotiating an FTA with South Korea. On May 10, 2004, the United States and Malaysia signed a Trade and Investment Framework Agreement. Past FTAs negotiated by the United States usually provide for tariff free trade between the two countries with a phase-in period for sensitive sectors. With Malaysia, some trade already is tariff free. Both the United States and Malaysia participate in the Information Technology Agreement (ITA) under which tariffs on semiconductors and other information technology products are bound at zero. The majority of current U.S. exports to Malaysia are covered by this agreement. Semiconductors and parts for computers alone account for more than half of U.S. exports to Malaysia. An FTA, however, would open markets artificially restricted by tariff and non-tariff barriers. Many of the more competitive U.S. exports face relatively high duties in Malaysia. These include products such as motor vehicles and parts, off-road dumpers, polyethylene, motorcycles, and adhesives. For more information on the relative tariff rates of the two nations, see Appendix C . The potential impact of an FTA depends on various other factors, including the relative size of the two nations, the amount and nature of their bilateral trade flows, the size of bilateral FDI in each nation, as well as existing trade relations with other nations. Below is a summary of key aspects of these factors. Table 1 provides a summary of Malaysia's key economic indicators. Malaysia has been one of the fastest growing economies in the world over the last few years. Early in 2008, Malaysia experienced a sharp rise in inflation, but the inflationary pressures subsided as the impact of the U.S. and E.U. economic slowdown affected Malaysia's exports. Malaysia's GDP and average per capita income make it a market considerably larger than most of the countries that have recently negotiated free trade agreements with the United States. At official exchange rates, the per capita income in 2007 was $6,724, but its purchasing power parity was estimated by the World Bank at $13,570 – higher than Argentina, Chile, and Mexico. According to Malaysia's Ministry of Finance, the United States is its largest trading partner and largest foreign investor. According to U.S. trade figures, Malaysia was the tenth largest trading partner of the United States in 2007. The United States exported more to Malaysia in the first 11 months of 2008 than it did to Colombia or Peru, two other nations with pending FTAs with the United States. For the first 10 months of 2008, U.S. investment in Malaysia totaled $1.8 billion—the second greatest source of foreign investment in Malaysia, after Australia. FTAs usually have several distinct effects on trade flows. They tend to divert export and import trade toward the countries involved, but they also can create more trade overall by lowering tariffs and other trade barriers. FTAs also can cause a substitution effect as imports are substituted for domestic production. In that case, import-competing industries may suffer and may request assistance to adjust to increased competition from imports. Table 2 shows U.S. exports to, imports from, and the balance of merchandise trade with Malaysia from 2000 to 2007, according to the U.S. Department of Commerce and Malaysia's Department of Statistics. According to the United States, U.S. exports to Malaysia remained steady at about $10 billion per year from 2000 to 2005, but rose to over $12.5 billion in 2006 and then declined to $11.7 billion in 2007. U.S. imports from Malaysia grew from 2001 to 2006, but then declined in 2007. From 2001 to 2006, the U.S. bilateral trade deficit with Malaysia widened by 63.5%, but narrowed by 10.7% in 2007. According to Malaysia, its exports to the United States rose from just over $20 billion in 2000 to about $30 billion in 2006—an increase of nearly 50%—and then slipped to $27.5 billion 2007. Over the same time period, Malaysia's imports from the United States rose 20% from $13.6 billion in 2000 to $16.4 billion in 2006 and then declined by nearly $500 million in 2007. Malaysia's resulting trade surplus with the United States was $6.5 billion in 2000 and $11.6 billion in 2006—roughly $8-$10 billion less than the U.S. figures. For more detailed information on U.S. trade with Malaysia, see Appendices D, E and F. As shown in Table 3. , the United States is Malaysia's top export market, according to Malaysian export data. Singapore is second, Japan is third, and China is fourth. Over the last three years, the portion of Malaysia's exports going to the United States has declined from 19.7% to 15.6%. China's share over the same period rose from 6.6% to 8.8%. As shown in Table 4. , Japan has been and remains Malaysia's top source of imports, while the United States has slid from second to fourth since 2005. Over the last two years, both China and Singapore overtook the United States as a supplier of imported goods for Malaysia, with China edging close to Japan. In Asia, Malaysia already has FTAs with Japan and Singapore and is negotiating FTAs with Australia, India, New Zealand, and Pakistan. Meanwhile, China has signed an FTA with ASEAN, to which Malaysia is a member, which includes a trade in services agreement that went into force as of July 2007. The proposed FTA with the United States would place U.S. exporters on similar footing as exporters from China, Japan, and Singapore—Malaysia's other leading trading partners. According to current U.S. data, Malaysia is not and has not been a major services trading partner for the United States (see Table 5. ). Total services trade with Malaysia amounted to less than $2 billion per year from 2000 to 2004, and just climbed above $2 billion in 2005. When compared to the total value of U.S. services trade, Malaysia's relatively small role in overall services trade becomes apparent. Even at its peak, Malaysia represented less than half a percent of the U.S. services export market and provided less than a third of a percent of the U.S. services imports. Despite the relatively small current volume of services trade with Malaysia, several U.S. service sectors—including telecommunications, financial services, and insurance providers—have expressed strong interest in obtaining improved access to Malaysia's domestic market. The United States already is Malaysia's top export market for merchandise goods. A U.S.-Malaysia FTA would likely reinforce this relationship. Similarly, the discussed FTA would offer better access to U.S. services providers to Malaysia's domestic market. According to the U.S. Bureau of Economic Analysis, U.S. companies by 2007 had invested over $15 billion in Malaysia (see Table 6. ). About 38% of U.S. investments in Malaysia was in the manufacturing sector, with investments in computer and electronic equipment manufacturing facilities accounting for over three-quarters of the manufacturing investments. Also within manufacturing investments, U.S. companies have shown a growing interest in chemical manufacturing operations in Malaysia. According to the Malaysian Industrial Development Authority (MIDA), U.S. companies obtained approval for 33 manufacturing projects worth $878 million in 2007 and 19 projects worth $1.8 billion in the first 10 months of 2008. MIDA reported that most of the U.S. investment has been in the electronic equipment industry and the chemical industry, indicating a continued focus of U.S. investors in those two sectors. When the talks began, the USTR's goal was to have the U.S.-Malaysia FTA implementing bill considered by Congress under "fast track" expedited procedures of the Bipartisan Trade Promotion Authority (TPA) Act of 2002 ( P.L. 107-210 ). However, the statute requires the President to notify Congress of his intention to enter into the agreement at least 90 calendar days before entering into the trade agreement. Since the President's Trade Promotion Authority expired on July 1, 2007, and the President did not notify the Congress by the April 2, 2007 deadline, the U.S.-Malaysia FTA became ineligible to be considered under the 2002 TPA. As a result, there are several possible scenarios under which a proposed FTA with Malaysia might be considered by Congress. First, if Congress were to extend, renew or revise Trade Promotion Authority, then the U.S.-Malaysia FTA might be considered under the provisions of a new TPA law. Second, Congress could choose to pass legislation providing temporary or limited TPA for the proposed U.S.-Malaysia FTA. This approach was used when Congress considered the Uruguay Round Agreements. Third, Congress could consider the proposed U.S.-Malaysia FTA without TPA, as it did with the U.S.-Jordan FTA. However, consideration of the proposed FTA with Malaysia without TPA would potentially allow Congress to amend the implementing bill in ways that could modify the terms of the trade agreement. In the meantime, while negotiations with Malaysia on the proposed FTA are incomplete, the legislative policy options include consultations with the Executive Branch, holding oversight hearings on pertinent U.S. trade policy and relations with Malaysia and other nations, and working with interest groups that either support or oppose the proposed agreement. P.L. 107-210 (Section 2104) provides for close consultations with the Executive Branch during and following the negotiations. Such consultations could lead to changes in the draft agreement before it is signed. Appendix A. Map of Malaysia Appendix B. Chronology Appendix C. A Comparison of U.S. and Malaysian Tariff Rates Measuring the degree of protection provided by tariff barriers is a complicated process, since each country has thousands of products each with a tariff rate that depends on the category of exporter. Average rates, therefore, will differ depending on how they are calculated. The two types of averages most often cited are the most favored nation (MFN) rates and the average applied rates. Average MFN Tariff Rates The MFN rates apply to most countries and all members of the World Trade Organization. U.S. exporters face these rates unless they have been reduced by a special arrangement, such as the Generalized System of Preferences or the Information Technology Agreement. The average MFN rates are simple averages of all tariff lines. On an MFN basis, Malaysia's average tariff rate at 8.1% is higher than the 4.8% of the United States . shows the average and range of U.S. and Malaysian MFN tariff rates by major commodity category as classified under the Harmonized System. Both the United States and Malaysia have peaks in tariff rates on certain products. Malaysia and the United States each protects its agricultural sector. Although Malaysia's average MFN tariff rate for agricultural products at 3.2% is lower than the 9.7% of the United States, Malaysia maintains high rates on items of interest to U.S. agriculture. The Malaysian tariff rate for grains averages 15.2% and rice is at 40%, oranges and apples at 15% to 20%, and wheat flour at 96%. Prepared food is subject to tariffs of 5% to 30%. Beef enters the country at 15%, but pork faces a 139% tariff and ham 168%. The tariff is 25% on yogurt, 10 to 25% on chocolate products, and 20% on baby food. For the United States, the upper range for agricultural products is a 350% tariff on imports of tobacco products that exceed the import quota. Tobacco products within the quota face a 12.1% tariff rate. In recent years, the tobacco quota has not been filled, so the 350% rate has not been applied. In non-agricultural products (excluding petroleum), Malaysia's average MFN tariff rate is 8.7% as compared with 4.0% in the United States. The ranges of tariff rates are similar. In Malaysian sectors where the government is fostering the growth of industry, however, the rates are particularly high. For transport equipment, the average Malaysia tariff of 25.6% is more than ten times the U.S. rate of 2.5%. For non-electrical machinery, a sector in which both countries currently export to each other, the Malaysia tariff rate at 6.3% is over four times the U.S. rate of 1.4%. Similarly, in electrical machinery the Malaysia rate of 9.2% is much higher the U.S. rate of 2.2%. Average Applied Tariff Rates Applied average tariff rates are derived by dividing the amount of customs duties collected by the value of imports. Average applied tariff rates are frequently used indicators of a nation's actual level of tariff protection. These rates may be somewhat lower than the MFN rates because items with high rates might not be imported at all (so no tariffs are paid) and because a nation may have special trade arrangements with other nations under which the partners pay lower or no tariffs on their exports. They can also be higher if importers buy expensive items (such as machinery or automobiles) subject to higher tariff rates. For Malaysia, the average applied tariff rate of 8.4% in 2006 was more than twice the U.S. average rate of 3.7%. For all industrial goods, the applied rate is 9.1% in Malaysia as compared with 3.7% in the United States . shows Malaysian applied tariff rates for selected industrial sectors. Appendix D. U.S. Merchandise Exports to Malaysia by Two-Digit Harmonized System Codes, 2005-2007 (US$ Million; FAS value) Appendix E. U.S. Merchandise Imports from Malaysia by Two-Digit Harmonized System Codes, 2005-2007 (U.S.$ Millions, CIF values) Appendix F. U.S. Merchandise Exports by State to Malaysia, 2004-2006 (U.S. Dollars) | This report addresses the proposed U.S.-Malaysia free trade agreement (FTA). It provides an overview of the current status of the negotiations, a review of the 2008 talks, an examination of leading issues that have arisen during the negotiations, a review of U.S. interests in the proposed agreement, a summary of the potential effects of a FTA on bilateral trade, and an overview of the legislative procedures to be followed if the proposed FTA is presented to Congress for approval. The proposed U.S.-Malaysia FTA is of interest to Congress because (1) it requires congressional approval; (2) it would continue the past trend toward greater trade liberalization and globalization; (3) it may include controversial provisions; and (4) it could affect trade flows for certain sensitive goods and industries in the United States. Since the U.S. Trade Representative announced on March 8, 2006, the Bush Administration's intent to negotiate a free trade agreement with Malaysia, eight rounds of negotiations have been held. A proposed ninth round of talks scheduled for November 2008 were postponed until after President Barack Obama's inauguration once it became apparent that several outstanding issues remained unresolved. Since the postponement, Malaysia has suspended the bilateral negotiations, possibly in response to U.S. support for Israel's military operations in Gaza. Efforts in 2008 to complete the FTA negotiations by the end of the Bush Administation were unsuccessful. There is general agreement that one major "sticking point" is Malaysia's government procurement policies, which give preferential treatment for certain types of Malaysian-owned companies. Other key outstanding provisions of the possible FTA as of the end of 2008 were intellectual property rights protection, protection of Malaysia's agricultural and automotive industry, and trade in services. Areas of particular interest to U.S. exporters include a reduction of Malaysian trade barriers to automobiles and certain agricultural products, provisions for the enforcement of intellectual property rights, and broader access to Malaysia's service sectors such as financial services, telecommunications, and professional services. Both nations could potentially see economic benefits from the proposed FTA, but there will be both winners and losers in both nations, as well as in other nations not part of the bilateral agreement. Overall bilateral trade flows would probably rise, possibly at the expense of some domestic and foreign manufacturers and their workers. In 2007, the United States was Malaysia's largest trading partner, while Malaysia was the United States' tenth largest trading partner. The United States was Malaysia's top export market and its second largest supplier of imports in 2007. In addition, the United States may also accrue some political benefits from the proposed FTA. An FTA with Malaysia would strengthen U.S. ties with a moderate, democratic Muslim nation. It would also support U.S. efforts to be viewed as more engaged in Southeast Asia. This report will be updated as circumstances warrant. |
President George W. Bush unveiled the Proliferation Security Initiative (PSI) in Krakow, Poland, on May 31, 2003. PSI appeared to be a new channel for interdiction cooperation outside of treaties and multilateral export control regimes. In its December 2002 National Strategy to Combat Weapons of Mass Destruction (WMD) Proliferation, the Bush Administration articulated the importance of countering proliferation once it has occurred and managing the consequences of WMD use. In particular, interdiction of WMD-related goods gained more prominence. U.S. policy sought to "enhance the capabilities of our military, intelligence, technical, and law enforcement communities to prevent the movement of WMD materials, technology, and expertise to hostile states and terrorist organizations." PSI was started partially in response to legal gaps revealed in an incomplete interdiction of the So San , a North Korean-flagged ship that was carrying Scud missile parts to Yemen in December 2002. It was interdicted on the high seas by a Spanish warship after a tip from American intelligence. The boarding was legal because there was no ship under that name in the North Korean registry. Inspectors found 15 complete Scud-like missiles, 15 warheads, and missile fuel oxidizer hidden on board. However, U.S. and Spanish authorities had no legal basis to seize the cargo, and the ship was released. Yemen claimed ownership of the missiles and reportedly promised the United States that it would not retransfer the items or purchase additional missiles from North Korea. While it is not clear that if this incident had occurred after PSI was formed the outcome would have been different, it was clearly an impetus to quickly bring a multilateral interdiction coordination mechanism to fruition. Ten nations initially joined the United States to improve cooperation to interdict shipments (on land, sea, or in the air) of WMD, their delivery systems, and related materials. According to State Department officials, this core group defined the basic principles of interdiction and worked to expand support in the early years, but was later expanded to the 21 members of the Operational Experts Group (see below). The State Department website shows that currently 105 countries (including the United States) plus the Holy See participate in the initiative (see the Appendix ). Requirements for participation are fairly general in nature, partially because of early resistance to the idea of PSI in the international community, in particular hesitancy over sovereignty and free passage issues, as well as U.S. policymakers' intention to keep the arrangement informal and non-binding. For example, participating states are encouraged to: formally commit to and publicly endorse, if possible, the Statement of Principles; review and provide information on current national legal authorities and indicate willingness to strengthen authorities as appropriate; identify specific national assets that might contribute to PSI efforts; provide points of contact for interdiction requests; be willing to actively participate in PSI interdiction training exercises and actual operations as they arise; and be willing to consider signing relevant agreements or to otherwise establish a concrete basis for cooperation with PSI efforts. Some states, such as China, Pakistan, and South Africa, still remain outside the initiative. Other countries may participate indirectly in interdictions or information exchange related to WMD proliferation without becoming a full participant in PSI. Some countries that are not ready to sign on as full participants attend PSI exercises as observers. India has attended PSI exercises as an observer, but has not yet formally joined PSI. Taiwan has also participated in WMD-related interdictions. PSI has no international secretariat and no distinct program funding. The participants hold regular high-level meetings and exercises to test interdiction techniques. Some consider the lack of formal mechanisms as advantageous. Others, particularly early on, questioned the seriousness of the effort as well as its sustainability, as long as no formal mechanisms are created. The current configuration does not legally bind PSI adherents to this cooperative endeavor. An informal coordinating structure has developed through an Operational Experts Group (OEG), which discusses proliferation concerns and plans future exercises. The OEG consists of military, law enforcement, intelligence, legal, and diplomatic experts from 21 PSI states. The Deputy Assistant Secretary of Defense for Countering Weapons of Mass Destruction leads the U.S. delegation to PSI OEG meetings. An additional issue affecting successful implementation is conclusion of ship-boarding agreements, particularly with "flags of convenience" countries. To date, the United States has signed 11 ship-boarding agreements: in 2004 with Panama, the Marshall Islands, and Liberia; in 2005 with Croatia, Cyprus, and Belize; in 2007 with Malta and Mongolia; in 2008 with the Bahamas; and in 2010 with Antigua and Barbuda, and with Saint Vincent and the Grenadines. Such arrangements typically allow two hours to deny U.S. personnel the right to board a ship. When a merchant ship registers under a foreign flag to avoid taxes, save on wages, or avoid government restrictions, it is called a flag of convenience (FOC). FOCs are of particular concern for proliferation reasons because of looser government regulations over their shipments and the ease with which ships can switch from one registry to another to avoid tracking. Thirty-five countries have flags of convenience or "open" registries. Of these, Antigua and Barbuda, the Bahamas, Belize, Cambodia, Cyprus, Georgia, Honduras, Liberia, Malta, Marshall Islands, Moldova, Mongolia, Panama, St. Vincent, Sri Lanka, and Vanuatu are PSI participants. Panama, Liberia, and the Marshall Islands are the top three flags by tonnage and more than 70% of commercial ships are registered under a flag which is different from the country of ownership. A 2012 SIPRI study, Maritime Transport and Destabilizing Commodity Flows , estimated that flag of convenience ships accounted for over 70% of reported destabilizing military equipment, dual-use goods, and narcotics transfers by sea over the past two decades. The top five countries in this category were Panama, Liberia, Belize, Malta, and Honduras. All of these countries are PSI participants. This supports the priority that the United States has placed on concluding ship-boarding agreements with countries with FOC registries. The FY2011 Congressional Budget Justification for the Department of State described PSI's mission: "a commitment by over 90 states to take action to interdict shipments, disrupt proliferation networks, and shut down the front companies that support them." The long-term objective of PSI participants is to "create a web of counter-proliferation partnerships through which proliferators will have difficulty carrying out their trade in WMD and missile-related technology." It functions as an "activity, not an organization" and envisions countries working in concert to bolster their national capacities to interdict WMD shipment using a "broad range of legal, diplomatic, economic, military and other tools." Since its inception, there has been little publicly available information by which to measure PSI's success. One measurement might be the number of interdictions successfully carried out as a result of PSI countries cooperating, but this measurement has proven to be problematic. Secretary of State Condoleezza Rice, on the second anniversary of PSI, announced that PSI was responsible for 11 interdictions in the previous nine months. On June 23, 2006, Under Secretary for Arms Control and International Security Robert Joseph reported that between April 2005 and April 2006, PSI partners worked together "on roughly two dozen separate occasions to prevent transfers of equipment and materials to WMD and missile programs in countries of concern." In July 2006, Under Secretary Joseph said that PSI had "played a key role in helping to interdict more than 30 shipments." He also said that PSI cooperation stopped exports to Iran's missile program and the export of heavy water-related equipment to Iran's nuclear program. However, whether and to what extent PSI has contributed to these interdictions is unclear; they may have happened even without PSI. Moreover, even if the creation of PSI were followed by increased numbers of WMD-related interdictions, the increase may be the product of an upsurge in proliferation activity or improved intelligence. Often the interdictions themselves as well as their operational details are not public knowledge. PSI coordination may also have benefits for interdiction efforts overall, and the need to attribute an operation to PSI appears to have receded. Recent PSI meetings have emphasized capacity-building, best practices, and cooperation across agencies and governments. Several approaches under the PSI framework may help improve interdiction efforts. First, participating states agree to review their own relevant national legal authorities to ensure that they can take action. Second, participating states resolve to take action, and to "seriously consider providing consent ... to boarding and searching of its own flag vessels by other states." Third, participating states seek to put in place agreements, such as ship-boarding agreements, with other states in advance, so that no time is lost should interdiction be required. A fourth aspect is participating in joint interdiction exercises. As many describe it, PSI relies on the "broken tail-light scenario": officials look for all available options to stop suspected transport of WMD or WMD-related items. In practice, cargos can be seized in ports if they violate the host state's laws, hence the focus on strengthening domestic laws. On the high seas, ships have the rights of freedom of the seas and innocent passage under the Law of the Sea Convention and customary international law. The boarding agreements may allow for boarding, but not necessarily cargo seizure. In addition, a key gap in the PSI framework is that it applies only to commercial, not government, transportation. Government vehicles (ships, planes, trucks, etc.) cannot legally be interdicted. Thus, the missile shipments picked up by a Pakistani C-130 in the summer of 2002 in North Korea, reported by the New York Times in November 2002, could not have been intercepted under PSI. The October 2003 interdiction of a shipment of uranium centrifuge enrichment parts from Malaysia to Libya illustrated the need for multilateral cooperation. The Malaysian-produced equipment was transported on a German-owned ship, the BBC China , leaving Dubai, passing through the Suez Canal. The United States reportedly asked the German shipping company to divert the ship into the Italian port of Taranto, where it was searched. Passage through the highly regulated Suez Canal may give authorities an opportunity to delay ships and find a reason to board them. While some Bush Administration officials have cited this as an example of a successful PSI interdiction, others have argued it was part of a separate operation, and thus should not be used as evidence of PSI's success. Officials have emphasized that under PSI, states will develop "new means to disrupt WMD trafficking at sea, in the air, and on land." PSI exercises have been held to practice interdictions in all of these environments. In his 2004 speech introducing the initiative, President Bush proposed expanding PSI to address more than shipments and transfers, including "shutting down facilities, seizing materials, and freezing assets." However, the dual-use nature of some of the goods complicates these actions. In addition, while it may be comparatively easier to target shipments to states, such as Iran or North Korea, targeting terrorist acquisitions may be a greater challenge for intelligence agencies. Another focus for PSI has been the targeting of proliferation finance. On June 23, 2006, 66 PSI states participated in a High Level Political Meeting in Poland, which focused on developing closer ties with the business community to further prevent any financial support to the proliferation of WMD. PSI states have also hosted at least four workshops to introduce industry representatives to PSI goals and principles. In June 2011, PSI participants announced the concept of Critical Capabilities and Practices (CCP). A State Department press release explained that Operational Expert Group countries would identify and share "tools and resources that support interdiction related activities and by conducting events in a coordinated manner to develop, implement, and exercise CCPs." The meeting followed the sixth nuclear test by North Korea, and participants affirmed the importance of using the PSI and all other cooperative means to prevent the transfer of WMD technology to the DPRK. Participants also addressed the new challenges of intangible technology transfer, efforts of non-state actors to acquire WMD, and how to prevent proliferation finance as part of a comprehensive nonproliferation strategy. In May 2018, PSI members issued a Joint Statement in support of the most recent U.N. Security Resolutions 2375 and 2397 and called on states to enforce these measures to prevent proliferation to and from North Korea. U.S. officials have been careful to emphasize that PSI actions, including ship boarding and seizures, would be carried out in accordance with national legal authorities and international law and frameworks. The Statement of Interdiction Principles commits participants to "review and work to strengthen their relevant national legal authorities where necessary to accomplish these objectives, and work to strengthen when necessary relevant international law and frameworks in appropriate ways to support these commitments." There are differing opinions on whether the United States should work more aggressively to expand international legal authority for interdictions on the high seas and in international airspace. U.N. Security Council resolutions can provide for interdiction activities under Section VII of the U.N. Charter, which allows the Security Council to authorize sanctions or the use of force to compel states to comply with its resolutions. The 2005 Protocol to the Convention for the Suppression of Unlawful Acts Against the Safety of Maritime Navigation (SUA) requires states to criminalize transportation of WMD materials and their delivery vehicles. This protocol also "creates a ship boarding regime based on flag state consent similar to agreements that the United States has concluded bilaterally as part of the Proliferation Security Initiative." The United States Senate gave its advice and consent for ratification of the 2005 SUA Protocol on September 25, 2008 (Treaty Document 110-8). The Bush Administration attempted to expand international legal authority for PSI and related activities. The State Department has said that participating in PSI is a way for states to comply with their obligations under U.N. Security Council resolutions 1718, 1737, 1747, 1803, and 1540. U.N. Security Council Resolution 1540, passed in April 2004, requires all states to establish and enforce effective domestic controls over WMD and WMD-related materials in production, use, storage, and transport; to maintain effective border controls; and to develop national export and trans-shipment controls over such items, all of which should help interdiction efforts. While UNSCR 1540 was adopted under Chapter VII of the U.N. Charter, the resolution did not provide any enforcement authority, nor did it specifically mention interdiction or PSI. Early drafts of the resolution put forward by the United States had included explicit language calling on states to interdict if necessary shipments related to WMD. However, over China's objections, the word "interdict" was removed and was changed to "take cooperative action to prevent illicit trafficking" in WMD. U.N. Security Council 1874 does establish procedures for the required interdiction of WMD and other weapons going to or from North Korea. The PSI mechanism may assist countries in coordinating these actions. Subsequent resolutions further specified interdiction authorities as related to North Korea. The Law of the Sea Convention could also affect PSI implementation. The Convention has been supported by the Pentagon as a way to enhance PSI efforts. In a letter from the Joint Chiefs of Staff sent to the Senate in 2007, the Joint Chiefs argued for ratification, explaining that the convention "codifies navigation and over flight rights and high seas freedoms that are essential for the global mobility of our armed forces." The letter said that the Convention supports the efforts of the Proliferation Security Initiative. Senior military officials have also publicly said that not being a party hinders efforts to recruit new PSI participants. In his testimony before a Senate Armed Services Committee in April 2008, Vice Chief of Naval Operations Admiral Patrick Walsh said, "Our current non-party status constrains our efforts to develop enduring maritime partnerships. It inhibits us in our efforts to expand the Proliferation Security Initiative." The Senate Foreign Relations Committee considered the treaty with hearings held in June 2012 (see " Related Treaties and Conventions " below), however no further action has been taken since then. It may remain difficult for Congress to track and measure PSI's success. However, reporting and coordination requirements now in public law may result in more information than was available in the early years of PSI. The Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) requires the President to include PSI activities for each involved agency in his budget request, and requires submission to Congress of joint DOD-DOS reports to include detailed three-year plans for PSI activities no later than the first Monday in February each year. The act also recommends that PSI be expanded and that the United States should use the intelligence and planning resources of the NATO alliance, make participation open to non-NATO countries, and encourage Russia and China to participate. It gives the sense of Congress that PSI should be strengthened and expanded by establishing a clear authority for PSI coordination and increasing PSI cooperation with all countries. While PSI generally receives bipartisan support in principle, critics urge changes, such as increased transparency, expansion of participants, and improved coordination, rather than an end to the program. For example, the 9/11 Commission recommended that the United States seek to strengthen and expand PSI's membership. Others emphasize coordination. Former Chairman of the Senate Foreign Relations Committee Senator Richard Lugar said, "PSI is an excellent step forward, but what is lacking is a coordinated effort to improve the capabilities of our foreign partners so that they can play a larger detection and interdiction role." U.S. government organization and management issues have also been highlighted as areas for improvement. The Government Accountability Office (GAO) published a report in September 2006, Better Controls Needed to Plan and Manage Proliferation Security Initiative Activities , that recommended the following: (1) the Departments of Defense and State establish clear roles and responsibilities, interagency communication mechanisms, documentation requirements, and indicators to measure program results; (2) the Departments of Defense and State develop a strategy to work with PSI-participating countries to resolve issues that are impediments to interdictions; and (3) a multilateral mechanism be established to increase coordination, cooperation, and compliance among PSI participants. These recommendations were also endorsed by Congress in P.L. 110-53 , the Implementing Recommendations of the 9/11 Commission Act of 2007. The President was required to submit a report to Congress on implementation of these recommendations, which was done past the mandated deadline, in July 2008. A follow-up GAO report issued in November 2008 details U.S. agencies' efforts to increase PSI cooperation and coordination. It reported that the Bush Administration had not issued a directive to U.S. agencies to coordinate PSI functions, as required by law. A joint report by the Department of Defense and the State Department was submitted to Congress in January 2009. The Obama Administration has said that it would like to "institutionalize PSI" as part of its agenda. This could include following the mandates in the 9/11 Commission Act of 2007, although details have not yet been announced. GAO issued an update to this report series in March 2012 which concluded that more steps are needed to meet congressionally mandated reporting requirements and to better measure effectiveness (GAO-12-441). Geographic expansion of PSI participants remains a key issue—particularly how to engage China and India, as well as states in important regions like the Arabian Peninsula. Congress may also consider how intelligence resources are handled. Is intelligence sufficient and are there intelligence-sharing requirements with non-NATO allies? Also, how is PSI coordinated with other federal interdiction-related programs (e.g., export control assistance, WMD detection technologies, etc.)? One potential complication for congressional oversight of PSI is the absence of a way to measure PSI's success, relative to past efforts. Congress may choose to consider, again, how successfully the recommendations of P.L. 110-53 have been followed, and whether more non-proliferation policy coordination within the U.S. government may be required. Funds for PSI activities remain in large part a component of other programs that address WMD proliferation and interdiction, and thus PSI activities do not have separate budget lines. The Department of Defense does include a breakdown of expense exclusively dedicated to PSI in its annual report to Congress. However, other DOD programs also contribute to PSI efforts—for example, the U.S. Strategic Command budgets for combatant commanders' participation in WMD interdiction exercises, but these tasks are not necessarily under the PSI umbrella. DOD PSI-related activities have most recently been funded through the Cooperative Threat Reduction (CTR) program. The FY2017 National Defense Authorization Act (NDAA, P.L. 114-328) said that $4 million may be obligated for the PSI out of CTR Program funds. The State Department's Nonproliferation, Antiterrorism, Demining, and Related Programs (NADR) account funds PSI-related activities. FY2012 and FY2013 congressional budget justifications stated that the Nonproliferation and Disarmament Fund (NDF) can be used to support multinational exercises under the Proliferation Security Initiative, and staff travel to PSI meetings is drawn from State's general operating accounts. Participation by the FBI and DHS's Customs and Border Patrol appears to be funded on an ad hoc basis through operating funds. The Department of Energy's budget justification includes funds for National Laboratory research on WMD interdiction technologies, which would contribute to PSI efforts. On October 1, 2007, the Senate Committee on Foreign Relations received the Protocol of 2005 to the Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation (the "2005 SUA Protocol") for consideration. The protocol was signed by the United States on February 17, 2006. In President Bush's submission note to the Senate, he summarizes the importance of this protocol to PSI activities: "The 2005 SUA Protocol also provides for a ship-boarding regime based on flag state consent that will provide an international legal basis for interdiction at sea of weapons of mass destruction, their delivery systems and related materials." On July 29, 2008, the committee unanimously ordered the resolutions to advise and consent to the 2005 SUA Protocol. The full Senate approved the Protocol on September 25, 2008. Congress would need to approve implementing legislation for ratification to be finalized. On June 6, 2012, the House Judiciary Committee reported out the Nuclear Terrorism Conventions Implementation and Safety of Maritime Navigation Act of 2012 ( H.R. 5889 ), which includes implementing legislation for the SUA Protocol. As mentioned above, the Senate considered giving consent to ratification of the Law of the Sea Convention (Treaty Doc 103-39), which military and other government officials argue will positively impact PSI implementation. Critics of the treaty cite concerns about limiting U.S. sovereignty. The Senate Foreign Relations Committee (SFRC) recommended advice and consent for U.S. adherence to the treaty on October 31, 2007. The SFRC held hearings on the convention beginning on May 23, 2012. Secretary of State Hillary Clinton said that "joining the convention would likely strengthen the PSI by attracting new cooperative partners." In response to a question from Senator Menendez about the impact of the convention on interdictions at sea, Secretary of Defense Leon Panetta said that the convention would enhance the Proliferation Security Initiative and expand the range of interdiction authorities. His testimony stated: The U.S. and our partners routinely conduct a range of interdiction operations at sea based on UN Security Council Resolutions, treaties, port state control measures and the inherent right of self-defense. Further, the Convention expands the range of interdiction authorities found in the 1958 Law of the Sea Conventions we've already joined. In short, the U.S. would be able to continue conducting the full range of maritime interdiction operations. A panel of top military officers testified in support of the treaty. Critics of the convention cite problems with provisions that are not related to interdiction activities, argue that adherence is not necessary to continue current interdiction activities, or cite concerns about whether the treaty would limit current interdiction authorities. Early on, some members of Congress showed support for PSI through legislation. In the 111 th Congress, House Foreign Affairs Committee Ranking Member Ileana Ros-Lehtinen introduced H.Res. 604 , which recognized "the vital role of the Proliferation Security Initiative in preventing the spread of weapons of mass destruction." Another bill sponsored by Representative Ros-Lehtinen, the Western Hemisphere Counterterrorism and Nonproliferation Act of 2009 ( H.R. 375 ), included a sense of Congress that PSI has "repeatedly demonstrated its effectiveness in preventing the proliferation of weapons of mass destruction," and that the Secretary of State should seek to secure the "formal or informal cooperation by Western Hemisphere countries" for PSI. The Foreign Relations Authorization Act for Fiscal Years 2010 and 2011 ( H.R. 2410 ) called for "the expansion and greater development of the Proliferation Security Initiative (PSI)". The associated H.Rept. 111-136 , in its section on minority views, praises PSI thus: "The Proliferation Security Initiative is an outstanding example of U.S. leadership in the area of nonproliferation. The PSI has demonstrated that success can be achieved through a flexible consensus of like-minded countries without the need for an international bureaucracy, constraining treaties, or formal permission that often never comes." The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 ( P.L. 111-195 ) calls for any countries designated as destinations of diversion concern to be encouraged to participate in PSI and to conclude a ship-boarding agreement with the United States. The FY2013 Foreign Relations Authorization Act ( H.R. 2583 ) singles out PSI as a nonproliferation tool, stating as a goal of the bill "enhancing U.S. nonproliferation policy, including by strengthening the Proliferation Security Initiative, to prevent Iran and other rogue states from acquiring nuclear weapons, ballistic missiles, and other means of assaulting the U.S. and our allies." Title VI of the act authorizes the President to utilize the Proliferation Security Initiative and other measures deemed necessary to enforce U.S. laws, Executive Orders, and bilateral and multilateral agreements for the purpose of interdicting the import into or export from Iran any items, materials, goods, technology useful for any nuclear, biological, chemical, missile or conventional arms program; and to utilize ship boarding agreements with other countries to carry out these functions. ( H.Rept. 112-223 ) It also amends the Iran, North Korea, and Syria Nonproliferation Act ( P.L. 106-178 ) to require a report every 120 days (instead of every six months) on the proliferation interdiction efforts of other governments, in addition to U.S. interdiction efforts. The FY2017 Department of State, Foreign Operations, and Related Programs Appropriations Act (S.3117), which was passed in t he FY2017 Continuing Appropriations Act (P.L. 115-31), instituted new reporting requirements for State Department. Specifically, the bill dictated that, (11) PROLIFERATION SECURITY INITIATIVE- Funds appropriated by this Act under the heading `Nonproliferation, Anti-terrorism, Demining and Related Programs' shall be made available for programs to increase international participation in the Proliferation Security Initiative (PSI) and endorsement of the PSI Statement of Interdiction Principles: Provided, That not later than 45 days after enactment of this Act, the Secretary of State shall submit a report to the Committees on Appropriations detailing steps to be taken to implement the requirements of this paragraph. | The Proliferation Security Initiative (PSI) was formed to increase international cooperation in interdicting shipments of weapons of mass destruction (WMD), their delivery systems, and related materials. The Initiative was announced by President Bush on May 31, 2003. PSI does not create a new legal framework but aims to use existing national authorities and international law to achieve its goals. Initially, 11 nations signed on to the "Statement of Interdiction Principles" that guides PSI cooperation. As of June 2018, 105 countries (plus the Holy See) have committed formally to the PSI principles, although the extent of participation may vary by country. PSI has no secretariat, but an Operational Experts Group (OEG), made up of 21 PSI participants, coordinates activities. Although WMD interdiction efforts took place with international cooperation before PSI was formed, supporters argue that PSI training exercises and boarding agreements give a structure and expectation of cooperation that has improved interdiction efforts. Many observers believe that PSI's "strengthened political commitment of like-minded states" to cooperate on interdiction is a successful approach to counter-proliferation policy. The effort faced early criticism that said it would be difficult to measure the initiative's effectiveness, guarantee even participation, or sustain the effort over time in the absence of a formal multilateral framework. However, successive administrations have supported the PSI and worked to expand membership. Its goals have been a part of U.S. national security strategy. The 2018 Nuclear Posture Review says, "The United States will continue to work with allies and partners to disrupt proliferation networks and interdict transfers of nuclear materials and related technology." This report will be updated as events warrant. |
The rules of both the House and the Senate provide power to committees and subcommittees to subpoena witnesses and documents. Committees' subpoena power is defined thus: "The authority granted to committees by the rules of their respective houses to issue legal orders requiring individuals to appear and testify, or to produce documents pertinent to the committee's functions, or both." Consistent with this grant of power, most committees have adopted in their own rules subpoena provisions containing procedures for exercising this power. Committee rules may cover authorization, issuance, and service of subpoenas; may cover just one or two of these actions; or may be silent on exercise of the subpoena power. A subpoena must be authorized pursuant to committee rules—a decision to approve this legal order to a person to appear or to provide documents. Once authorized, if the committee wishes to take the next step, a subpoena must be issued pursuant to committee rules—signed and given to an individual to deliver the subpoena to the person named in it. To deliver a subpoena to the person named is to serve the subpoena. Most House and Senate committees have specifically included in their rules one or more provisions on committees' and subcommittees' power to authorize subpoenas by majority vote. Most House committees have also delegated to their chair the power to authorize subpoenas. Many of these rules delegating authority also require the chair to consult or notify the committee's ranking minority member. Most Senate committees' subpoena rules delegate to the chair and ranking minority member together the power to authorize subpoenas. Most Senate committees also have rules on committee authorization of subpoenas, and many have rules on subcommittee authorization. In addition to rules on authorizing subpoenas, the rules of most committees in both chambers also address issuing subpoenas. Most House committees' rules delegate authority to issue subpoenas to the chair, and allow another committee member who has been designated by the committee to sign a subpoena. Most Senate committees' rules delegate authority to issue subpoenas to the chair, and allow another committee member designated by the chair to sign a subpoena. This report begins with an explanation of how to analyze committees' subpoena rules. The report then first surveys House committees' subpoena rules, followed by a survey of Senate committees' subpoena rules. Both surveys begin with a brief description of chamber rules, followed by a short summary of that chamber's committees' rules that are ancillary to committee subpoena authorization procedures or appear in only one or two committees' rules. The surveys each include a table that compares the chamber's committees' rules on authorizing and issuing subpoenas, with table notes adding further detail. All committee rules analyzed in this report are rules adopted at the beginning of the 115 th Congress. The committees published their rules in the Congressional Record, complying with their chamber's rule on publication. All rules were published in the Record before March 31, 2017. The " Introduction " summarized three components of committees' subpoena authority: authorizing, issuing, and serving a subpoena. Beyond those three components, a number of procedural options are available both to the House and Senate in what subpoena authority the chambers grant their committees and to committees in writing rules on the exercise of that authority. To analyze a committee's authority to authorize subpoenas, the following questions are useful: Has the House for a House committee (or subcommittee) or the Senate for a Senate committee (or subcommittee) granted subpoena authority? For standing committees and their subcommittees, the answer is currently in the affirmative; for ad hoc committees and subcommittees, the parent chamber may have withheld subpoena authority. Has the House or Senate granted subpoena authority but conditioned it in some way? For example, on occasion in the past, subpoena authority granted a committee could be exercised only by the committee's action, not by action of or delegation to the chair. In a committee's rules — Does a committee require the authorization of an investigation by the committee (or a subcommittee) before subpoenas may be authorized? Do a committee's rules distinguish between hearings and investigations? If so, may subpoenas be authorized for hearings? Are the committee's rules silent on authorizing subpoenas or are there one or more rules on authorizing subpoenas? If a committee's rules are silent, how has the committee authorized subpoenas in the past? Has the committee authorized each subpoena or delegated authority to the chair or exercised its authority in another way? Is this past practice instructive or precedential? If there are one or more rules, who may authorize a subpoena: the committee, the chair, or the chair and ranking minority member together? What is the role of the ranking minority member? Must the ranking minority member be notified or consulted, or does the ranking minority member have authority to disapprove the authorization of a subpoena? Are there backup procedures available to a committee chair? For example, if the committee's rules give disapproval authority to the ranking minority member, may the chair proceed in the absence of a response from the ranking minority member or may the committee nonetheless authorize a subpoena if the ranking minority member disapproves? What constraints are placed on a chair's exercise of subpoena authority delegated to the chair? For example, some House committees allow the chair to authorize a subpoena only after the House has adjourned for three days. May a chair authorize a subpoena that the committee has considered or has rejected? What time limits appear in a committee's rules? For example, a ranking minority member may have 48 hours to respond to a chair proposing to authorize or to issue a subpoena, or a chair may be required to notify committee members within one week of the issuance of a subpoena. What is the quorum for the committee to authorize a subpoena? Must minority members be present? Must a minority member support the authorization? What are the committee's rules to suspend or change its rules? For example, is advance notification to all committee members required? Who may issue a subpoena: the chair, a member designated by the chair, a member designated by the committee, or a member or members designated by committee rule? Who may serve a subpoena? In committee rules applicable to a committee's subcommittees — Has the committee granted subpoena authority to its subcommittees or withheld this authority from them? May a committee's subcommittees adopt their own subpoena rules? Must either the committee or the subcommittee authorize an investigation before subpoenas may be authorized? Must the committee or the chair or the chair and ranking minority member approve a subcommittee investigation? Who may authorize a subpoena: the subcommittee, the chair, or the chair and ranking minority member? Who may issue a subpoena: the chair, a member designated by the chair, a member designated by the subcommittee, or a member or members designated by committee rule together? What role do committee rules provide for the committee chair and ranking minority member, or the committee, in approving the authorization or issuance of a subcommittee subpoena? May a subcommittee chair authorize a subpoena that the subcommittee has considered or has rejected? What time limits appear in a committee's rules applicable to a subcommittee chair's exercise of authority, the role of the subcommittee ranking minority member, the approval or notification of the committee chair and ranking minority member, and other procedures? What is the quorum for the subcommittee to authorize a subpoena? Must minority members be present? Must a minority member support the authorization? Rule XI, clause 2(m)(1) and (3) authorizes committees and subcommittees to issue subpoenas for the attendance of witnesses and the production of documents. Clause 2(m)(3) requires authorization by a committee or subcommittee, "a majority being present." Unless otherwise provided in a committee's rules, a quorum of one-third of a committee is required to debate a subpoena, under Rule XI, clause 2(h)(3). Rule XI, clause 2(m)(3) also allows committees to adopt rules to delegate the authorization and issuance of subpoenas to a committee's chair "under such rules and under such limitations as the committee may prescribe." This same subparagraph requires subpoenas to be signed by the chair or by a member who has been designated by the committee. Rule XI, clause 2(m)(3)(B) allows a committee or subcommittee to designate a return for documents other than at a meeting or hearing. Clause 2(m)(3)(C) allows enforcement of a subpoena only as authorized or directed by the House. Rule X, clause 10(b) makes Rule XI, clause 2(a) applicable to select and joint committees, unless the House has decided otherwise. Applicability of this rule makes the other provisions of Rule XI, clause 2, including subpoena authority, applicable to select and joint committees. If a committee meets to consider one or more subpoenas for a witness, witnesses, or documents, it meets in a markup session, and members may offer amendments and motions, make points of order, and engage the relevant procedures and procedural strategy that could also occur in a markup of legislation. When a House committee or subcommittee will consider authorizing a subpoena, the committee's rules on scheduling, notice, open meetings, quorum, and voting apply. Committees' rules also mirror a House rule requiring a majority to be actually present to report (Rule XI, clause 2(h)(1)). The House Office of General Counsel maintains subpoena-related forms to assist committees and may advise committees on subpoenas. Most committees' rules have also delegated authority to issue subpoenas to their chair, but many committees with such a rule also require the chair to consult or notify the ranking minority member. In many committees, subcommittees may authorize and issue subpoenas subject to specified conditions. Some committees' rules are not explicit on procedures for subcommittees to authorize subpoenas. The principal attributes of committees' subpoena rules are analyzed and displayed in Table 1 . Yet other provisions pertaining to subpoenas appear in committee rules but are not included in Table 1 . Generally, these rules are ancillary to subpoena authorization rules. They are, therefore, described here. Several committees reference the authority of the House to enforce a subpoena issued by the committee or, if permitted by committee rules, its subcommittees. These committees are the Committees on Appropriations, Armed Services, House Administration, and Transportation and Infrastructure. The Permanent Select Committee on Intelligence has a rule establishing conditions prior to the referral of a contempt recommendation to the House. "Reasonable" notice of a meeting to consider a contempt recommendation must be given to all committee members. The committee must meet and consider the contempt allegations. The individual who is the subject of the allegations must have an opportunity to respond in writing or in person as to why or why not the individual should be held in contempt. The committee by majority vote must agree to recommend a contempt citation to the House. The Committee on Ethics has four rules related to subpoenas separate from their authorization and issuance. One rule provides that "things" submitted pursuant to a subpoena by an investigative subcommittee are "deemed to have been taken or produced in executive session." Two rules relate specifically to subpoenas issued by adjudicatory subcommittees. First, a subpoena for documents may specify terms of return other than a meeting or hearing of the subcommittee. Second, a subpoena requiring a witness to appear must be served "sufficiently in advance" of the scheduled appearance to allow the witness to prepare and to retain counsel. The fourth rule proscribes committee members and staff from disclosing to a person outside the committee the name of a witness subpoenaed to testify or produce documents. The final rule appears to apply to all subpoenaed witnesses, covering, with exceptions, travel expenses at the per-diem rate established by the House Administration Committee. The Committee on Transportation and Infrastructure has a similar rule to that of the Committee on Ethics on expenses of subpoenaed witnesses. The rules of the Committee on Homeland Security allow the chair with the concurrence of the ranking minority member or the committee to include provisions in a subpoena that "prevent" the disclosure of the committee's demand for information "when deemed necessary for the security of information or the progress of an investigation." Such provisions may prohibit witnesses and their counsel from revealing the committee's inquiry. Another rule pertaining to a subpoena for documents allows the committee to specify terms of return other than a regularly scheduled meeting of the committee. Six committees also have rules on service of subpoenas. Five committees—Budget, Financial Services, House Administration, Natural Resources, and Rules—provide that a subpoena may be served by any person designated by the chair or by the member authorized by the committee to issue subpoenas. The Intelligence Committee's rule allows the chair to designate a person to serve a subpoena. The Intelligence Committee's rules also specifically require a copy of the committee's rules to be attached to any subpoena. Table 1 compares House committees' rules in the 115 th Congress on whose authority a subpoena may be authorized and issued and on notifying members of a committee that a subpoena has been issued. Committees are listed in alphabetical order in the left column, with the Permanent Select Committee on Intelligence appearing at the end of the table. The first three rows of the headings contain key terms describing committees' rules, as explained immediately below. A check in a box indicates that that committee adopted a rule or a closely related variation on it. An empty box indicates that a committee did not address that subject. Certain checks and blank boxes are footnoted to offer additional detail on a particular committee's rule or lack of a rule. In some cases, a single table note is used to offer additional detail on a rule or circumstances that affect more than one committee's rules. The following list explains the headings in Table 1 : Committee/Subcommittee by Majority Vote—a committee or subcommittee may authorize a subpoena by a majority vote. Chair—indicates under what conditions a chair has been delegated power to authorize a subpoena: On Own Initiative—a chair may authorize subpoenas, subject to conditions in the committee's rules. Ranking Minority Member—indicates the role of a ranking minority member in allowing the chair to authorize or issue a subpoena: Concurs—the ranking minority member must concur with the chair before a subpoena is authorized or issued. Consulted—the chair must consult or notify the ranking minority member before authorizing or issuing a subpoena. Three Days—a chair may authorize and issue a subpoena only when the House has adjourned for more than three days. Authorized To Sign or Issue Subpoena—who is authorized by committee rules to sign or issue a subpoena—the chair, a committee member designated by the chair, or a committee member designated by the committee. Notification to Committee (as soon as practicable)—a chair shall notify the committee as soon as practicable that a subpoena has been issued. Senate committees and subcommittees are authorized to subpoena witnesses and documents (Rule XXVI, paragraph 1). No additional details specific to authorizing or issuing subpoenas appear in Rule XXVI. If a committee meets to consider one or more subpoenas for a witness, witnesses, or documents, it meets in a markup session, and Senators may offer amendments and motions, make points of order, and engage the relevant procedures and procedural strategy that could also occur in a markup of legislation. The Senate Office of Legal Counsel may advise committees on subpoenas. Most Senate committees in their rules have also delegated authority to issue subpoenas to their chair and ranking minority member acting together. Some committees' rules are explicit on procedures for subcommittees to authorize subpoenas. Other provisions pertaining to subpoenas, but not directly relating to authorizing or issuing them, may appear in committees' rules. The Select Committee on Ethics has a unique rule for withdrawing a subpoena. The committee by a recorded vote of no fewer than four members may withdraw a subpoena that it had authorized or that the chair and vice chair together had authorized. In addition, the chair and vice chair together could withdraw a subpoena that they had authorized. The Ethics Committee has rules in addition that by a recorded vote of no fewer than four members, may prohibit committee members and staff and outside counsel from publicly identifying a subpoenaed witness prior to the day of the witness's appearance, except as authorized by the chair and vice chair acting together; allow the respondent in an adjudicatory hearing to "apply to the Committee" for the subpoena of witnesses and documents in the individual's behalf; allow a subpoenaed witness to request, subject to the committee's approval, not to be photographed at a hearing or to have the witness's testimony broadcast or reproduced while testifying; require a subpoena to be served sufficiently in advance of a scheduled appearance to provide the witness with "a reasonable period of time" to prepare and to obtain counsel; and permit service of a subpoena by any person 18 years of age or older designated by the chair or vice chair. Four other committees have additional rules that pertain to subpoenas, but not specifically to their authorization or issuance. These rules are as follows: A rule of the Foreign Relations Committee deals with the return of a subpoena, or of a request to an agency, for documents. The rule states that the return could be a time and place other than a committee meeting. If the return was incomplete or accompanied by an objection, the rule states that that is good cause for a hearing of the committee on shortened notice. On such a return, the chair or a member designated by the chair could convene a hearing on four hours' notice to members by telephone or email. One member is a quorum for this hearing, which occurs for the sole purpose of "elucidat[ing] further information about the return and to rule on the objection." The Health, Education, Labor, and Pensions Committee's investigations and subpoena rule has an additional provision that makes information obtained from investigative activity available to committee (or subcommittee) members requesting the information and to staff of committee (or subcommittee) members who have been designated in writing by the members, subject to restrictions contained in Senate rules. A committee member may also request information relevant to an investigation to be "summarized in writing as soon as practicable." Moreover, the committee or a subcommittee chair must call an executive session to discuss investigative activity and the issuance of subpoenas in support of this activity at the request of any member. A rule of the Small Business and Entrepreneurship Committee specifically authorizes the chair to rule on objections or assertions of privilege in response to subpoenas or on questions raised by a committee member or staff. The Select Committee on Intelligence has a rule on recommending that an individual "be cited for contempt of Congress or that a subpoena be otherwise enforced." A recommendation could not be forwarded to the Senate unless the committee had met and considered the recommendation, provided the individual an opportunity to oppose the recommendation in person or in writing, and agreed by majority vote to forward the recommendation to the Senate. Another rule of the committee allows the chair, vice chair, or committee member issuing a subpoena to designate any person to serve a subpoena. Committees' other procedural rules affect scheduling and conducting meetings to authorize a subpoena. These other rules deal with the notice for and agenda of a meeting, the quorum to conduct business, voting, and consideration. Committees' rules also mirror a Senate rule requiring a majority to be physically present, and the concurrence of a majority of the members present, to report (Rule XXVI, paragraph 7). Table 2 compares committees' rules in the 115 th Congress on subpoena requirements across the 20 Senate committees. The 16 standing committees with legislative authority are listed in alphabetical order in the left-most column, followed by the 2 additional permanent committees with legislative authority. The two committees without legislative authority appear in the last two positions of the table. The first two rows of the heading contain key terms describing the committees' rules, as explained immediately below. A check in a box indicates that a committee adopted a rule or a closely related variation on it. An empty box indicates that a committee did not address that subject in its rules. Certain checks and blank boxes are footnoted to offer additional detail on a particular committee's rule or lack of rule. In some cases, a single table note is used to give additional detail for a rule or circumstances that affect more than one committee's rules. The following list explains the headings in Table 2 : Committee—In addition to a committee's name, footnotes appear with committees' names that explain the coverage of subcommittee subpoena authority in the committee's rules. Authorization—refers to who has the authority to authorize a subpoena—the chair, the chair with the ranking minority member, or the committee. RMM is used as an abbreviation for ranking minority member . Issued upon Signature of—refers to whose signature is required for the issuance of a subpoena—that of the chair, of a committee member designated by the chair, or of a committee member(s) designated by the committee. | House Rule XI, clause 2(m)(1) and (3) authorizes House committees and subcommittees to issue subpoenas for the attendance of witnesses and the production of documents. Senate Rule XXVI, paragraph 1 authorizes Senate committees and subcommittees to subpoena witnesses and documents. In turn, most House and Senate committees have adopted in their own rules subpoena provisions containing procedures for exercising this grant of power from their parent chamber. Committee rules may cover authorization, issuance, and service of subpoenas; may cover just one or two of these actions; or may be silent on exercise of the subpoena power. A subpoena must be authorized pursuant to committee rules—a decision to approve this legal order to a person to appear or to provide documents. Once authorized, if the committee wishes to take the next step, a subpoena must be issued pursuant to committee rules—signed and given to an individual to deliver the subpoena to the person named in it. To deliver a subpoena to the person named is to serve the subpoena. Most House and Senate committees have specifically included in their rules one or more provisions on committees' and subcommittees' power to authorize subpoenas by majority vote. Most House committees have also delegated to their chair the power to authorize subpoenas. Many of these rules delegating authority also require the chair to consult or notify the committee's ranking minority member. Most Senate committees' subpoena rules delegate to the chair and ranking minority member together the power to authorize subpoenas. In addition to rules on authorizing subpoenas, the rules of most committees in both chambers also address issuing subpoenas. Most House committees' rules delegate authority to issue subpoenas to the chair, and allow another committee member who has been designated by the committee to sign a subpoena. Most Senate committees' rules delegate authority to issue subpoenas to the chair, and allow another committee member designated by the chair to sign a subpoena. Some committees' rules are explicit on procedures for subcommittees to authorize subpoenas; other committees' rules are not explicit. Committees in both chambers have other rules on subpoenas than the prevailing approach in one chamber. Requirements or limitations pertaining to subpoenas may appear in committees' rules, such as conditions placed on a chair's exercise of subpoena authority delegated to the chair or on a ranking minority member's role in authorizing a subpoena. The distinctions among committees' subpoena rules are varied and nuanced. Committees' other procedural rules affect scheduling and conducting meetings to authorize a subpoena. These other rules may deal with the notice for and agenda of a meeting, the quorum to conduct business, and voting. |
Allegations of North Korean (Democratic People's Republic of Korea, or DPRK) drug production, drug trafficking, and other crime-for-profit activities have been an issue of concern for Congress, the Administration, the media, and the diplomatic community. The issue is twofold. First is general U.S. interest in halting criminal behavior (upholding the rule of law and protecting U.S. citizens and assets from illicit activity). Second is how to deal with a government suspected of countenancing or sponsoring activity that may threaten U.S. diplomatic and security interests. A challenge facing policy makers is how to balance pursuing anti-drug, counterfeiting, and crime policies vis-à-vis North Korea against effectively pursuing other high-priority U.S. foreign policy objectives, including (1) limiting possession and production of weapons of mass destruction, (2) limiting ballistic missile production and export, (3) curbing terrorism, and (4) addressing humanitarian needs. A core issue is whether the income from the DPRK's reportedly widespread criminal activity has financed the acquisition of weapons of mass destruction and has strengthened the DPRK's ability to maintain, until recently, truculent, no-compromise positions on the issue of its nuclear weapons program. Some also speculate that the DPRK's criminal smuggling networks could help facilitate the illicit movement of nuclear materials in and out of the country. U.N. Resolution 1718 (2006) provides for economic sanctions against persons or entities engaged in or providing support for, including through illicit means, DPRK's nuclear-related, other weapons of mass destruction-related and ballistic missile-related programs. Counterfeiting, copyright and trademark violations, and other illicit activity occur in virtually all countries of the world, but in the North Korean case, numerous sources indicate that the state apparently had—and may continue to be—sponsoring some of these activities. In this view, if the DPRK is to join the larger international community of nations, it would be expected to cease state-sponsorship of such activities and to take appropriate measures against private parties engaged in such production and/or distribution. As the Six-Party Talks on North Korea's nuclear program have proceeded in 2008, it appears that the U.S. goal of denuclearization has outweighed concerns related to DPRK illicit activity (with the exception of proliferation of nuclear weapons technology and materials). Such illicit activity by North Korea, however, could resurface as the Six-Party process proceeds and attention turns toward normalizing diplomatic ties with the DPRK by the United States, Japan, and South Korea and allowing North Korea to join international financial institutions such as the Asian Development Bank, International Monetary Fund, and the World Bank. The role of Congress in this issue includes overseeing U.S. policy, eliciting information and raising public awareness of the issue, and balancing U.S. interests when foreign policy goals may conflict with anti-crime activities. Congress also authorizes and appropriates funds for humanitarian and other economic assistance for North Korea. Areas of DPRK criminal activity commonly cited have included production and trafficking in (1) heroin and methamphetamine; (2) counterfeit cigarettes; (3) counterfeit pharmaceuticals (e.g., "USA" manufactured Viagra®); and (4) counterfeit currency (e.g., U.S. $100 bill "supernotes"). Media reports also have indicated that North Korea may be engaged in insurance fraud, endangered species trafficking, and human trafficking as a matter of state policy. News reporting on the subject reached its height in 2003, when the Bush Administration was activity raising the issue of DPRK's crime-for-profit activities at the highest levels. Since then, fewer public reports have surfaced to indicate that DPRK illicit activities are continuing. At the same time, no public reports indicate that DPRK has completely halted its crime-for-profit activities. In 2008, the State Department reports that while DPRK's drug trafficking appears to have declined substantially, "DPRK-tolerance of criminal behavior may exist on a larger, organized scale, even if no large-scale narcotics trafficking incidents involving the state itself have come to light." The estimated aggregate scale of DPRK's crime-for-profit activity has been and may still be significant—and arguably provides important foreign currency resources to the heavily militarized North Korean state. DPRK crime-for-profit activities are reportedly orchestrated by a special office charged with bringing in foreign currency under the direction of the ruling Korean Worker's Party. North Korean drug trafficking, trade in counterfeit products, and the counterfeiting of U.S. currency, to the extent that it does indeed exist, have been a matter of concern in Asian, European, and U.S. law enforcement, foreign policy, and national security communities. At least 50 documented incidents, over decades, many involving arrest or detention of North Korean diplomats, have linked North Korea to drug trafficking. Such activity, particularly production and trafficking of methamphetamine and trade in counterfeit cigarettes, appears to be continuing. With the caveat that dollar value estimates of clandestine activities are highly speculative, conservative estimates suggest North Korean criminal activity generates as much as $500 million in profit per year, with some estimates reaching the $1 billion level. One recent economic study by Stephan Haggard and Marcus Noland, however, places current illicit activity at a much lower level and considers the lower end of the various published estimates of profit as the upper bound. For example, the Haggard/Noland study estimates drug trafficking in 2005-2006 at about $20 to $35 million. In contrast, the (South) Korea Institute for Defense Analysis reportedly stated that North Korea earns between $700 million and $1 billion per year from exporting weapons and trading drugs and counterfeit money. In 2003, an official from U.S. Forces Korea reportedly stated that North Korea's annual revenue from exports of illegal drugs was estimated at $500 million and from counterfeit bills at $15 to $20 million. The official also stated that in 2001, North Korea exported ballistic missiles worth $580 million to the Middle East. More recently, some sources report that North Korea has been exporting conventional military weapons to Burma (Myanmar) in contravention to current U.N. prohibitions against North Korea. One basis for the $500 million to $1 billion figure for illicit exports is that it can be inferred from international trade data and from reported anecdotes that markets in Pyongyang have ample supplies of imported foreign goods. In 2004, North Korea is estimated to have incurred a trade deficit of $1.8 billion. This deficit rose to about $2.0 billion in 2005, dropped to an estimated $1.3 billion in 2006, and rose to an estimated $2.7 billion in 2007. Some of this imbalance is financed through food and other aid, capital inflows, borrowing, remittances from North Korean laborers working abroad (especially in Russia and the Middle East), and tourism. Pyongyang, however, does little borrowing on international markets, and Tokyo has been cracking down on remittances from ethnic North Koreans in Japan. Inflows of capital also seem small, although they are rising as China and South Korea invest in enterprises in the North. As a result, some surmise that in some years as much as $1 billion has been financed by illicit activity. There has been evidence to suggest that the North Korean government is supporting drug production and trafficking as a matter of state policy. Since 1976, North Korea has been linked to more than 50 verifiable incidents involving drug seizures in at least 20 countries. A significant number of these cases has involved arrest or detention of North Korean diplomats or officials. Concerns about North Korean drug trafficking and production were further expressed in the International Narcotics Control Board's 1997 annual report, which referred to such DPRK drug trafficking incident claims as "disquieting." In 1999, substantial seizures of North Korean methamphetamine occurred in Japan (35% of the total methamphetamine seizures in Japan that year). Large seizures of heroin and methamphetamine with a link to the DPRK have since occurred in Taiwan, and in April of 2003, the "Pong Su," a DPRK state enterprise-owned, sea-going vessel of around 4,000 metric tons apparently delivered a large quantity of DPRK-trafficked and also possible DPRK-origin heroin to Australia. Although members of the vessel's North Korean crew were subsequently acquitted on charges relating to the smuggling of the drugs, experts have little doubt of a North Korean connection to the drug shipment. Since 2003, however, no incidents definitively and directly linking the DPRK State apparatus to such drug trafficking activity have come to light. The State Department's March 1, 2008, International Narcotics Control Strategy Report states that drug trafficking with a connection to North Korea "appears to be down sharply and there have been no instances of drug trafficking suggestive of state-directed trafficking for five years." Many analysts suggest that any decline in DPRK state-linked drug trafficking activity would likely be in response to enhanced international attention paid to such activity in the wake of the April 2003 seizure of heroin carried on the North Korean Vessel the "Pong Su." Others, however, remain skeptical and offer an alternative explanation. They suggest that the decline in seizures is because North Korean source methamphetamine is now regularly being mistakenly identified as "Chinese source," given growing links of Chinese criminal elements to North Korea's drug production/trafficking activities. In line with such a conclusion are press reports in late 2006 of the arrests in China in differing locations of North Korean nationals involved with Chinese criminals in the trafficking of methamphetamine. However, it is not clear from the reports whether the drugs were of DPRK origin or whether the North Koreans arrested had links with DPRK officials. North Korea has reportedly produced three main types of illicit drugs: (1) opiates, including opium and heroin; (2) synthetic drugs, especially methamphetamine; and (3) counterfeit pharmaceutical drugs. In 2008, the amount of illegal drug production and trafficking is unlikely to be large enough for North Korea to be cited on the State Department's drug "majors list," which could make Pyongyang subject to the drug certification process applicable to "major" producers and potentially liable to discretionary trade sanctions and restrictions on non-humanitarian aid. According to press reports and North Korean defectors, farmers in certain areas have been ordered to grow opium poppies in the past. In 2006 congressional testimony, a representative of the State Department reported that North Korea cultivates 4,000 to 7,000 hectares of opium poppy, producing approximately 30 to 44 metric tons of opium gum annually. Though such estimates appear reasonable, they are nevertheless based on indirect and fragmented information. With the caveat that conclusive "hard" data is lacking, U.S. government investigative agency sources estimate North Korean raw opium production capacity at 50 tons annually. North Korean government chemical labs reportedly have the capacity to process 100 tons of raw opium poppy into opium and heroin per year. North Korea's maximum methamphetamine production capacity is estimated to be 10 to 15 metric tons of the highest quality product for export. This coincides with a time when markets for methamphetamine are dramatically expanding in Asia, especially in Thailand, Japan, the Philippines, and more recently in Cambodia and China. North Korea also has an advanced pharmaceutical industry, and it is widely believed that large-scale production of expertly packaged pharmaceuticals such as knock-off erectile enhancement drugs (particularly, Viagra® and Cialis®) has been orchestrated by Pyongyang. However, public source data on such alleged activity is sketchy. At issue is not the existence of the knock-off drugs, but whether the DPRK is indeed the manufacturer, with some speculating that China may be the source of production. An emerging genre of reports, yet to be substantiated, suggests that as state control of drugs in the DPRK becomes looser, a growing amount of stimulants for domestic sale and consumption are being produced privately by scientists in the DPRK and funded by private investors. Some reports suggest drug abuse is becoming widespread among senior military officials and also among the poor as a means to dull hunger. Others suggest that drug addiction is spreading among cadres such as the officer corps of the People's Army Security Department and high-ranking party officials. A scenario is being presented of drugs sold openly at farmers markets, at times being used instead of currency in transactions. Besides the production and distribution of illicit drugs, DPRK appears to have been involved in the production and distribution of counterfeit foreign currencies as a means of generating foreign exchange. The United States has accused DPRK of counterfeiting U.S. $100 Federal Reserve notes (supernotes) and passing them off in various countries. Officials familiar with the bogus currency in question note its exceptional quality—so good that many cashier-level bank personnel would likely not be able to detect the forgeries. In an April 2008 hearing, a Treasury official stated that it has continued to work with the U.S. Secret Service to counteract North Korea's counterfeiting of U.S. currency and that high-quality counterfeit bills produced by North Korea, known as the "Supernote," continue to surface. Media reports indicate that counterfeit $100 bills are used in North Korean markets as currency and are valued at about the equivalent of $70. It is not clear, however, whether the counterfeit bills circulating are from existing stocks or are currently being produced. The anti-counterfeiting security features incorporated into new U.S. bills make counterfeiting much more difficult. In 2006, U.S. officials cited the figure of $45-$48 million detected or seized since 1989. However, because counterfeiting is a form of clandestine criminal activity and North Korea is a closed society, the amount of alleged DPRK-produced counterfeit currency in circulation is speculative at best. Estimates of the profit such transactions bring to the Pyongyang regime—to the extent they are based on open source material—are also speculative. Amounts commonly cited, which take into account many factors, range from $15 million to $25 million in profit per year. At least 13 reported incidents between 1994 and 2005 show North Korean involvement in counterfeiting and smuggling or distributing U.S. currency. All of these incidents occurred in either Asia or Europe. The use of DPRK diplomatic passports and the involvement of DPRK diplomats, embassy personnel, and employees and officers of DPRK state-owned and -operated trading companies connect most of these incidents to the government of North Korea in varying degrees. Taken collectively, the link is seen as even stronger. Of these 13 incidents, 6 occurred after 1999. Counterfeiting of foreign currency is apparently a phenomenon that is not new to the government of North Korea. Seoul's War Memorial Museum reportedly contains DPRK-manufactured South Korean currency from the 1950s, the production of which reportedly continued into the 1960s. South Korean media reports cite a 1998 South Korean National Intelligence Service (IS) Report to the effect that North Korea had forged and circulated U.S. $100 banknotes worth $15 million a year. Subsequent reports to the South Korean National Assembly in the same year and in 1999 are cited in the media as stating that North Korea operates three banknote forging agencies and that more than $4.6 million in bogus dollar bills had been uncovered on 13 occasions between 1994 and 2005. Arrests and indictments point to DPRK trafficking in bogus U.S. currency as recently as 2005. In August 2005, federal law enforcement authorities completed two undercover operations that focused on the activities of members of China's Triad criminal syndicates. The operations, named Royal Charm and Smoking Dragon, reportedly netted some $4 million in supernotes believed to be of North Korean origin. Illicit narcotics, counterfeit brand cigarettes and pharmaceuticals were seized as well. U.S. government authorities indicate there is the potential that any scheduling of trials and/or the plea bargaining process will reveal direct links between some of the smugglers and North Korean officials or government entities. The Banco Delta Asia (BDA) bank is located and licensed in the Macau Special Administrative Region of China. According to the U.S. Treasury Department, BDA played an important role in laundering money that had been derived from DPRK's crime-for-profit activities. Treasury claims that senior BDA officials worked with DPRK officials "to accept large deposits of cash, including counterfeit U.S. currency, and agreeing to place that currency into circulation." In addition, BDA clients were reportedly known to include a DPRK front company, which had been involved for more than a decade in distributing counterfeit money, smuggling counterfeit tobacco products, and suspected in being involved in drug trafficking. On March 19, 2007, the Treasury Department finalized a rule based on Section 311 of the USA PATRIOT Act (31 U.S.C. 5318A), which prohibited U.S. financial institutions from opening or maintaining correspondent accounts for or on behalf of BDA. This order, which continues to remain in effect, has also led banks, not only from the United States but from other nations as well, to refuse to deal with even some legitimate North Korea traders. North Koreans appear to have moved some of their international bank accounts to alternative banking institutions, including those in China, Austria, and Switzerland. The DPRK also enacted an Anti-Money Laundering Law partly to ease foreign concerns over alleged money laundering by North Korean entities. Pyongyang cited the BDA action in the past when it refused to return to the Six-Party Talks on its nuclear program and received a pledge by the United States as an aside in the process of negotiating the Six-Party Agreement of February 13, 2007, to resolve the BDA issue. In the process of seeking to resolve the issue, the United States agreed to release blocked assets—some $25 million—to DPRK authorities. After considerable effort, the $25 million in Banco Delta funds were returned to North Korea via the U.S. Federal Reserve and a Russian bank in June 2007 as a condition for restarting the Six-Party talks. This decision was both praised and criticized by observers. Some described the release of funds as one of the Administration's "notable foreign-policy successes" because it was seen as having contributed to bringing DPRK back to the negotiating table for the Six-Party Talks. Others argued that returning the funds to North Korea compromised the spirit of international agreements the United States has supported, including U.N. Resolution 1718, which condemns the alleged use of crime-for-profit activities to finance DPRK's nuclear ambitions. In addition to the issue of returning the frozen funds, some analysts claim that the BDA issue brought to the surface lingering questions about the way the international banking community treats DPRK accounts. Specifically, the financial effects of the BDA action were larger than expected. It caused a run on accounts at the bank that compelled the government of Macau to take over BDA's operations and place a temporary halt on withdrawals. It also appears to have obstructed some legitimate North Korean financial interests, as the BDA action caused other banks around the region, including Chinese, Japanese, Vietnamese, Thai, and Singaporean banks, to impose voluntarily more stringent regulations against North Korean account holders. As North Korean traders and others move forward, some question whether the situation will return to "business as usual," "business with caution," or remain as "no business at all." In the case of China, a media report indicates that the country is allowing North Koreans to open bank accounts in China to settle business transactions in Chinese yuan. This enables them to conduct transactions in the Chinese currency. Counterfeit cigarette production may have replaced illegal drug trafficking as a major source of crime-for-profit revenue for North Korea. In 2008, the State Department reports that "the continuing large-scale traffic in counterfeit cigarettes from DPRK territory suggests, at the least, that enforcement against notorious organized criminality is lax, or that a lucrative counterfeit cigarette trade has replaced a riskier drug trafficking business as a generator of revenue for the DPRK state." Reports from the past several years have charged the DPRK with producing counterfeit cigarettes for export of seemingly genuine Japanese brand cigarettes (Mild Seven) and U.S. brands such as Marlboro. According to the Wall Street Journal , U.S. authorities seized more than a billion of the "fake smokes" in California in 2005. Millions more packs of fake Marlboros, Mild Sevens, and other cigarettes made in North Korea have been seized in Taiwan, the Philippines, Vietnam, and Belize. Officials from Philip Morris, which launched a major undercover operation to investigate the trade, have been cited as stating that DPRK-made knock-offs of its Marlboro brand have been discovered in more then 1,300 places. They cite DPRK knock-off cigarette production capacity as being in the range of more than two billion packs a year, making Pyongyang one of the largest producers of such contraband in the world. Press reports cite a confidential report prepared by a consortium of tobacco manufacturers to the effect that the DPRK regime could be earning some $80 to $160 million in payoffs alone from manufacturers of such counterfeits. Gross revenues from such sales, according to the report, could generate between $520 and $720 million annually. One of the main hubs of such activity is reportedly Rajin, a free trade zone port city on North Korea's east coast. Many of the cigarette factories in Rajin are reportedly owned and financed by Chinese criminal groups. According to one report, the DPRK regime allows specific deep-sea smuggling vessels to use its ports and provides the gangs with a secure delivery channel. North Korean state-owned enterprises, mostly located in the Pyongyang area, also reportedly produce contraband cigarettes. A 2006 article on North Korean cigarette production found that DPRK cigarette manufacturers have been turning more toward producing domestic low-priced brand cigarettes instead of counterfeit products. The article states that relative to the price of rice, the price of a package of cigarettes has been falling and their quality has been rising. In 2007, the DPRK imported $12.95 million ($14.1 million in 2006 and $13.5 million in 2005) in tobacco products from China. Domestic brands now are taking market share from imports, and North Korean cigarette producers—even the factories operated by the No. 39 Department of the Workers' Party, which accumulates and manages Kim Jong-il's slush funds—reportedly have been producing more for the domestic market than counterfeits of brands such as Mild Seven, Crown (both Japanese brands), and Dunhill. Media reports indicate that Greek authorities seized some four million cartons of contraband cigarettes through the fall of 2006, of which three million were aboard North Korean vessels. For example, on September 25, 2006, Greek officials detained a North Korean freighter that was carrying 1.5 million cartons of contraband cigarettes and arrested the seven seamen on board. According to information from Greek customs authorities, the ship's load of counterfeit, duty-unpaid cigarettes would have brought 3.5 million euros in taxes. Media reports from late 2006 suggested that the DPRK may be involved in insurance fraud as a matter of state policy. Some industry experts are concerned that claims for property damage are vastly overstated; circumstances of accidents are being altered; and that claims for deaths are not accident-related. A recent example cited in media reports of possible DPRK state involvement in insurance fraud involves a ferry accident that reportedly occurred in April 2006 near the coastal city of Wonsan. After the accident, North Korea declared that 129 people had died, all of whom were provided life insurance coverage when they bought a ticket. It was claimed that most of the victims had died of hypothermia, although weather data apparently indicated that temperatures were warmer than reported by Pyongyang's Korea National Insurance Corporation. In another case, in July 2005, a medical rescue helicopter apparently crashed into a government owned disaster supply warehouse, setting it on fire. It reportedly took the DPRK authorities only 10 days to file a claim that included a detailed inventory of hundreds of thousands of items—a task which insurance industry officials say normally takes most governments many months. Although a practice of North Korean state initiated insurance fraud has not been confirmed, criminal conduct of this nature would appear consistent with a well-established pattern of DPRK crime-for-profit activity. One industry source estimated in 2006 that the extent of fraudulent DPRK insurance claims could have exceeded $150 million. Several reports link North Korean officials with trafficking in endangered species, which is in contravention to the U.N. Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). The DPRK is not a member of CITES; however, DPRK diplomats allegedly have been caught trafficking in CITES-protected species between treaty member states, including France, Russia, and Kenya. According to the State Department, known DPRK violations of CITES began in the 1980s and have mainly involved trafficking in elephant ivory and rhino horn. Although some may argue that cases of endangered species smuggling by DPRK diplomats may have been for personal use, the sheer size of confiscated shipments—as much as several hundred kilograms each—suggests that endangered species trafficking could have been planned by a North Korean government entity. According to the State Department, North Korea is a source country for men, women, and children trafficked for forced labor and commercial sexual exploitation and has been listed by the U.S. government as a "Tier 3" country for as long as it has been included in the State Department's Trafficking in Persons annual reports. As a Tier 3 country, North Korea reportedly does not comply with minimum standards for eliminating trafficking and is not making significant efforts to do so. It remains unclear to what extent DPRK profits from human trafficking activities as a source of revenue. However, the State Department indicates that North Korea directly contributes to labor trafficking by maintaining a system of force labor prison camps inside the country, where an estimated 150,000 to 200,000 prisoners are forced to log, mine, and tend crops. According to Mark Lagon, Director of the U.S. Office to Monitor and Combat Trafficking in Persons, the most common form of DPRK trafficking are North Korean women and children who voluntarily cross the border into China and are picked up by trafficking rings and sold as brides in China and elsewhere, including Russia and Mongolia. The 2007 Trafficking in Persons report further states that North Korean women and girls may also be lured out of DPRK with promises of food, jobs, and freedom, only to be forced into prostitution, marriage, or exploitative labor arrangements in China. U.S. policy has addressed North Korea's crime-for-profit activities through several tracks, including diplomacy, law enforcement, economic sanctions, and economic incentives. In some instances, the various tracks may overlap considerably, while in other cases, they may work at cross-purposes. Congress has played an active role in the oversight of U.S. policy toward North Korea and may further consider evaluating U.S. efforts to reduce North Korea's crime-for-profit activities or explore in more detail the dynamics and trends related to the regime's illicit financial channels. One strategy on the diplomatic front has been to use fora such as the Six-Party Talks on nuclear proliferation to address issues such as North Korea's illicit activities. This was the initial preference of the Bush Administration, but since sometime after the BDA action in 2007, this tactic no longer appears evident. As the Bush Administration comes to a close, denuclearization is the primary emphasis of policy on North Korea. Also, if the DPRK is able to earn foreign exchange and receive more economic assistance, the pressure to generate foreign currency through illicit activities arguably will diminish. The policy debate heretofore has been divided between those who argue to pressure North Korea with unilateral tactics that cut DPRK off from access to its illicitly generated profits through economic sanctions and a second group of policymakers more in favor of engagement who seek to resolve the North Korean problem mainly by negotiations. Its goal is to change DPRK's "bad behavior" by bringing the country into the circle of peaceful nations and inducing it to act in accord with international standards. In 2008, the latter argument seems to be carrying the day. Following recent developments in the Six-Party talks, a continued policy challenge for the United States is to receive a commitment by Pyongyang to curtail its alleged crime-for-profit activities. A possible vehicle for this discussion could be the working team on the normalization of diplomatic relations between the DPRK and the United States. Since Japan, South Korea, and China also have considerable interest in protecting themselves from North Korean illicit activity, it also may be addressed in the working team on normalizing relations between the DPRK and Japan as well as in other negotiations. So far, however, the working teams have not appeared to have addressed North Korean crime-for-profit activities. On the law enforcement side are actions such as the prosecution of criminal behavior and those resulting from the Bush Administration's Illicit Activities Initiative (IAI). The IAI was established in 2003 as an interagency effort aimed at curtailing North Korean involvement in narcotics trafficking, counterfeiting, and other illicit activities. The major purposes of the initiative have been to provide policy support for the Six-Party Talks and to hold North Korea to internationally accepted standards of behavior by enforcing relevant U.S. and other laws. The IAI has come to involve fourteen different U.S. government departments and agencies, and it has received cooperation from fifteen different governments and international organizations. The Banco Delta Macau action stemmed partly from the work of the IAI. The United States and other nations also are taking direct measures to halt shipments of illicit cargo from North Korea. The Proliferation Security Initiative (PSI), for example, is aimed at stopping shipments of weapons of mass destruction, their delivery systems, and related materials by tracking and searching suspected ships or other conveyances transporting such cargo. Fourteen nations have signed on to the PSI, and many more have endorsed the principles. Although not directed at illicit activities per se, the prospect of ships being inspected complicates North Korean efforts to smuggle items such as illegal drugs, fake pharmaceuticals, and counterfeit currency. A weakness of the PSI, however, is that the DPRK's immediate neighbors, China and South Korea, have not joined the effort, though there is some speculation that Seoul may join under new President Lee Myung-bak. In addition, no North Korean ships or airplanes have been halted by a PSI operation. The role of Congress in this issue includes oversight of U.S. policy, eliciting information and raising public awareness of the issue, and in balancing U.S. interests when foreign policy goals may conflict with anti-crime activities. Congress also may be asked to provide funding for energy and food assistance to North Korea as part of a resolution of the DPRK's nuclear weapons program, because some contend that additional supplies of energy and food could reduce the need to rely on illicit activities in some North Korean quarters. Congressional action also could be required to enable North Korea to earn more foreign exchange through an increase in its legitimate exports or by attracting investments from U.S. businesses. This could include, for example, granting the DPRK normal trading nation status (most favored nation status) with respect to U.S. import duties, or by allowing goods from North and South Korea's Kaesong Industrial Complex to be included in the proposed Korea-U.S. Free Trade Agreement. For those assuming that the Pyongyang regime wants to curb its crime-for-profit activity, an important question yet unresolved is the degree to which the leadership will be able to do so. Analysts point out that in nations or regions where the crime has become institutionalized, income from such activity often becomes "addictive" to those involved in the criminal conduct. In such instances, a class of criminal entrepreneurs is created and, in the case of North Korea, analysts point to the systematic criminalization of the state, over years, and its growing intimate relationships with organized crime elements throughout Asia. That is not to say that North Korean criminals, like other criminals, would not be able to switch emphasis from risky criminal activity, such as narcotics trafficking, to less risky and potentially even more lucrative large-scale manufacture and trade in counterfeit cigarettes and pharmaceuticals—a trend that may well be underway. Indeed, state countenanced—if not state sponsored—production of seemingly genuine Japanese and U.S. cigarettes appears to be flourishing, as may large scale production of expertly packaged pharmaceuticals such as Viagra®. Whereas the capacity to produce opium is dependent on the availability of suitable land and climatic conditions, methamphetamine production and a wide range of counterfeiting activities are not limited by agricultural production constraints. Reports of substantial DPRK imports of ephedrine—an essential precursor for methamphetamine production—support the theory that the DPRK has developed a significant production capacity for methamphetamine. Such activity is occurring at a time when (1) North Korea urgently needs foreign currency, and (2) the southeast Asian methamphetamine market continues to expand. Some see promise in the efforts by the international community to entice and/or pressure Pyongyang into reducing its involvement in crime-for profit activity. Others, however, argue that the more legitimate the source of income, the greater the pressure for accountability on the regime, since revenue from illicit activities does not usually enter official records. Hence, they maintain that proposals to shift DPRK crime-related income toward legitimate-source income ignore the fact that the current regime diverts some illicit earnings to slush funds designed to sustain the loyalty of a core of party elite and to underwrite weapons development programs. They suggest, therefore, that prospects for a decrease in crime-for-profit activity are not good and that the current regime is likely to be neither willing nor able to change its dependence on income where no accountability is involved. Still, it appears that Pyongyang is reducing much of its illicit activity as it finds other means to export and earn foreign exchange. | Strong indications exist that the North Korean (Democratic People's Republic of Korea or DPRK) regime has been involved in the production and trafficking of illicit drugs, as well as of counterfeit currency, cigarettes, and pharmaceuticals. It appears that drug trafficking has declined and counterfeiting of cigarettes may be expanding. Reports indicate that North Korea may engage in insurance fraud, human trafficking, and wildlife trafficking as a matter of state policy. DPRK crime-for-profit activities have reportedly brought in important foreign currency resources and come under the direction of a special office under the direction of the ruling Korean Worker's Party. With the caveat that dollar value estimates of clandestine activities are highly speculative, conservative estimates suggest North Korean criminal activity has generated as much as $500 million in profits per year (about a third of DPRK's annual exports) but has decreased in recent years. A core issue is whether the income from the DPRK's reportedly widespread criminal activity is used to finance the development of weapons of mass destruction or other key military programs, thereby contributing to the DPRK's reluctance to curb its aggregate level of such activity. Some also speculate that the DPRK's criminal smuggling networks could help facilitate the illicit movement of nuclear or other materials in and out of the country. Policy analysts in the past have suggested that North Korean crime-for-profit activity has been carefully controlled and limited to fill specific foreign exchange shortfalls. However, some concern exists that North Korean crime-for-profit activity could become a "runaway train" that once established could escape control. If the DPRK's crime-for-profit activity has become entrenched, or possibly decentralized, some analysts question whether the current Pyongyang regime (or any subsequent government) would have the ability to effectively restrain such activity, should it so desire. Moreover, some suggest that proposals to shift DPRK crime-related income toward legitimate-source income ignore the fact that the current regime diverts some illicit earnings to slush funds designed to sustain the loyalty of a core of party elite and to underwrite weapons development programs. A challenge facing U.S. policy makers is how to balance pursuing anti-drug, counterfeiting, and crime policies vis-à-vis North Korea against effectively pursuing several other high priority foreign policy objectives, including (1) nuclear nonproliferation negotiations via the Six-Party talks, (2) limiting ballistic missile production and export, (3) curbing terrorism, and (4) addressing humanitarian needs. As the Six-Party process has proceeded in 2008, it appears that the U.S. overriding goal of denuclearization outweighs concerns related to DPRK illicit activity (with the exception of proliferation of nuclear weapons technology and materials). Such illicit activity, however, could surface again as an issue as talks proceed on diplomatic normalization with the DPRK. This report will be periodically updated. For additional CRS analysis of DPRK issues, see CRS Report RL33590, North Korea's Nuclear Weapons Development and Diplomacy, by [author name scrubbed], and CRS Report RL33567, Korea-U.S. Relations: Issues for Congress, by [author name scrubbed]. |
The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148 , as amended) created the Independent Payment Advisory Board (IPAB, or the Board) to "reduce the per capita rate of growth in Medicare spending." The Board's proposals will be implemented by the Secretary of Health and Human Services (the Secretary) unless Congress acts either by formulating its own proposal to achieve the same savings or by discontinuing the automatic implementation process defined in the statute. This report, which provides an overview of the Board, begins with a discussion of the rationale behind the creation of an independent Medicare board and briefly reviews prior proposals for similar boards and commissions. The report then describes the structure of the Board, the calculations and determinations required to be made by the Office of the Chief Actuary (the Chief Actuary) in the Centers for Medicare & Medicaid Services (CMS) that trigger a Board proposal, and the content of and constraints on Board proposals—including the Medicare productivity exemptions under Section 3401 of PPACA. In addition, the report reviews the expedited and other parliamentary procedures that relate to congressional consideration of Board proposals and other Board-related activities, and concludes with a description of how the Board's proposals are to be implemented and their possible impact. Appendix A details key dates for IPAB implementation and various reports required by the law, and Appendix B compares the IPAB with the Medicare Payment Advisory Commission (MedPAC). Appendix C summarizes the Medicare productivity exemptions in Section 3401 of PPACA as they relate to Section 3403. Among some proponents of health care reform, a major impetus for reform, in addition to improving quality and increasing access, has been the rising cost of the Medicare program. For the past 25 years, annual medical inflation has exceeded annual overall inflation in every year but one (see Figure 1 ). Specifically, over this time period, medical inflation has on average been roughly 2.2 percentage points higher each year than overall inflation. Moreover, Medicare spending during this same period has increased 8.5% per year, while total federal outlays during this same period increased by only 5.3% per year. While some of the growth in Medicare expenditures can be attributed to the increase in the number of Medicare beneficiaries, Medicare per enrollee expenditures rose 6.3% per year from 1985 through 2008—faster than overall medical inflation. Had spending per Medicare beneficiary increased at just the rate of overall inflation over the 1985 through 2008 period, per enrollee expenditures in 2008 would have been slightly less than $4,600 as compared to actual 2008 Medicare Part A and Part B expenditures of $9,448 per beneficiary. Again, the legislation's stated goal of the Board is to reduce the per capita growth in Medicare expenditures, not to reduce overall Medicare expenditures. The Board achieves this goal by developing proposals for the Secretary to implement that reduce the growth in Medicare expenditures. Therefore, while the Congressional Budget Office (CBO) projects that the cumulative impact of the Board's recommendations from 2015 through 2019 will reduce total spending by $15.5 billion, during the same period total Medicare expenditures are projected to be $3.9 trillion with average spending per beneficiary increasing from $13,374 in 2015 to $15,749 in 2019. These savings represent a reduction of about $60.00 per year per Medicare beneficiary over the 2015 through 2019 period. Since these historic patterns of growth in overall health care spending, and Medicare in particular, are viewed as not being sustainable, several proposals have been advanced over the years to create an independent policy-making entity that would be charged with limiting the future growth in Medicare expenditures; be insulated from special interests and lobbyists since these entities would be appointed, rather than elected, and serve for extended terms; and such officials would be able to make the so-called "hard decisions" to control rising costs. Moreover, it has been assumed that these entities would possess the specialized expertise needed to make operational decisions regarding payments and focus initiatives on beneficiary interests and the longer term financial viability of the program. For instance, in 2000 and 2001 Senators Breaux and Frist introduced reform proposals to increase CMS's budget, create separate agencies to administer parts of the program, and establish a Medicare Board to manage competition among private plans and traditional Medicare (referred to as "Breaux-Frist I," S. 1895 , and "Breaux-Frist II," S. 358 ). Interest in an independent health care entity reemerged during early discussions of what became PPACA. Former Senator Tom Daschle proposed the Federal Health Board, modeled after the Federal Reserve Board, with broad authority over both private and public health care programs, including benefit and coverage recommendations, regulation of private insurance markets, and improvements in quality of care. In June 2009, Senator Rockefeller introduced the Medicare Payment Advisory Commission (MedPAC) Reform Act of 2009 ( S. 1380 in the 111 th Congress), which would have altered MedPAC from its current 15-member advisory commission to an 11-member executive branch agency with authority to make both payment and coverage decisions (see Appendix B for a side-by-side comparison of MedPAC and IPAB). In order to achieve program savings, the Commission was directed "to implement payment policies, methodologies, and rates and coverage policies and methodologies ... estimated to reduce expenditures under this title by not less than 1.5 percent annually." In July 2009, the President submitted a draft proposal to Congress titled the Independent Medicare Advisory Council Act of 2009 (referred to as the IMAC proposal). This proposal would have established a five-member council to advise the President on Medicare payment rates for certain providers. While the council would have had authority to recommend broader policy reforms, its authority outside of Medicare payment policy was limited. Finally, during the recent health care reform deliberations, the Senate Finance Committee included a provision (§3403) to establish an independent Medicare advisory board in the now enacted PPACA. Section 10320, added by the manager's amendment, broadened the scope of the Board to make recommendations to slow the growth in nonfederal programs and changed the name of the entity to the Independent Payment Advisory Board, to reflect these additional responsibilities. The perceived merits to some of an independent board are the perceived shortcomings to others. For instance, as Medicare expenditures represent a sizable proportion of federal outlays, approximately 13% in FY2010, for some critics such a large proportion of expenditures should not be beyond the scrutiny and review of elected officials or the public. Second, there is concern that boards, such as IPAB, are singularly focused on reducing spending, that tradeoffs exist between spending and quality, and that these tradeoffs are best dealt with by elected officials. Finally, similar efforts to "automatically" control health care spending, such as the sustainable growth rate formula, used to update Medicare physician payments, potentially demonstrate that such supposedly automatic mechanisms do not effectively remove special interests or Congress from the process. For proponents, removing short-term political and public opinion, focusing on spending, and using automatic mechanisms is required to reduce the growth in expenditures and rationalize health care decision making. The explicit charge given by PPACA to the Board in Section 3403(b) is to "reduce the per capita rate of growth in Medicare expenditures." As described in more detail below, beginning in 2013, and each subsequent year, the Chief Actuary needs to calculate the Medicare per capita growth rate —the five-year average growth in Medicare program spending per enrollee and the Medicare per capita target growth rate— the rate Medicare expenditures would grow without triggering interventions under this section . If the Chief Actuary determines that projected five-year per capita growth rate in Medicare expenditures two years hence exceeds the projected per capita target growth rate, the Chief Actuary needs to establish an applicable savings target—the amount by which the Board must reduce future spending. The Chief Actuary's determination also triggers a requirement that the Board prepare a proposal to reduce Medicare expenditures by an amount at least equal to the applicable savings target. While funding for the Board is authorized beginning in FY2012 and the Chief Actuary makes its first determination in 2013, the statute does not provide a date by which the Board is to begin its operations. Below, the Board's membership, structure, and budget are described. The Board will be composed of 15 members appointed by the President with the advice and consent of the Senate. As such, the members are officers of the United States under the appointments clause of the U.S. Constitution. The Secretary of Health and Human Services, the Administrator of CMS, and the Administrator of the Health Resources and Services Administration are ex-officio nonvoting members. In selecting individuals for nomination, the President is to consult with the majority and minority leadership of the Senate and House of Representatives—each respectively, regarding the appointment of three members. The Chairperson is appointed by the President, with the advice and consent of the Senate, from among the members of the Board. The appointed members of the Board are to provide varied professional and geographic representation and possess recognized expertise in health finance and economics, actuarial science, health facility management, health plans and integrated delivery systems, and reimbursement of health facilities. In addition, the board members are to be drawn from a wide range of backgrounds, including but not limited to physicians (allopathic and osteopathic) and other health professionals, providers of health services, and related fields; experts in the area of pharmaco-economics or prescription drug benefit programs; employers; third-party payers; and individuals skilled in the conduct and interpretation of biomedical health services, and health economics research and expertise in outcomes and effectiveness research and technology assessment. Members should also include representatives of consumers and the elderly. A majority of the appointed members cannot be individuals directly involved in the provision or management of the delivery of Medicare items and services. With exceptions for initial Board members and those appointed to fill a vacancy with an unexpired term, each appointed member may serve two consecutive six-year terms. If appointed to fill a vacancy, the member can serve two additional consecutive terms. Appointments to initially fill the Board are staggered with terms of one, three, or six years. Appointed members of the Board will be subject to financial and conflict of interest disclosures and will be treated as officers in the executive branch for purposes of the Ethics in Government Act of 1978. Moreover, there is a blanket prohibition against appointed members engaging in any other business, vocation, or employment. In addition, former members of the Board will be precluded for one year from lobbying before the Board, the Department of Health and Human Services, or any of the relevant committees of jurisdiction of Congress. Finally, appointed members of the Board may be removed by the President only for neglect of duty or malfeasance in office. Appointed members of the Board will be compensated at a rate equal to Level III of the Executive Schedule ($165,300 for 2011), and the Chairperson will be compensated at a rate equal to Level II ($179,700 for 2011). The Chairperson will be the principal executive officer of the Board and supervise employees. The Board will elect its own vice Chairperson to act in the absence or disability of the Chairperson or in the event of a vacancy. In addition, the law provides that the Board can hire an executive director and a staff—either detailed from other Federal agencies or direct hires—to perform its duties. The budget for the Board for FY2012 is $15 million, with annual adjustments based on increases in the consumer price index (CPI)—only slightly more than the MedPAC budget. The Board will be funded out of the Medicare trust funds—specifically, 60% of the Board's funds will come from the Federal Hospital Insurance Trust Fund and 40% from the Federal Supplementary Medical Insurance Trust Fund. This section describes the role of the Chief Actuary and the determination process by which the Chief Actuary establishes whether the projected per capita Medicare expenditures will exceed certain target levels. The Chief Actuary's determination sets in motion a three-year sequence of events (see Table 1 ). In addition, this section describes the key calculations that the Chief Actuary will need to make beginning in 2013 and provides an illustrative example of these calculations. The three-year sequence begins each year with the Chief Actuary making a determination, by April 30, as to whether the projected per capita Medicare expenditures will exceed certain target levels. The year in which the Chief Actuary makes its determination is referred to as the determination year (DY). The next year is referred to as the proposal year (PY) and the following year is the implementation year (IY). Beginning in 2013, the Chief Actuary is required to determine several key calculations, based on an analysis of a five-year period. The DY is the midpoint of the five-year period, as shown in Figure 2 . The Chief Actuary is required to calculate the Medicare per capita growth rate (the "growth rate"), and the Medicare per capita target growth rate (the "target growth rate"). The growth rate is defined as the projected five-year average (using the DY as the midpoint of the five years) growth in Medicare program spending per enrollee. Medicare program spending includes spending for Medicare Parts A, B, and D, net of premiums. For example, for the 2013 DY, the Chief Actuary will use the growth in spending for 2011-2015. Using the same five-year period, the target growth rate will initially be calculated based on the midpoint between the five-year average overall inflation (using the Consumer Price Index for all items and services, the CPI u ) and five-year average medical inflation (using the Consumer Price Index for medical inflation, the CPI m ). However, beginning with the 2018 DY, the target growth rate will be tied to the growth of the economy, based on the five-year average increase in the nominal Gross Domestic Product (GDP) plus one percentage point. For DYs prior to 2018, the target growth rate is determined as follows: Calculate the percent increase in each year for both the CPI u and the CPI m . Add the CPI u and CPI m together for each year and take the simple average by dividing by 2. Using the simple average for each year, calculate the average annualized rate of growth for the entire five-year period. The average annualized rate of growth is a single number, which is the target growth rate for the five-year period. For DYs beginning in 2018, the target growth rate will be the projected five-year average percentage increase in the nominal GDP per capita plus one percentage point. Using this formula will constrain future increases in Medicare expenditures more closely to the rate of growth in the economy. However because the formula adds one percentage point each year to the increase in nominal GDP, Medicare expenditures could continue to grow more quickly than the economy. If the Chief Actuary finds that the growth rate does not exceed the targeted growth rate , the process for the year ends. If the Chief Actuary determines that the growth rate exceeds the target growth rate for any DY, the Chief Actuary is required to establish an applicable savings target for the IY. The applicable savings target is an amount equal to the product of the total projected Medicare expenditures in the PY times the applicable percent . The applicable percent is defined as the lesser of either the projected excess for the IY (the amount by which Medicare spending is forecast to exceed the targeted growth in spending expressed as a percent of total Medicare expenditures) or the percent as specified in the statute (0.5% in IY 2015; 1.0% in IY 2016; 1.25% in IY 2017; and 1.5% in 2018 and any subsequent IY). In either event, the percent is converted to a dollar amount by which Medicare program expenditures must be reduced. For example, if the Chief Actuary determines in 2013 that the growth rate will exceed the target growth rate by 0.75% for IY 2015, the Board would need to make recommendations that reduce overall Medicare expenditures by 0.50% (the applicable percent for IY2015). Alternatively, if the Chief Actuary determines in 2013 that the growth rate exceeds the target growth rate by the projected excess, 0.35% for IY2015, the Board would need to make recommendations that reduce overall Medicare expenditures by 0.35%. (See Table 2 for the annual applicable percent and other changes in key terms over time.) This section provides an example to illustrate the calculations the Chief Actuary needs to develop, beginning April 2013 and each year thereafter, that form the basis of the Chief Actuary's determination (see Table 3 ). For this example, Year 1 is the first year of data included in the calculation, Year 3 is the DY, Year 4 is the PY, and Year 5 is the IY. It is further assumed that the applicable percent is 0.50% and that total projected Medicare expenditures in the PY are $600 billion. First, in April of Year 3, the Chief Actuary must calculate the growth rate —the projected five-year average growth in per capita Medicare spending (Column A) over the five-year period ending with the IY. In addition, the Chief Actuary must calculate the target growth rate . For the current DY, Year 3, this is the projected five-year average percentage increase in the average of the projected increase in the CPI u and the CPI m , also beginning with Year 1 and ending with the IY. Column B presents the annual percentage change in the CPI u , ending with Year 5, the IY, and column C presents the annual percentage change in the CPI m ending in Year 5. Column D provides the annual average percentage change in the CPI u and CPI m and the five-year annual growth in the average, ending in Year 5. As the Chief Actuary makes these calculations in the DY for an IY two years hence, some of the data the Chief Actuary will rely on will be projections. Continuing the example, since the average annualized five-year per capita growth rate of 4.99% exceeds the five-year average annualized target growth rate of 3.32%, the Chief Actuary must establish an applicable savings target for the IY. The applicable savings target is calculated by multiplying the projected Medicare program spending in the PY by the lesser of the applicable percent for the IY (in this example, 0.5%), or the difference in columns A and D (column E). Since 0.5% is less than 1.67%, 0.5% would be used. Therefore, the applicable savings target is $600 billion multiplied by 0.005, or $3 billion. In summary, in this hypothetical example, the Chief Actuary's calculations determined that the growth rate exceeded the target growth rate . Given this determination, the Chief Actuary calculated the applicable savings target , which required the Board to prepare a proposal that reduces Medicare expenditures by the applicable savings target . The Chief Actuary applied this calculation to historic data to better understand the potential impact on Medicare spending. The Chief Actuary reported that "actual Medicare cost growth per beneficiary was below the target level in only four of the last 25 years, with three of those years immediately following the Balanced Budget Act of 1997." Thus, in most recent years past, depending on the target growth rate and assuming no other changes, the Chief Actuary would have made a determination that triggered a Board proposal. The assumption of no other changes, however, may not be realistic since it assumes that any Board's recommendations implemented in prior years had no lasting effect on costs in later years and at the same time ignores the impact of other statutory and regulatory changes that potentially affected the Medicare program. If the Chief Actuary makes a determination by April 30 of the DY that the growth rate for an IY is forecast to exceed the target growth rate for that year, the Board is to develop a detailed proposal to reduce the growth rate by the applicable savings target . This section details the proposal process and key elements of Board proposals. By September 1 of each DY, the Board submits a draft of its proposal for review to the Secretary and to MedPAC for consultation. The Board transmits its annual proposal to Congress and the President on January 15 of each PY, beginning 2014. By March 1 of each PY, the Secretary submits comments to Congress on Board proposals. If the Board is required to develop a proposal but fails to transmit its proposal to Congress and the President by January 15 of any PY, the Secretary is required to develop a proposal and transmit it to Congress and the President, with a copy to MedPAC, by January 25 of the PY. The statute does not define a specific role for MedPAC after it receives the proposal. PPACA directs the Board that its proposal relate only to the Medicare program; result in a net reduction in total Medicare program expenditures in the IY that are at least equal to the applicable savings target established by the Chief Actuary; not include any recommendation to ration care, raise revenues or Medicare beneficiary premiums, increase cost-sharing, restrict benefits, or alter eligibility; not reduce payments to providers or suppliers scheduled to receive a reduction in payment as the result of productivity adjustments under Section 3401 (see Appendix C ); include, as appropriate, recommendations to reduce Medicare payments under parts C and D, such as reductions in direct subsidy payments to Medicare Advantage and prescription drug plans that are related to administrative expenses (including profits) for basic coverage, denying high bids or removing high bids for prescription drug coverage from the calculation of the national average monthly bid amount and reductions in payments to Medicare Advantage plans that are related to administrative expenses (including profits) and performance bonuses for Medicare Advantage plans; and include recommendations with respect to administrative funding for the Secretary to carry out the Board's recommendations. In addition, if the Chief Actuary has made a determination that the growth in per capita national health expenditures is greater than the Medicare per capita growth rate (a determination to be first made in 2018), then the Board's proposals should be designed to help reduce the growth in national health expenditures while maintaining or enhancing Medicare beneficiary access to quality care. To develop proposals, the Board is empowered to request and receive official data. In addition, the Board has the power to hold hearings, including field hearings, and to take testimony, and receive evidence as the Board considers advisable. Finally, Board proposals require a majority vote of the appointed members. In developing its proposal, the Board is also directed, to the extent feasible, to give priority to recommendations that extend Medicare solvency; and give recommendations that improve the health care delivery system and health outcomes, including by promoting integrated care, care coordination, prevention, and wellness, and quality and efficiency improvements; protect and improve Medicare beneficiaries' access to necessary and evidence-based items and services, including in rural and frontier areas; target reductions in Medicare program spending to sources of excess growth; consider the effects on Medicare beneficiaries of changes in payments to providers of services and supplies; consider the effects of recommendations on providers of services and suppliers with actual or projected negative cost margins or payment updates; consider the unique needs of Medicare beneficiaries who are dual-eligible for Medicare and Medicaid; and promote the delivery of efficient, high quality care to Medicare beneficiaries. A proposal needs to include the Board's recommendations, an explanation of each recommendation and the reasons for including such recommendation, an actuarial opinion from the Chief Actuary certifying that the recommendations contained in the proposal: will result in a net reduction in total Medicare program spending in the IY that is at least equal to the applicable savings target , and are not expected to result, over the ten-year period beginning with the IY, in any increase in the total amount of net Medicare program spending relative to what it would have been absent the proposal. The Chief Actuary's certification in part restricts the Board from making recommendations that in the short term reduce spending but in the longer term (10 years), increase spending. Therefore, Board recommendations may focus on reductions in payments to Part C and Part D plans, including, among other things, direct subsidies to Part C and D plans and subsidies for non-Medicare benefits offered by Medicare Advantage plans; changes to payment rates or methodologies for services furnished in the fee-for-service sector by providers not otherwise addressed by changes such as competitive bidding or reductions in excess of productivity adjustments (see Appendix C ); and changes that reduce costs by improving the health care delivery system and health outcomes. Finally, after 2018, if the Chief Actuary projects that the per capita rate of growth in national health expenditures in the IY exceeds the projected Medicare per capita growth rate in the IY, then the Board's proposals need to be designed to help reduce the p er capita rate of growth in national health expenditures while maintaining or enhancing beneficiary access to quality care . There are several circumstances when the Board will not need to transmit a proposal to Congress and the President. These are a year when the Chief Actuary determines that the growth rate does not exceed the target growth rate , or a year when the Chief Actuary determines that the projected percentage increase in the CPI m in the IY is less than the projected percentage increase in the CPI u . Again, historically these circumstances have been rare. In addition, there are exceptions to implementing proposals which are discussed below. While the Board's principal function is to develop proposals that reduce per capita growth in Medicare spending, this is not its sole activity. The Board is charged with developing advisory reports related to Medicare, annual public information reports, and biennial reports containing recommendations to slow the growth in national health expenditures. Each type of report is detailed below, and a summary, with a timeline of the various Board reports, is presented in Appendix A . In addition, the Government Accountability Office (GAO) is directed, as described below, to undertake a review of the Board's initial recommendations and report to Congress by July 1, 2015. Beginning January 15, 2014, the Board may develop and submit to Congress advisory reports on matters related to the Medicare program, regardless of whether or not the Board submits a proposal for such year. These advisory reports may include, for years prior to 2020, recommendations regarding improvements to payment systems for providers of services and suppliers who are not otherwise subject to the scope of the Board's recommendations (providers and suppliers scheduled to receive a reduction in their payment updates in excess of a reduction due to productivity [see Appendix C ]). The Board will also produce an annual public report, beginning by July 1, 2014, that includes standardized system-wide information on health care costs, access to care, utilization, and quality of care that allows for comparison by region, types of services, types of providers, and both private payers and Medicare. Finally, in addition to Board proposals to control costs and the Board's annual public report, the Board will, beginning no later than January 15, 2015, and every two years thereafter, submit to Congress and the President recommendations to slow the growth in national health expenditures (excluding expenditures under this title and in other Federal health care programs) while preserving or enhancing quality of care. These recommendations are different from recommendations contained in any annual Board proposal and are not enacted by the Secretary unless Congress acts because the Board's official proposals can only include recommendations related to Medicare. Rather, these recommendations can include matters that the Secretary or other federal agencies can implement administratively, matters that may require legislation to be enacted by Congress, matters that may require legislation to be enacted by state or local governments, or matters that can be voluntarily implemented by the private sector. The Board will be advised by a Consumer Advisory Council composed of 10 consumer representatives, appointed by the Comptroller General of the U.S. and from geographic regions established by the Secretary. The Consumer Advisory Council will meet no less frequently than twice a year, in Washington, DC, in public session. The law is silent on a date by which the Comptroller General needs to appoint the members of the Consumer Advisory Council and with respect to the term of service. No later than July 1, 2015, GAO is to submit a report to Congress containing the results of a study of changes to payment policies, methodologies, and rates and coverage policies and methodologies under the Medicare program as a result of the recommendations contained in the proposals made by the Board. The study is to include an analysis of the effects of Board recommendations on access, affordability, other sectors of the health care system, and quality of care. It may be the case that the impact of initial recommendations, if triggered in 2013, will not be fully ascertainable by July 1, 2015, thus making it difficult for GAO to analyze changes. The Secretary must implement the Board's proposals unless Congress affirmatively acts to amend or block them within a stated period of time and under circumstances specified in the act. As noted above, PPACA requires the Board to submit its proposal to both Congress and the President. The proposal is to be accompanied by, among other things, implementing legislation. The Secretary is required to automatically implement the proposals contained in the IPAB legislation on August 15 of the year such a proposal is submitted, unless prior to that date, legislation is enacted that includes the statement, "This Act supersedes the recommendations of the Board contained in the proposal submitted, in the year which includes the date of enactment of this Act, to Congress under section 1899A of the Social Security Act," or in 2017, a joint resolution discontinuing the automatic IPAB implementation process has been enacted. To begin, Section 3403(d) of the act establishes special "fast track" parliamentary procedures governing House and Senate committee consideration, and Senate floor consideration, of legislation implementing the Board or Secretary's proposal. These procedures differ from the parliamentary mechanisms the chambers usually use to consider most legislation, and are designed to ensure that Congress can act promptly on the implementing legislation should it choose to do so. It accomplishes this goal by mandating the immediate introduction of the legislation in Congress, and by establishing strict deadlines for committee and Senate floor consideration, as well as by placing certain limits on the amending process. The procedures established by the act permit Congress to amend the IPAB-implementing legislation, but only in a manner that achieves at least the same level of targeted reductions in Medicare spending growth as are contained in the IPAB plan. The act bars Congress from changing the IPAB fiscal targets in any other legislation it considers as well, and establishes procedures whereby a super-majority vote is required in the Senate to waive this requirement. The act establishes a second set of "fast track" procedures governing the consideration of a joint resolution discontinuing the automatic IPAB implementation process described above. Such procedures are designed to promote timely consideration of such a joint resolution. This joint resolution requires a super-majority vote of both chambers and either the signature of the President or overriding his veto by a two-thirds vote in each house to enter into force. On January 3, 2013, the House of Representatives agreed to H.Res. 5 , adopting the standing rules of the House for the 113 th Congress (2013-2014). Section 3(a) of H.Res. 5 included this language: "Independent Payment Advisory Board - Section 1899A(d) of the Social Security Act shall not apply in the One Hundred Thirteenth Congress." A section-by-section analysis of H.Res. 5 created by the House Committee on Rules and inserted in the Congressional Record on the same day described the IPAB provision contained in Section 3(a) of H.Res. 5 in the following way: "Subsection (a) eliminates provisions contained in the [Patient Protection and] Affordable Care Act that limit the ability of the House to determine the method of consideration for a recommendation from the Independent Payment Advisory Board or to repeal the provision in its entirely." As a result, the "fast track" parliamentary procedures described below are not in force in the House of Representatives in the 113 th Congress. The procedural rule still applies, however, in the Senate. On the day that the IPAB-implementing legislation is submitted to Congress by the President, it is to be introduced "by request" in each chamber by the House and Senate majority leaders or by a designee. If a house is not in session on the day the proposal is submitted, the measure is to be introduced on the first day the chamber is in session thereafter. In the event that the House and Senate majority leaders fail to introduce the legislation within five days after the date on which the proposal is submitted to Congress (or after that chamber came into session after the proposal's submission), any Member may introduce the bill in his or her respective chamber. When introduced in the House, an implementing bill is to be referred to House Committees on Energy and Commerce and on Ways and Means. In the Senate, the measure is to be referred to the Committee on Finance. Not later than April 1 in any year in which a proposal is submitted, the three committees of referral may report the bill "with committee amendments related to the Medicare program." Rule XV of the Standing Rules of the Senate, which bars the Senate from considering a committee amendment containing any "significant matter" not in the jurisdiction of the committee recommending the amendment, does not apply to the IPAB legislation. The effect of the exemption is that the Committee on Finance may report committee amendments to the IPAB-implementing bill that include matter not in its jurisdiction "if that matter is relevant to a proposal contained" in the IPAB plan. If a committee of referral has not reported the IPAB-implementing bill to its respective chamber by April 1, the committee will be automatically discharged of further consideration of the legislation. The special parliamentary procedures established by the act attempt to bar the House or Senate from considering any bill, resolution, amendment, or conference report pursuant to the special fast track procedures contained in the act or by any other legislative mechanism , which would repeal or change the recommendations of the IPAB if that change would fail to achieve the same targeted reductions in Medicare spending growth achieved by the IPAB proposal. In other words, the procedures propose to bar Congress from considering, in any legislation (not just the IPAB-implementing bill), changes to the Board's recommendations that fail to meet at least the same fiscal targets as those forwarded by IPAB. Because the act establishes procedural rules related to congressional consideration not just of the IPAB-implementing bill, but also governing the consideration of other legislation as well, it differs from most expedited procedure statutes now in force. The act attempts to "entrench" this limitation on congressional action by stating that the provision can only be waived in the Senate by an affirmative vote of three-fifths of Senators chosen and sworn (60 votes if there is no more than one vacancy), the same threshold required to invoke cloture on most measures and matters. An appeal of a ruling on a point of order under this provision carries the same super-majority vote threshold to overturn the ruling of the Senate's presiding officer. The special parliamentary procedures established by the act create an environment for Senate floor consideration of an IPAB-implementing bill which is similar to that which exists after the Senate has chosen to invoke cloture on a bill. Under most parliamentary circumstances, a motion to proceed to consider legislation in the Senate is fully debatable. Under the special procedures established by the act, however, once an IPAB-implementing bill is on the Senate Calendar of Business, a non-debatable motion to proceed to its consideration is in order. If the Senate chooses to take up the implementing bill by adopting this motion, consideration of the implementing legislation is limited to a total of 30 hours equally divided between the two party leaders, and a non-debatable motion to further limit debate is in order. This is a departure from Senate practice under its Standing Rules, during which debate on legislation is generally only limited by unanimous consent or by invoking cloture. Likewise, under the regular procedures of the Senate, debate on amendments is unlimited and there is no general requirement that amendments be germane. Any amendments offered to the implementing bill in the Senate under the special procedures established by the act, however, must be germane, and debate on each amendment is limited to one hour, equally divided between the bill manager and the offerer of the amendment. Debate on second-degree amendments, debatable motions, and appeals is limited to 30 minutes each, similarly divided. The party leaders may yield time they control under the overall 30-hour cap to Senators during the consideration of any amendment, debatable motion, or appeal, should they choose to do so, however debate on any may not exceed 1 hour. Not only must amendments be germane, but, as is noted above, the procedure established by the act bars the consideration of any amendment (including committee amendment), which would cause the bill to result in a net reduction in the total Medicare program spending in the IY that is less than the applicable savings target established for that year and contained in the IPAB proposal. This limitation can only be waived by a vote of three-fifths of Senators chosen and sworn, and successfully appealing a point of order under this provision carries the same super-majority vote requirement. After 30 hours of consideration, the Senate proceeds to vote on any pending amendments and then, once they are disposed of, on the measure itself, as amended, if amended. Prior to final passage, a motion to table or to reconsider is in order, as would be a demand for a live quorum call. The act does not establish fast track parliamentary procedures governing initial floor consideration of an IPAB-implementing bill in the U.S. House of Representatives. Should the House choose to act on such legislation, it would presumably do so under its usual procedures, most likely by adopting a special rule reported from the House Committee on Rules to establish terms for considering the bill. The act's special parliamentary procedures include provisions that are intended to facilitate the exchange of implementing legislation between the House and Senate. First, the expedited procedures governing the Senate described above apply only to a bill received from the House if the same bill has been introduced in the Senate. In addition, the expedited procedures only apply in the Senate if the bill received from the House is related only to the programs under the act and has satisfied the same fiscal targets as the IPAB-implementing bill. Such limitations are intended to prevent the special fast track procedures from being used to obtain expedited Senate consideration of unrelated legislation or legislative provisions. The act also establishes "hookup" procedures to ensure that the chambers will act on the same measure. If, before voting on its own implementing bill, a chamber receives an implementing bill passed by the other chamber, that engrossed legislation will automatically be amended by the text of the second chamber's bill and become the measure the receiving chamber votes on for final passage. If, after passing its own measure, a chamber receives an implementing bill passed by the other chamber, the vote on the receiving chamber's bill shall be considered to be the vote on the measure received from the other house as amended by the receiving chamber's implementing bill. The act also establishes special parliamentary procedures for the expedited consideration of conference reports or amendments between the chambers intended to resolve bicameral differences on an IPAB-implementing bill. In either case, consideration of the IPAB-implementing bill at the stage of resolving differences is limited by the act to 10 hours of consideration in each chamber, equally divided between Senate party leaders, and in the House, between the Speaker of the House and its minority leader. Debate on any amendment under these procedures is limited to one hour and on second-degree amendments, motions, and appeals, to 30 minutes each. Here also, the expedited procedures apply only if the legislation is related only to the program under the act and satisfies the same fiscal targets required of the IPAB bill. Should the President veto an IPAB-implementing bill, debate on the veto message in the Senate, which would under normal circumstances be unlimited, is confined to one hour, equally divided. There is no similar provision established for the House of Representatives, and it would presumably consider such a veto message under its regular parliamentary mechanisms. Section 3403 of P.L. 111-148 establishes a second "fast track" parliamentary mechanism for consideration of legislation discontinuing the automatic implementation process for the recommendations of the Independent Payment Advisory Board described above. Under the terms of the act, in order to qualify for consideration under "fast track" procedures, a joint resolution discontinuing the process must meet several conditions: It must be introduced in 2017 by not later than February 1 of that year. It may not have a preamble. It must have the title, "Joint resolution approving the discontinuation of the process for consideration and automatic implementation of the annual proposal of the Independent Medicare Advisory Board under section 1899A of the Social Security Act." It must have the sole text, "That Congress approves the discontinuation of the process for consideration and automatic implementation of the annual proposal of the Independent Medicare Advisory Board under section 1899A of the Social Security Act." Under the terms of the act, such a joint resolution may be introduced by any Member in either chamber. When introduced, the joint resolution is referred to the Committees on Ways and Means and on Energy and Commerce in the House, and to the Committee on Finance in the Senate. In the Senate, if the Committee on Finance has not reported this joint resolution (or an identical joint resolution) by the end of 20 days of continuous session after its introduction, the committee may be discharged from its further consideration of the measure upon a petition signed by 30 Senators. The committee could also mark up and report the joint resolution, although it is not required to do so, and if it does, it may not report amendments to it. At any time after a qualifying joint resolution has been placed on the Senate's Calendar of Business, it is in order to make a non-debatable motion to proceed to its consideration. Such a motion to proceed may be made even if one has been previously rejected. As with the IPAB-implementing bill procedure described above, the act does not specify who may make this motion. Points of order against the joint resolution and its consideration, with the exception of points of order established by the Congressional Budget Act of 1974 or any budget resolution enacted pursuant to the Budget Act, are waived. If the Senate agrees to the motion to proceed, consideration of the legislation is "locked in"; the joint resolution remains the unfinished business of the Senate until it is disposed of. Debate on a joint resolution discontinuing the automatic IPAB-implementing process and on all debatable motions and appeals in connection with the measure is limited to 10 hours in the Senate, with the time divided between the majority and minority leaders or their designees. A non-debatable motion to further limit debate is available. No amendment (including committee amendment), motion to postpone, motion to proceed to the consideration of other business, or to recommit the joint resolution, may be made. At the conclusion of consideration, and after a single live quorum call, if requested, the Senate votes on the joint resolution. Passage of a joint resolution discontinuing the automatic IPAB process requires a supermajority of three-fifths of Senators, duly chosen and sworn. The act does not establish special parliamentary procedures governing initial floor consideration of a joint resolution discontinuing the IPAB-implementing process in the House of Representatives. Should the House choose to act on such legislation, it would presumably do so under its regular procedures, most likely by adopting a special rule reported from the House Committee on Rules. Passage of the joint resolution in the House does, however, require a super-majority of three-fifths of Members, duly chosen and sworn, the same as in the Senate. As with the special procedures established for considering IPAB-implementing bills described above, the act also establishes "hookup" procedures to facilitate the consideration in one chamber of a joint resolution passed by the other. If, before the passage by one house of a joint resolution discontinuing the IPAB-implementation process, that house receives an identical joint resolution from the other, that engrossed joint resolution will not be referred to committee, but will become the one on which the receiving chamber takes its final vote. Such provisions are designed to ensure that the House and Senate act on the same legislation. Both the implementing bill and the joint resolution described above are law-making forms of legislation, which must be signed by the President or enacted over his veto to become effective. Should either type of measure be vetoed by the President, overriding the veto would require a super-majority vote of two-thirds in both chambers for the measure to become law. The arguable and perhaps intended effect of the procedures in the act is to favor the continuation of the IPAB and its recommendations even in the face of significant opposition in both chambers of Congress. This is why some observers have argued that statutory disapproval mechanisms of the type contained in the act shift the power balance to the executive branch and away from Congress. The "fast track" parliamentary procedures established by the act for the consideration of both types of IPAB legislation are considered to be rules of the respective houses of Congress even though they are codified in statute. As such, Congress has traditionally viewed them as subject to change in the same manner and to the same extent that any House or Senate rule can be altered by the Members of that chamber. In other words, Congress is not required to amend or repeal the statute to change the procedures. The House or Senate can change the procedures by unanimous consent, by suspension of the rules, or by special rule reported by the House Committee on Rules and adopted by the House. As is described above, the terms of the act attempt to "entrench" the procedures themselves against change by requiring a super majority to amend them, as well as to discontinue the automatic IPAB-implementation process. The act also purports to restrict the ability of future Congresses to enact certain policy changes related to Medicare in other legislation, not just the IPAB-implementing measure. How these entrenching provisions will be reconciled with the well-established constitutional right of each chamber of Congress to make the rules of its own proceeding, and how or if one Congress can broadly regulate the actions of a future Congress in this way, will likely only be clarified in practice. Questions about the enforcement of these provisions are highlighted when one imagines how the consideration of IPAB legislation might play out in a future Congress. As has been noted, the House of Representatives normally brings major legislation to the floor under the terms of a special rule reported by its Committee on Rules. This is likely to be the method used by a future House of Representatives to consider IPAB-implementing legislation or other bill dealing with rates of Medicare spending. Special rules establish unique terms for the consideration of legislation and routinely waive all points of order against the measure in question and its consideration. As such, it is unclear if there will be any parliamentary opportunity for a House Member to make a point of order against some future IPAB-implementing bill, for example, that the legislation violates the act's stricture on changing targeted rates of Medicare spending. While one can certainly envision a Member making a rhetorical argument to that effect, a special rule which waives all points of order against such a bill and its consideration would effectively preclude enforcement of these terms of the act. A "rider" discontinuing the automatic IPAB process entirely included in the conference report on an appropriations bill would similarly be unreachable by points of order if the report were considered under such a special rule or under the House's suspension of the rules procedure. Questions about the enforcement of the act's provisions similarly exist in the Senate. Traditionally, "fast track" procedures like those contained in the act have been, in practice, more binding on the Senate than on the House, because the Senate views itself as a "continuing body" having rules that are continually in force. Additionally, altering such statutory procedures have arguably been more difficult in the Senate than in the House because to change its rules (including statutory rules) the Senate must effectively get all its Members to agree to waive them by unanimous consent or muster a super majority vote to suspend or amend them. Unlike other statutory fast track procedures now in force, the act establishes wide-ranging procedures which purport to regulate the consideration of not just one bill, but any legislation not meeting certain stated policy goals. To what extent a future Senate will view itself as bound by these broad terms, how the Senate's presiding officer will intelligently rule on certain points of order established by the act, among other questions, will likely require additional clarification by the Senate. In the absence of either one of the two general or one limited exceptions noted below, the Secretary implements the Board's proposals on August 15 of the PY. Essentially, recommendations that relate to payment rate changes that take effect on a fiscal year basis take effect on October 1 of the PY. Recommendations relating to payments to plans under Medicare Parts C and D and recommendations relating to payment rate changes that take effect on a calendar year basis take effect on January 1 of the IY. There are two general exceptions to implementing a Board proposal: 1. If federal legislation was enacted by August 15 of the PY that superseded the Board's recommendations and a. achieves at least the same net reduction in total Medicare program spending as would have been achieved by the Board's proposal, and b. does not increase the expected Medicare program spending over the ten-year period, starting with the IY, relative to what it would have been absent the legislation. 2. Beginning with IY 2020, and beyond, the Secretary would not implement a Board proposal if a joint resolution was enacted prior to August 15, 2017, to discontinue the Board. In addition, beginning in PY 2019, if the Board submitted a proposal in the prior year and in the current year the Chief Actuary determines that the projected per capita rate of growth in national health expenditures for the IY exceeds the projected Medicare per capita growth rate for the IY , then the Secretary is directed not to implement the recommendations submitted in the prior PY . For example, if in 2020 the Board submitted a proposal and in April 2021 the Chief Actuary determines that the projected per capita rate of growth in national health expenditures for 2023 exceeds the projected Medicare per capita growth rate for 2023, then the Secretary would not implement the recommendations contained in the 2020 proposal. However, the Secretary cannot use this exception in two successive years. By statute, the Board is to be composed of members drawn from a wide range of professions and backgrounds, in addition to geography, and a majority cannot be individuals directly involved in the provision or management of the delivery of Medicare items and services. What is not clear is whether this determination of a member's status is made at the time of nomination or whether a potential nominee's status is a function of their prior experience. For instance, would a retired executive from a Medicare Advantage plan be counted as being involved in the provision of Medicare services even though he or she may now be retired? Similarly, since there is a blanket prohibition on outside businesses, vocations, or employment, can a board member be characterized as an employer or being involved in the provision or management of services when he or she ceases employing anyone or ceases being involved in the provision of items or services? One of the rationales for an independent board was to isolate health care payment decisions from the influence of special interests. While the statute specifies the qualifications of Board members, nationally recognized expertise, it also specifies that the Board should include, among others, employers, third-party payers, and representatives of consumers and the elderly. In moving beyond expertise, skills, and experience and naming specific groups that should be included on the Board, the legislation designates some interests as worthy of being represented and others, by omission, as not being worthy. These efforts, rather than isolating the Board from the influence of special interests appears to welcome some interests directly into the process. In addition, Board members, and the public more generally, may question whether certain Board members are on the Board in a representative capacity even though they are prohibited from outside businesses or employment. While there is generally an adequate supply of individuals willing to serve on federal boards such as IPAB, the commitment (full time), modest salaries (relative to physicians, the private sector, and even some university appointments), and constraints on Board members (restrictions on outside employment and term of service) may make recruiting highly qualified and respected individuals problematic. In addition, the prospect that Congress could pass a resolution to discontinue the Board only adds to this potential problem. Finally, while it does not appear that Board members reside locally, if this was a practical requirement for the operation of the Board, this could be an additional impediment. The funding level for the Board as set forth in the legislation, and the size of the staff that could be supported by the funds, may constrain the Board's ability to develop more comprehensive recommendations to change payment mechanisms since such efforts are generally costly to design and test prior to implementation. While the Board's funding is slightly more than MedPAC's, the Board's charge is much broader than MedPAC's. In addition, since the Board is not responsible for administering the program, it will operate outside the Secretary's demonstration authority so will not be able, on its own, to experiment with and test new payment mechanisms. However, the Board may be able to effectively leverage its research capability and expand its capacity to focus on larger programmatic changes by working with MedPAC, the newly formed Center for Medicare and Medicaid Innovation, and CMS more generally. For instance, the Center for Medicare and Medicaid Innovation and the Board could coordinate in the design and testing of alternative payment models. CBO estimates cost savings from IPAB, during the 2015-2019 period, at $15.5 billion. The Chief Actuary attributes savings of $24 billion due to IPAB through 2019. The Chief Actuary warns that achieving growth rate targets in IYs 2015-2019 may be a "difficult challenge" given historic growth in per capita Medicare expenditures and the limitations on further reducing payments to providers and suppliers scheduled to receive a reduction in their payment updates in excess of a reduction due to productivity. In addition, the Chief Actuary points out that "after 2019, further Advisory Board recommendations for growth rate reductions would generally not be required if other savings provisions were permitted to continue." Even if we assume that the Chief Actuary's estimate of savings is reasonable and achievable, total Medicare expenditures for the 2015 through 2019 period are forecast to be $3.9 trillion. The $24 billion in cumulative savings amounts to just slightly more that 0.6% of total program expenditures. Put slightly differently, the projected savings from the Board's recommendations represent a reduction of $89.00 per year per Medicare beneficiary over the period 2015 through 2019. If the Board is to be fully successful it must balance both the short-term need to find savings with longer-term program and payment design issues. Changes that reduce costs by improving the health care delivery system and health outcomes often require several years before savings may occur and the Board may have to find immediate savings, therefore, Board proposals may skew toward changes in payments. To offset this potentiality, the Board may find it useful to work with the Center for Medicare and Medicaid Innovation to design and test demonstrations that may aid in longer-term Board initiatives. While the Board is charged with developing proposals that, in part, "target reductions in Medicare program spending to sources of excess growth," prior to 2019, the exemptions given to certain providers and suppliers of services or items that were subject to reductions in excess of a reduction due to productivity, means that other providers and suppliers will necessarily bear the brunt of any proposals prior to 2018. As noted earlier, these exempt providers represented roughly 37% of all Medicare benefit payments in 2009. While the argument for the exemption from Board proposals is that the exempt providers have already "taken a hit" by statutorily mandated changes in how their price adjustments are calculated, the consequence is that Board proposals can only target the remaining set of Medicare providers and suppliers. However, since total Medicare program spending is a function of both price and utilization, it is possible that some of the excess spending that potentially gives rise to the need for a Board proposal could be caused by increased payments to exempt providers and suppliers. While the Board's proposals can only relate to the Medicare program , the implications of its recommendations may have a much broader impact. Many payers fashion their payments on Medicare rates, such as "Medicare plus X%," so recommendations to reduce Medicare payments for certain procedures or suppliers are likely to have a ripple effect throughout the health care system and could lead to a dampening of the average price paid for such services or supplies. A number of bills have been introduced in the 112 th Congress that would repeal PPACA completely. These include, among others, H.R. 2 and S. 192 . Other bills have been introduced to amend the specific provisions of PPACA that relate to IPAB. For instance, H.R. 452 , introduced by Representative Roe of Tennessee on January 26, 2011, would repeal PPACA Sections 3403 and 10320 (the IPAB provisions), including any amendments, and would restore any provisions of law amended by those sections. On March 29, 2011, Senator Cornyn introduced S. 668 , the Health Care Bureaucrats Elimination Act, which would also repeal Sections 3403 and 10320 of PPACA. The National Commission on Fiscal Responsibility and Reform, popularly referred to as the Simpson-Bowles Deficit Commission, proposed two sets of recommendations (recommendations 3.5 and 3.6) regarding IPAB. Recommendation 3.5 proposed to "eliminate the provider carve-outs that exempt certain providers from any short-term changes in their payments (see Appendix C ). Recommendation 3.6 proposed to both establish "a global budget for total federal health care costs and limit the growth in federal health care spending to GDP plus 1%." The commission suggested that "expanding and strengthening the Independent Payment Advisory Board (IPAB) to allow it to make recommendations for cost-sharing and benefit design and to look beyond Medicare." On March 30, 2011, the CBO revised its estimate of the likely savings from IPAB. In testimony before the House Energy and Commerce Committee's Subcommittee on Health, CBO Director Douglas Elmendorf testified that In its February 2011 estimate, CBO concluded that the rate of increase in spending would probably exceed the target rate in some years, and that the IPAB, therefore, would have to intervene to reduce the growth of Medicare spending. CBO estimated that those actions would result in $14 billion in savings over the 2012–2021 period. In CBO's March 2011 baseline, by contrast, the rate of growth in Medicare spending per beneficiary is projected to remain below the levels at which the IPAB will be required to intervene to reduce Medicare spending. As a result of that reduction in projected Medicare spending, CBO's March baseline does not include any savings from actions by the IPAB. While this estimate may well change in the future with future changes in CBO's assumptions, CBO currently forecasts that IPAB will not generate any savings through 2021. In President Obama's April 13, 2011, remarks on fiscal responsibility, the President called for strengthening an independent commission of doctors, nurses, medical experts and consumers … to reduce unnecessary spending while protecting access to the services that seniors need. [And if] Medicare costs rise faster than we expect, then this approach will give the independent commission the authority to make additional savings by further improving Medicare. The President's proposal was further described in a fact sheet issued by the White House, which detailed that IPAB should target per beneficiary Medicare cost growth to GDP per capita plus 0.5% beginning in 2018 rather than the current 1%. The President's FY2013 budget, as submitted to Congress on February 13, 2012, includes a proposal to strengthen the IPAB. Beginning in the sixth year of implementation, 2020 (which ties to the 2018 determination year), when the target growth rate is based on the growth in nominal GDP per capita, the proposal would lower the target growth to the growth rate in nominal GDP per capita plus 0.5 percentage point. The IPAB would also be given "additional tools like the ability to consider value-based benefit design and policies that promote integrated and coordinated care." This modification would increase the likelihood that the IPAB would need to submit a proposal to Congress. H.R. 452 , the Medicare Decisions Accountability Act of 2011, introduced on January 26, 2011, would repeal the Independent Payment Advisory Board. On February 29, 2012, the House Energy and Commerce Subcommittee on Health held a mark-up of the bill and forwarded it to the full committee. The House Energy and Commerce Committee ordered the bill to be reported by voice-vote on March 6, 2012. The House Committee on Ways and Means also ordered the bill to be reported by voice vote on March 8, 2012. H.R. 452 was combined with the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2011 ( H.R. 5 ), a bill that would impose caps on some damages awarded in malpractice lawsuits, limit attorneys' fees in malpractice lawsuits, and establish a statute of limitations for filing health care lawsuits. On March 22, 2012, the House passed the combined version of H.R. 5 . Appendix A. Key Dates for IPAB Implementation Appendix B. A Comparison of IPAB and MedPAC Appendix C. Medicare Productivity Exemptions and Board Recommendations PPACA Section 3401 altered certain market basket updates used to adjust Medicare base payment amounts and incorporated productivity improvements into those market basket updates that previously did not include them. Since some providers and suppliers of services will receive a reduction in payments beyond their productivity adjustment in some years, Section 3403(c)(2)(iii) prohibits, as described below, the Board from recommending in some years further reduction in payment rates to those providers and suppliers. All of the providers and suppliers subject to Section 3401 productivity adjustments are listed in Table C -1 . To be exempt under Section 3403(c)(2)(iii) from Board recommendations in any given year a provider would have to be slated to receive a reduction under Section 3401 in its inflationary payment update in excess of a reduction due to productivity in a year in which such recommendations would take effect. Reduction in Excess of a Reduction Due to Productivity Adjustment An "update reduction in excess of a reduction due to productivity" means that for that category of provider, after calculating any applicable percentage increase in payments due to changes in costs, reduced by the productivity adjustment, payments are further reduced by an additional applicable percentage specified in Section 3401. For example, in rate year 2012, payments to long term care hospitals will be adjusted by changes in their costs, changes in productivity in the broader economy, and then reduced by an additional 0.10 percentage point. Again, only those providers that are subject to this additional reduction in payments will receive a time-limited exemption from Board recommendations. Therefore, the relevant factor in determining whether providers have an exemption is whether the provider had a reduction in excess of a reduction due to productivity in the year the recommendation would take effect. If so, that provider is exempt from Board recommendations that take effect in that year. Providers Subject to Section 3401 Table C -1 also indicates which providers are subject to a productivity adjustment, a reduction in excess of a reduction due to productivity, or some other adjustment; the applicable time period of the adjustment; and whether the adjustment gives rise to an exemption period under Section 3403. CRS analysis of CMS statistics indicates that in 2009 Medicare payments to exempt providers represented approximately 37% of all Medicare benefit payments. Proposals generated by the Board in 2018 and submitted to the President and Congress in 2019 could include provisions, relating to any provider, that the Secretary would begin implementing effective August 15, 2019, and later. By 2020, all exemptions will have lapsed and all providers of services and supplies will potentially be subject to Board recommendations. | In response, in part, to overall growth in Medicare program expenditures and growth in expenditures per Medicare beneficiary, the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148, as amended) created the Independent Payment Advisory Board (IPAB, or the Board) and charged the Board with developing proposals to "reduce the per capita rate of growth in Medicare spending." The Secretary of Health and Human Services (the Secretary) is directed to implement the Board's proposals automatically unless Congress affirmatively acts to alter the Board's proposals or to discontinue the automatic implementation of such proposals. The annual IPAB sequence of events begins each year, starting April 30, 2013, with the Chief Actuary of the Centers for Medicare & Medicaid Services calculating a Medicare per capita growth rate and a Medicare per capita target growth rate. If the Chief Actuary determines that the Medicare per capita growth rate exceeds the Medicare per capita target growth rate, the Chief Actuary would establish an applicable savings target—the amount by which the Board must reduce future spending. This determination by the Chief Actuary also triggers a requirement that the Board prepare a proposal to reduce the growth in the Medicare per capita growth rate by the applicable savings target. The Board cannot ration care, raise premiums, increase cost sharing, or otherwise restrict benefits or modify eligibility. In generating its proposals, the Board is directed to consider, among other things, Medicare solvency, quality and access to care, the effects of changes in payments to providers, and those dually eligible for Medicare and Medicaid. If the Board fails to act, the Secretary is directed to prepare a proposal. Board proposals must be submitted to the Secretary by September 1 of each year and to the President and Congress by January 15 of the following year. Board proposals are "fast-tracked" in Congress, and IPAB proposals go into force automatically unless Congress affirmatively acts to amend or block them within a stated period of time and under circumstances specified in the act. Section 3403(d) of the act establishes special "fast track" parliamentary procedures governing House and Senate committee consideration, and Senate floor consideration, of legislation implementing the Board or Secretary's proposal. These procedures differ from the parliamentary mechanisms the chambers usually use to consider most legislation and are designed to ensure that Congress can act promptly on the implementing legislation should it choose to do so. PPACA also established a second "fast track" parliamentary mechanism for consideration of legislation discontinuing the automatic implementation process for the recommendations of the Board. The Board's charge is to develop proposals for the Secretary to implement that reduce the per capita growth in Medicare expenditures, not to reduce Medicare expenditures. Therefore, while the CBO projects that the cumulative impact of the Board's recommendations from 2015 through 2019 will reduce total spending by $15.5 billion, during the same period, Medicare expenditures will total $3.9 trillion with average spending per beneficiary forecast to increase from $13,374 to $15,749. While the Board's potential impact on total expenditures is likely to be relatively small compared to overall Medicare expenditures, its impact on particular Medicare providers or suppliers may be significant, particularly if the Board alters payment mechanisms. The President's FY2013 budget, as submitted to Congress on February 13, 2012, includes a proposal to strengthen the IPAB. On March 22, 2012, the House passed a combined version of the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2011 (H.R. 5) that contained provisions from H.R. 452, the Medicare Decisions Accountability Act of 2011, which would repeal the IPAB. |
This report is part of a suite of reports tha t discuss appropriations for the Department of Homeland Security (DHS) for FY2016. It specifically discusses appropriations for the components of DHS included in the first title of the homeland security appropriations bill—the Office of the Secretary and Executive Management, the Office of the Under Secretary for Management, the DHS headquarters consolidation project, the Office of the Chief Financial Officer, the Office of the Chief Information Officer, Analysis and Operations, and the Office of Inspector General for the department. Collectively, Congress has labeled these components in recent years as "Departmental Management and Operations." The report provides an overview of the Administration's FY2016 request for Departmental Management and Operations, the appropriations proposed by Congress in response, and those enacted thus far. Rather than limiting the scope of its review to the first title, the report includes information on provisions throughout the proposed bills and reports that directly affect these functions. The suite of CRS reports on homeland security appropriations tracks legislative action and congressional issues related to DHS appropriations, with particular attention paid to discretionary funding amounts. The reports do not provide in-depth analysis of specific issues related to mandatory funding—such as retirement pay—nor do they systematically follow other legislation related to the authorization or amending of DHS programs, activities, or fee revenues. Discussion of appropriations legislation involves a variety of specialized budgetary concepts. The appendix to CRS Report R44053, Department of Homeland Security Appropriations: FY2016 , explains several of these concepts, including budget authority, obligations, outlays, discretionary and mandatory spending, offsetting collections, allocations, and adjustments to the discretionary spending caps under the Budget Control Act ( P.L. 112-25 ). A more complete discussion of those terms and the appropriations process in general can be found in CRS Report R42388, The Congressional Appropriations Process: An Introduction , by [author name scrubbed], and the Government Accountability Office's A Glossary of Terms Used in the Federal Budget Process . Except in summary discussions and when discussing total amounts for the bill as a whole, all amounts contained in the suite of CRS reports on homeland security appropriations represent budget authority and are rounded to the nearest million. However, for precision in percentages and totals, all calculations were performed using unrounded data. Data used in this report for FY2015 amounts are derived from the Department of Homeland Security Appropriations Act, 2015 ( P.L. 114-4 ) and the explanatory statement that accompanied H.R. 240 as printed in the Congressional Record of January 13, 2015, pp. H275-H322. Contextual information on the FY2016 request is generally from the Budget of the United States Government, Fiscal Year 2016 , the FY2016 DHS congressional budget justifications, and the FY2016 DHS Budget in Brief . However, most data used in CRS analyses in reports on DHS appropriations are drawn from congressional documentation to ensure consistent scoring whenever possible. Information on the FY2016 budget request and Senate-reported recommended funding levels is from S. 1619 and S.Rept. 114-68 . Information on the House-reported recommended funding levels is from H.R. 3128 and H.Rept. 114-215 . Information on FY2016 enacted appropriations is derived from P.L. 114-113 , the Omnibus Appropriations Act, 2016—Division F of which is the Homeland Security Appropriations Act, 2016—and the accompanying explanatory statement published in Books II and III of the Congressional Record for December 17, 2015. Generally, the homeland security appropriations bill includes all annual appropriations provided for DHS, allocating resources to every departmental component. Discretionary appropriations provide roughly two-thirds to three-fourths of the annual funding for DHS operations, depending how one accounts for disaster relief spending and funding for overseas contingency operations. The remainder of the budget is a mix of fee revenues, trust funds, and mandatory spending. Appropriations measures for DHS typically have been organized into five titles. The first four are thematic groupings of components: Departmental Management and Operations; Security, Enforcement, and Investigations; Protection, Preparedness, Response, and Recovery; and Research and Development, Training, and Services. A fifth title contains general provisions, the impact of which may reach across the entire department, impact multiple components, or focus on a single activity. The following pie chart presents a visual comparison of the share of annual appropriations requested for the components of each title, highlighting the title containing the components discussed in this report in purple. Departmental Management and Operations components made up about 3% of the discretionary appropriations requested for DHS for FY2016. As noted above, Title I of the DHS appropriations bill provides funding for the department's management activities, Analysis and Operations (A&O) account, and the Office of the Inspector General (OIG). Funding is also included in Title V, General Provisions, for some of these components. The Administration requested $1,396 million in total budgetary resources for these accounts in FY2016, an increase of $255 million (22.3%) above the FY2015 enacted level. The Senate-reported bill would have provided $1,346 million, a decrease of $73 million (5.2%) from the request and $182 million (16.0%) above FY2015. The House-reported bill would have provided $1,217 million, a decrease of $178 million (12.8%) from the request, but $76 million (6.7%) above FY2015. On December 18, 2015, the President signed into law P.L. 114-113 , the Consolidated Appropriations Act, 2016, Division F of which was the Department of Homeland Security Appropriations Act, 2016. The act included $1,546 million for Title I components in FY2016, $405 million (35.5%) more than was provided for FY2015, and $150 million (10.7%) more than was requested. Table 1 presents the enacted funding level for the individual components funded under Departmental Management and Operations for FY2015, as well as the amounts requested for these accounts for FY2016 by the Administration, recommended by the Senate and House appropriations committees, and provided by the enacted annual appropriation for FY2016. The table includes information on funding under Title I as well as other provisions in the bill. The departmental management accounts cover the general administrative expenses of DHS. They include the Office of the Secretary and Executive Management (OSEM), which is comprised of the Immediate Office of the Secretary and 11 entities that report directly to the Secretary; the Under Secretary for Management (USM) and its components—the offices of the Chief Readiness Support Officer (formerly, the Office of the Chief Administrative Officer [OCAO]), Chief Human Capital Officer (OCHCO), Chief Procurement Officer (OCPO), and Chief Security Officer (OCSO); the Office of the Chief Financial Officer (OCFO); and the Office of the Chief Information Officer (OCIO). The Administration has usually requested funding for the consolidation of its headquarters here as well, although this report treats that project separately, and does not include it in the totals in this section. The Administration requested $702 million for departmental management, plus $43 million for a crosscutting financial systems consolidation effort in a general provision. This total included $134 million ($1 million, or 0.7% above the FY2015 level) for OSEM and $193 million for USM ($5 million, or 2.6% above the FY2015 level). The Administration requested $97 million for OCFO, including the $43 million noted above, for an overall increase of $12 million (12.4%) above the FY2015 level. Most of the increase was for the financial systems consolidation, which had been funded at $34 million in FY2015. The Administration requested $321 million for OCIO as well ($32 million, or 11.3% above the FY2015 level). S. 1619 , as reported by the Senate Committee on Appropriations, included $675 million for departmental management in Title I and $36 million for the crosscutting financial systems consolidation effort in the general provisions. The proposed funding level was $18 million (2.6%) more than FY2015, and $33 million (4.4%) less than requested by the Administration. H.R. 3128 , as reported by the House Committee on Appropriations, included $690 million for departmental management in Title I, and $53 million for the crosscutting financial systems consolidation effort in the general provisions. The proposed funding level was $49 million (7.1%) more than FY2015 and $1 million (0.2%) less than requested by the Administration. The law provided total funding of $701 million for Departmental Management in Title I, and $203 million in three general provisions, not including the funding for DHS headquarters consolidation at St. Elizabeths. This was a decrease of $2 million or 0.3% from the President's request of $702 million under Title I, but an increase of $160 million in funding provided through general provisions, including $150 million to address emergent threats and support cybersecurity efforts. See Table 2 for additional detail. The Administration requested $134 million for OSEM and 597 full-time employee equivalents (FTEs). H.R. 3128 , as reported, included $132 million for OSEM, $2 million (1.5%) less than requested. S. 1619 , as reported, included $133 million, $1 million (0.7%) less than requested. Title I of P.L. 114-113 provided $137 million for OSEM, $3.2 million (2.4%) more than requested. As in the Senate-reported bill, $13 million of OSEM funding was withheld from obligation until both the comprehensive plan to implement the biometric entry and exit data system and the report on visa overstay data by country are submitted, as required, within 30 days after the act's enactment, to the House Committees on Appropriations, the Judiciary, and Homeland Security and the Senate Committees on Appropriations, the Judiciary, and Homeland Security and Governmental Affairs. The explanatory statement specified that the visa overstay report must include (1) overstays from all nonimmigrant visa categories under the immigration laws, by each class and sub-class; and (2) numbers and rates of overstays for each class and sub-class of nonimmigrant categories per country. The House committee recommended the requested $5 million for the Joint Requirements Council (JRC). The committee report directed the department to keep the committee informed on the Council's efforts to examine and reform joint operations within DHS and to clearly display in its budget execution and justification materials efficiencies and savings achieved from JRC operations. The explanatory statement directed the JRC to provide quarterly briefings beginning no later than January 30, 2016, on its results with regard to improving and leveraging joint requirements across components. The House report stated the committee's expectation that DHS would track the number of times that unmanned aircraft systems are used along the border, in a maritime environment, or in support of state, local, and tribal law enforcement entities, to monitor compliance with laws and standards on privacy and civil liberties. The report also stated that committee's expectations that the department would submit, by the required deadlines, reports that (1) assess the feasibility, cost, and benefits of implementing a universal complaint system across the department, to ensure that complaints are promptly addressed, and (2) provide an update on the corrective action plan to address low employee morale and the poor climate for workplace innovation. The explanatory statement directed the department to expeditiously brief the House and Senate Appropriations Committees on the report (which is overdue) on a universal complaint system. The House committee report directed the Office of Policy to provide a detailed description of all DHS countering violent extremism (CVE) programs and initiatives, including associated personnel and funding levels, within 60 days after the act's enactment as a means to ensure that the United States "is positioned to counter homegrown violent extremism and prevent domestic radicalization." A new general provision at Section 543 in P.L. 114-113 provided $50 million "for emergent threats from violent extremism and from complex coordinated terrorist attacks." The funds may be transferred by the Secretary between appropriations upon 15 days advance notice to the House and Senate Appropriations Committees. The explanatory statement specified that the funds be allocated as $10 million for a CVE initiative to assist states and local communities to "prepare for, prevent, and respond to emergent threats from violent extremism"; up to $39 million for an initiative to assist states and local governments to "prepare for, prevent, and respond to complex, coordinated terrorist attacks with the potential for mass casualties and infrastructure damage"; and at least $1 million to expand or enhance the Joint Counterterrorism Awareness Workshop Series. The funds will be provided on a competitive basis directly to states, local governments, tribal governments, nonprofit organizations, or institutions of higher education. The explanatory statement provided information on activities that would be eligible for funding. According to the explanatory statement, the Office of Partnership and Engagement received $13 million, including an increase of $3.1 million for the Office of Community Partnerships. It directed the office to describe in detail its CVE programs and initiatives within 60 days after the act's enactment. The House committee report also directed the Office of Policy to (1) continue developing border security metrics that are focused on reducing illegal import and entry and include measuring inflow rates, apprehension rates, and consequences for the department's jurisdiction over the Southwest Border and (2) brief the committee on such within 30 days after the act's enactment. The report directed the department to ensure that the office fully participates in interagency discussions on visa policy matters. The explanatory statement directed the office to coordinate with components to finalize the metrics, including those specified in the House report and survey and historical data, which can be assessed against operational and strategic requirements for improved security at the border. According to the statement, the metrics will inform decisions on resource allocations and management of the mission. Within the Office of Policy, the House committee report directed the Office of Immigration Statistics (1) to develop and implement a plan to collect, analyze, and report appropriate data on immigration enforcement activities, including data on the use of prosecutorial discretion; (2) to include steps in the plan to ensure complete and accurate data on such activities from encounter to final disposition; and (3) to brief the committee on the plan within 60 days after the act's enactment. The explanatory statement included the directive and further specified that data, including those collected by the Executive Office for Immigration Review at the Department of Justice and the Office of Refugee Resettlement at the Department of Health and Human Services, on the department's effectiveness in enforcing immigration laws be considered and prioritized. According to the statement, the plan should result in outcome-based metrics on immigration enforcement that are consistent and able to be released to the public on a regular basis. Both the House and Senate reports addressed the issue of increased trafficking in wildlife. The House report directed the Secretary to report, within 120 days after the act's enactment, on (1) the department's activities to address wildlife trafficking (rhinoceros horns and elephant ivory from Africa) and the illegal natural resources trade (illegally harvested timber); (2) its continued membership on the Presidential Task Force on Wildlife Trafficking; (3) efforts to improve coordination with the U.S. Fish and Wildlife Service (USFWS) Office of Law Enforcement; (4) steps taken to implement the National Strategy on Wildlife Trafficking; and (5) aligning resources to activities and initiatives that address wildlife trafficking and natural resources trade. The Senate report continued the requirement for a report on wildlife trafficking activities and recommended that CBP and the USFWS "improve cooperation and coordination among the agencies to better address" this matter. The explanatory statement directed the Secretary to update the report on activities related to wildlife trafficking and illegal natural resources trade within 120 days after the act's enactment. The Administration requested $193 million for the USM and 822 FTEs. S. 1619 , as reported, included $184 million for the USM, $9 million (4.5%) less than requested. H.R. 3128 , as reported, included $194 million for the USM, less than $1 million (0.2%) more than requested. Title I of Division F of P.L. 114-113 provided $197 million for the USM, $3.6 million (1.9%) more than requested. Of the total, the Human Resources Information Technology program received almost $8 million. The House- and Senate-reported bills, and the law, again required the Under Secretary to include a Comprehensive Acquisition Status Report (CASR) in the FY2017 budget proposal and thereafter, within 45 days after the completion of each quarter. The House Appropriations Committee report directed that an unclassified version of the CASR be posted on the department's public website with all programs displayed by appropriation and PPA (Program/Project Activities), and that the Chief Acquisition Officer and each Component Acquisition Executive (CAE) provide briefings on all acquisition projects at levels 1, 2, and 3, within 30 days after the CASR is submitted. The explanatory statement specified that the briefings are to be provided on Level 1, Level 2, and special interest projects. The House report stated that "The Committee is deeply troubled by the fact that DHS operational components remain unable to communicate with each other a decade after the 9/11 Commission highlighted the problem and after expending $430 million to address the problem." Therefore, the committee directed the USM to provide a briefing to the committee on the "plan to achieve and maintain interoperable communications" among DHS components within 90 days after the act's enactment. The report listed eight required information and data points for the contents of the plan. The USM was directed to develop written guidance to manage the IT enterprise architecture by April 1, 2016, that "institutionalizes a consumption-based IT business model across DHS based on the acquisition of IT services rather than IT assets when appropriate and cost-effective; and defines and distinguishes IT sustainment costs versus new development and investment." The explanatory statement directed the USM to brief the House and Senate Committees on Appropriations on a plan and timeline "to remedy the operational communications shortfalls [long known by the department] with existing communications capabilities" within 90 days after the act's enactment. It also specified that the briefing must specifically address how the department will manage requirements and procurements for joint communications to ensure that interoperability across components is sustained. Within USM subcomponents, the committees, and the explanatory statement, recommended the following appropriations: Office of the Chief Security Officer —Responding to a request for $67 million, the Senate report recommended $65 million, while the House report recommended $68 million, in part driven by increased funding of $2 million for Continuous Evaluation, "a technique used to investigate an individual's continued eligibility to access classified information or to hold a sensitive position." The explanatory statement recommended $69 million, including the increase of $2 million for Continuous Evaluation. Office of the Chief Procurement Officer (OCPO) —Responding to a request for $59 million, the Senate report recommended $59 million, while the House report recommended $61 million, driven in part by increased funding of $2 million for critical personnel needed by Program Accountability and Risk Management (PARM) to oversee major acquisition programs. The committee also recommended the requested funding to comply with the DATA Act, which requires that procurements have unique identification numbers. The explanatory statement recommended almost $61 million, including the increase of $2 million for PARM personnel. Office of the Chief Human Capital Officer (OCHCO) —Responding to a request for $34 million, of which $24 million was for salaries and expenses (S&E), the Senate report recommended less than $27 million, of which $19 million was for S&E. The House report recommended $31 million, of which almost $22 million was for S&E. One key difference was the treatment of the Administration's CyberSkills initiative: The Senate report noted that the $5 million in requested funding for the CyberSkills initiative was included in the recommended appropriations for the OCIO and NPPD, while the House report indicated the project was not funded. The Senate-reported bill provided less than $8 million for Human Resources Information Technology, almost $2 million less than the budget request and House-reported bill. The explanatory statement recommended $32 million, of which $24 million was for S&E. Of the total, $2.5 million funded the CyberSkills initiative, $2.5 million funded management and improvement of the hiring processes in components, and up to $350,000 funded the DHS Leader Development Program. Office of the Chief Readiness Support Officer —Responding to a request for $30 million, the Senate- and House-reported bills included $30 million, to be allocated as $27 million for salaries and expenses and almost $3 million for repairs to the Nebraska Avenue Complex. Noting substantial progress by the department in developing a common flying hour program, the House report directed the office to continue to provide quarterly updates on the program and to expand the Field Efficiencies Pilot Program to at least 10 additional cities by the end of FY2016, to further savings realized through cost avoidance. The explanatory statement recommended almost $32 million, to be allocated as $27 million for S&E and more than $4 million for repairs to the Nebraska Avenue Complex. As noted above, the Administration requested $97 million for the OCFO and 228 FTEs. Title I included $54 million for the OCFO and Title V included an additional $43 million for financial systems modernization efforts. The FY2016 request represented an $11 million, or 12.8%, increase above the $86 million provided to the CFO in FY2015. S. 1619 , as reported, included $53 million for the OCFO under Title I, and $36 million under Title V, for a total OCFO investment of $89 million, $8 million (8.2%) less than requested. The Senate Appropriations Committee report explained that the recommendation for funding Financial Systems Modernization at a level that was almost $7 million below the President's request was "due to program delays that have occurred since the budget request was formulated." H.R. 3128 , as reported, included $56 million for OCFO under Title I, and $53 million under Title V for the Financial Systems Modernization Program, for a total OCFO investment of $109 million, $12 million (12.4%) above the amount requested. Division F of P.L. 114-113 provided $56 million for OCFO in Title I and $53 million in Title V, for a total OCFO investment of $109 million, almost $13 million (13%) more than requested. Of the Title I funding, the explanatory statement recommended that $3 million "be used to improve financial management processes and cost estimation capabilities." According to the statement, the Title V funding will enable the Secretary to allocate resources according to the program execution plan for modernization. The House- and Senate-reported bills, and the law, provided that the Secretary must submit the Future Years Homeland Security Program (FYHSP) at the same time as the President's budget is submitted. The Senate Appropriations Committee report again specified that the FYHSP show funding by appropriation account and subordinate program, project, or activity and be accessible to the public. Both bills, and Division F of P.L. 114-113 , continued a general provision at Section 513 requiring budget and staffing reports to be submitted to the House and Senate Appropriations Committees within 30 days after the close of each month, with specifications for information to be included. The House Appropriations Committee report included an additional content requirement that the staffing levels for each account be based on the most recent pay period. To facilitate oversight of the department's financial management activities, the House committee report directed the OCFO to develop a regulation on financial management to: 1. establish financial management policies; 2. ensure compliance with applicable accounting policy, standards, and principals; 3. establish, review, and enforce internal control policies, standards, and compliance guidelines for financial management; 4. ensure that complete, reliable, consistent, timely, and accurate information on disbursements is available in financial management systems; and 5. provide oversight of financial management activities and operations including developing budget requests and preparing for audits. The House committee report recommended funding of $3 million for subject matter experts and support staff to assist with developing the regulation and implementation of a common appropriations structure for the department. Expressing persistent concerns about the transition to a federal shared service provider for financial management services, the House committee report directed GAO "to assess the risks of utilizing the Department of Interior's Business Center (IBC), whether the IBC is capable of expanding its services to additional Federal agencies, and [compare] the services and capabilities of Federal and commercial shared service providers." The OCFO was directed to update the estimate of lifecycle costs to include all contract awards and projected overall costs "for every component of the department that plans to migrate to a Federal shared service provider." Noting that the budget justification materials are "woefully inadequate" and "undermine" analysis and oversight of the budget request by the committees, the explanatory statement directed that the department's budget submission for FY2017, and thereafter, include tables that compare prior year actual, current year estimates, and projected year appropriations and obligations for all PPAs, subprograms, and FTE. It reminded the department that any significant new activity that has not been previously justified or funded requires a request for reprogramming or transfer of appropriations. The Administration requested $321 million for the OCIO and 382 FTEs. S. 1619 , as reported, included $304 million for the OCIO, $17 million (5.3%) less than requested. H.R. 3128 , as reported, included $308 million for the OCIO, $13 million (4.0%) less than requested. Both the Senate- and House-reported bills provided that, within the total amount appropriated, almost $105 million would fund OCIO salaries and expenses (S&E) (slightly less than requested). The House Appropriations Committee recommended $4 million more than the Senate Appropriations Committee for information technology services, while both committees recommended the requested level for infrastructure and security activities and the Homeland Secure Data Network. Title I of Division F of P.L. 114-113 provided $310 million for OCIO, almost $11 million (3.3%) less than requested. Within the OCIO account, S&E received $110 million and development and acquisition of information technology equipment, software services, and related activities for the department received $200 million. The explanatory statement directed that the information technology funds be used to support requested initiatives, including the DHS Data Framework, Single Sign-On, security, the Federal Risk and Authorization Management Program, the Trusted Tester Program, and the Infrastructure Transformation Program. In addition to the Title I resources for OCIO, Title V of Division F of P.L. 114-113 included a new general provision which provided $100 million dollars for cybersecurity to safeguard and enhance the department's systems and capabilities. According to the explanatory statement, the "funding is in addition to base funding made available to the CIO and the components, and is intended to help the Department more quickly address known vulnerabilities and technology gaps through enhancements to the DHS network and perimeter security, better access controls, stronger authentication, equipment upgrades, data loss and theft prevention, and incident response and assessments." Stating that "DHS must lead government agencies in protecting its own data and systems," the explanatory statement directed the CIO to "utilize a risk-based approach, using threat intelligence, to optimize the Department's cybersecurity investments and operations." In addition, it directed the CIO to brief the committees on the department's cybersecurity spending, the obligation plan for the cybersecurity funds, and the metrics by which improvements in the DHS cybersecurity posture will be measured, within 45 days after the act's enactment. The Senate report mandated that the OCIO support the Chief Human Capital Officer on the Cyberskills Support Initiative. Noting that P.L. 114-4 did not include the requirement provided in the FY2015 Senate-reported bill that the CIO submit a multiyear investment plan for 2015 through 2018, the Senate report stated the expectation that the same level of information be provided in the annual budget justification. The OCIO was directed to provide semi-annual briefings on the execution of major initiatives and investment areas. The Senate report also expressed the expectation that the Digital Services Team members, requested in the budget, will be used to address challenges in immigration data reporting as the top priority and that DHS will make great progress on such reporting by December 2015. The House Appropriations Committee did not recommend funding for this program. The explanatory statement recommended that up to $10 million of the S&E funds be used for Digital Services, in lieu of the House and Senate report language. With regard to the department's data center consolidation efforts, the Senate Appropriations Committee report stated the committee's expectation that DHS support the National Aeronautics and Space Administration in its use of the Data Center 1 facility and directed the department to continue periodic briefings on the execution of remaining data center migration funds, future plans for the data center, and the open market strategy for cloud services. To monitor progress in achieving the objectives of the DHS Information Technology Strategic Plan, the House report directed the OCIO to provide a briefing and quarterly updates on the enterprise architecture that supports the plan. Included in the briefing are to be details on savings achieved through data center consolidation and reducing commodity IT spending at the component level. Stating the importance of "[p]reventing the compromise or unauthorized disclosure of sensitive digital content or other personally identifiable information," the House report directed the OCIO to continue working to prevent data loss at the enterprise level by using technology at the department's Trusted Internet Connection. Table 2 outlines the funding levels for existing management functions. Several issues related to departmental management and administration were discussed by the House and Senate Appropriations Committees in considering the FY2016 Department of Homeland Security Appropriations bill. Among the issues were those related to acquisition matters, and the implementation of a common appropriations structure. These issues were, in part, related to the department's Unity of Effort initiative. Brief discussions of each of these issues follow. Noting that the USM is developing timelines and metrics for the procurement process, the Senate Appropriations Committee report directed DHS to provide a briefing within 120 days after the act's enactment "on its efforts to ensure an effective, efficient, and transparent procurement process" with metrics that are "consistent and repeatable" for the purposes of reporting on such. The House Appropriations Committee report stated that the "USM acts as the Department's Chief Acquisition Officer and Chief Performance Improvement Officer" and that the committee included several directives in the report "to build on the momentum of the Unity of Effort initiative." The report directed the USM to develop written guidance by April 1, 2016, to (1) clarify the roles and responsibilities of the Office of Program Accountability and Risk Management (PARM) and the Office of the Chief Information Officer (OCIO) for overseeing program management of major IT acquisition programs; (2) require components to provide cost estimates for operations and maintenance for sustaining programs; (3) establish responsibility at the component level for tracking the adherence of sustainment programs to existing cost estimates; and (4) require components to enter data into the next generation Period Reporting System (nPRS) on a quarterly basis, and hold CAEs accountable for validating the information. Executive Director of PARM to provide an update on data for major acquisition programs by component, by each month of the prior fiscal year, and assessing its accuracy, completeness, and timeliness by April 15, 2016. USM to review the current structure of the OCPO, consider whether the name of the office accurately reflects its function, and determine whether PARM should report to a different supervisor. The explanatory statement directed the Executive Director of PARM to provide quarterly briefings to the House and Senate Appropriations Committees on major acquisition programs, by component, beginning no later than April 15, 2016. Both Senate and House Appropriations Committee reports addressed potential reform of the structure of the appropriations accounts in the DHS budget. The House Appropriations Committee outlined the current state of affairs thusly: A key element of the Secretary's Unity of Effort initiative is to strengthen DHS budget processes. Integral to the effort is an appropriations framework that supports and standardizes budgeting and programming across the homeland security enterprise. With over 70 different appropriations and over 100 PPAs, DHS has functioned for over a decade with significant budget disparities and inconsistencies in component's [sic] appropriations accounts and PPAs. Without question, the current budget structure is a contributing factor to the failure to recognize how poorly components have been underexecuting personnel costs. More frustrating is that neither DHS nor the components can provide details on how the funds were spent. From the perspective of leaders making judgments about programs, the lack of uniformity and transparency makes it impossible to compare costs. Pursuant to Committee direction, DHS presented a notional common appropriations structure shortly after the President's fiscal year 2016 budget was submitted. The structure included four standard types of appropriations (Operations and Support; Procurement, Construction, and Improvements; Research and Development; and Federal Assistance) and specific periods of availability for each. The Senate Appropriations Committee report expressed the committee's belief that "following funds from planning through execution is critical to departmental oversight of the components as well as establishing a capability to make tradeoffs in resource allocation and budget development decisions." The committee directed the department to work closely with it and stated that a proposal that reduced transparency or congressional oversight and controls, or "create[d] a distraction through the time and opportunity costs associated with such a change," would not be accepted. The House Appropriations Committee took their stance more explicitly, noting in their report: This structure makes sense. It enables cost comparisons between components and simplifies the transition from legacy financial management systems to modernized systems. Implementing this methodology is a strategic imperative and must move forward with haste. To that end, a general provision is included in title V of the bill mandating that the fiscal year 2017 budget request be presented to the Congress in this format and be fully implemented upon the enactment of full year appropriations for fiscal year 2017. In addition to mandating the implementation of the common appropriations structure, the House committee directed DHS to "begin developing a standard template for the budget justification material based" on that structure and incorporate the template into the FY2018 budget request. The template would provide that the justification for each appropriation would "start from a zero base and build to the requested level." Furthermore, beginning with the FY2017 budget request, and for each fiscal year thereafter, the justification materials must "include tables that compare prior year actual, estimates of current year, and the projected budget year appropriations and obligations, for all PPAs, programs, subprograms, and FTE." Noting the language in the House report about the need for a common appropriations account structure, the explanatory statement mentioned that the law included a modified version of the provision that the House bill proposed. The new general provision authorized the Secretary to include with the budget justification an account structure under which each appropriation under each agency heading either remains the same as FY2016 or falls within the four categories of appropriations outlined in the notional common structure previously outlined by DHS. The general provision establishes a timeline, procedures and requirements for the Secretary to be able to transfer and reprogram funds into the new structure, including a number of materials to be submitted by the CFO by April 1, 2016, including technical assistance on new legislative language in the account structure; tables comparing FY2015, FY2016, and FY2017 funding in the account structure; comparisons across components that the account structure facilitates; a revised interim financial management policy manual that has been requested from the CFO; an outline of changes in the financial management policy manual necessary for the account structure; proposed changes to requirements for transfers and reprogramming, including technical assistance on legislative language; CFO certification that the department's financial systems can report in the new account structure; and a plan to provide training on and to implement the account structure. As of February 2015, the Department of Homeland Security's headquarters footprint occupied space in approximately 50 separate locations in the greater Washington, DC, area. This is largely a legacy of how the department was assembled in a short period of time from 22 separate federal agencies that were themselves spread across the National Capital region. The fragmentation of headquarters is cited by the department as a major contributor to inefficiencies, including time lost shuttling staff between headquarters elements; additional security, real estate, and administrative costs; and reduced cohesion among the components that make up the department. To unify the department's headquarters functions, the department and General Services Administration (GSA) approved a multi-year $3.4 billion master plan to create a new DHS headquarters on the grounds of St. Elizabeths in Anacostia. According to GSA, this would be the largest federal office construction since the Pentagon was built during World War II. Originally, $1.4 billion of this project was to be funded through the DHS budget, and $2 billion through the GSA. Phase 1A of the project—a new Coast Guard headquarters facility—has been completed with the funding already provided by Congress and is now in use. Not all DHS functions in the greater Washington, DC, area are slated to move to the new facility. The Administration has sought funding several times in recent years for consolidation of some of those other offices to fewer locations to save money on lease costs. As part of the Administration's budget request, DHS and GSA requested $204 million and $380 million, respectively, as the FY2016 tranche of design and construction funding to support a new "enhanced plan" for DHS headquarters consolidation. This new plan represents a revision of the original project, reducing its cost and size through efficiencies, faster completion, altering the mix of component headquarters that would move to the campus, and consolidating FEMA's headquarters to the West Campus rather than the East Campus of St. Elizabeths. The $3.4 billion projected cost for the original 4.5 million gross square-foot plan of record had grown to $4.5 billion: The revised project would provide 3.6 billion gross square feet of office space, at a cost of $3.7 billion. The revised project would also house an additional 3,000 headquarters personnel compared to the original plan, bringing the total to 17,000—more than half of the total DHS headquarters personnel in the National Capital Region. Requested GSA funding would support continued work on perimeter security, completing road access improvements (including a new highway interchange), rehabilitating buildings to hold elements of the Office of the Secretary and the Under Secretary, and continuing design and historic preservation activities. Requested DHS funding would support construction, as well as reconfiguration of part of the USCG headquarters to accommodate 40% more personnel, including other DHS headquarters functions. The request for DHS also included roughly $11 million for operational support costs for the existing facility and construction site, bringing the total request for headquarters consolidation to almost $216 million. Section 537 of Senate-reported S. 1619 includes $212 million for DHS headquarters and mission support consolidation, $4 million (1.9%) below the amount requested through DHS, and $164 million (336.8%) above the FY2015 enacted level. The section also includes a requirement that the department provide an expenditure plan within 90 days of enactment, while the committee report also requires quarterly briefing for the committee on headquarters and mission support consolidation activities. The Senate committee report also specifically mentions the project in its overview of issues affecting the department, noting: The bill includes funds to continue progress on the Department's headquarters consolidation at the St. Elizabeths campus. In the National Capital Region, 32,000 headquarters employees of the Department and its components operate from 50 locations, most of them leased with many of those leases now expiring. While cost concerns have been raised in the past regarding the St. Elizabeths project, the Department now has a more affordable enhanced plan and the timing of these lease expirations strengthens the case. The benefits of consolidation are coupled with cost avoidance and cost savings. While the proposed fiscal year 2016 effort to bring remaining secretarial offices and the Management Directorate to St. Elizabeths makes sense, the Committee will take a fresh look each year to ensure that the investment continues to be worthwhile. Section 535 of House-reported H.R. 3128 includes $44 million for DHS headquarters consolidation, $172 million (79.6%) below the request for DHS, and $5 million (9.7%) below the FY2015 enacted level. The House report notes: The Committee appreciates changes to the DHS Consolidation Plan that have reduced requirements and costs.... Importantly, the new plan would save DHS $1,200,000,000 over 30 years compared to the costs of continuing to rely on multiple rented facilities across the Washington, DC region over the same time period. Given the constraints of the current budget environment, however, the recommendation provides only that portion of the request related to existing operations at the consolidated headquarters location, which is included in title V of the bill. Unlike in the Senate-reported bill, there is no expenditure plan or briefing requirement. Section 539 of Division F of P.L. 114-113 included almost $216 million for the DHS headquarters consolidation, which includes over $3 million for security services. This is less than 0.1% less than requested for the overall project. The department is required to submit an expenditure plan for these funds no later than 90 days after the enactment of the act. The $557 million in combined funding provided in FY2016 through DHS and GSA in FY2016 for this project represents the largest tranche of funding provided for DHS headquarters consolidation since 2009, and the largest combined amount provided to date through annual appropriations legislation for DHS headquarters consolidation. The Analysis and Operations account includes resources for both the Office of Intelligence and Analysis (I&A) and the Office of Operations Coordination. I&A is responsible for managing the DHS intelligence enterprise and for collecting, analyzing, and sharing intelligence information for and among all components of DHS, and with the state, local, tribal, and private sector homeland security partners. Because I&A is a member of the intelligence community, its budget comes in part from the classified National Intelligence Program. The Office of Operations Coordination develops and coordinates departmental and interagency operations plans. It also manages the National Operations Center, the primary 24/7 national-level hub for domestic incident management, operations coordination, and situational awareness, fusing law enforcement, national intelligence, emergency response, and private sector information. The Administration requested $269 million for the Analysis and Operations account (see Table 1 ). Senate-reported S. 1619 recommended that the Analysis and Operations account receive $263 million, $6 million (2.1%) below the amount requested by the Administration. The committee required a briefing from DHS's Chief Intelligence Officer on the I&A expenditure plan for FY2016 no later than 60 days after the date of S. 1619 's enactment. DHS was also directed to continue its semiannual briefings to the committee on state and local fusion centers. As part of the first FY2016 briefing related to fusion centers, the committee expected DHS to assess the feasibility of establishing a state-level "center of excellence" featuring a focus on threats to cybersecurity and critical infrastructure in the United States. The center would focus on enhancing multi-agency, multi-discipline public private partnerships to improve threat information sharing and collaboration among federal, state, and private sector critical infrastructure entities. The assessment shall consider authorities and costs for such a center incurred by partner agencies. House-reported H.R. 3128 recommended $265 million for Analysis and Operations, $4 million (1.6%) below the amount requested by the Administration and $1 million more than Senate-reported S. 1619 . The committee directed DHS to make available $300,000 for enhancing the Criminal Intelligence Enterprise, a national initiative designed to identify, prioritize, and catalog the criminal and terrorist threat groups that present the greatest concern to each major city and county. Division F of P.L. 114-113 (the Homeland Security Appropriations Act, 2016) provided $265 million in appropriations for Analysis and Operations, $4 million below the amount requested by the Administration, $2 million more than Senate-reported S. 1619 , and the same as House-reported H.R. 3128 . The DHS Office of the Inspector General (OIG) is intended to be an independent, objective body that conducts audits and investigations of the department's activities to prevent waste, fraud, and abuse. The OIG is required by law to keep Congress informed about problems within the department's programs and operations and reviews and makes recommendations regarding existing and proposed legislation and regulations related to the department. The OIG is required to report to Congress and to the Secretary of DHS. The Administration requested a $142 million appropriation for the OIG, $24 million (20.0%) more than was appropriated in FY2015. The Administration also requested a $24 million transfer from the Disaster Relief Fund (DRF) specifically for oversight of disaster relief activities. Transfers from the DRF are a long-standing means of supporting the DHS OIG's annual budget for oversight of disaster relief, first occurring in FY2004, the first annual appropriations act for the department. The OIG noted in their budget justifications that their initial request submitted to the Office of Management and Budget (OMB) was larger than what the President ultimately requested—almost $2 million more in appropriations and almost $18 million more by transfer from the DRF for oversight of disaster relief. The President's request for the OIG was reduced from the funding level of the OIG's original proposal as a part of the budget formulation process. The OIG went on to note: We made our request after benchmarking our staffing against comparable Offices of Inspector General and assessing our ability to address high risk areas in DHS. This process revealed that we have been historically underfunded and unable to address the risk [sic], particularly in the area of DHS integration and acquisition management. Senate-reported S. 1619 included a $134 million appropriation for the OIG, almost $8 million (5.5%) below the amount requested, and $16 million (13.4%) above the amount appropriated in FY2015. The Senate-reported bill included the requested transfer from the DRF for disaster relief oversight activities. House-reported H.R. 3128 included a $141 million appropriation for the OIG, $1 million (0.8%) below the amount requested, and almost $23 million ($19.0%) above the amount appropriated in FY2015. Like the Senate-reported bill, the House-reported bill included the requested transfer from the DRF for disaster relief oversight activities. The omnibus included a $137 million appropriation for the OIG, almost $5 million (3.4%) below the amount requested, and almost $19 million ($18.9%) above the amount appropriated in FY2015. Like both the House- and Senate-reported bills, the omnibus included the requested transfer from the DRF for disaster relief oversight activities. Issues surrounding the DHS OIG are generally issues that impact the broader oversight community, or are issues that are shared throughout the broader community of inspectors general. A much fuller analysis is available in the discussion of statutory Offices of Inspectors General in CRS Report R43814, Federal Inspectors General: History, Characteristics, and Recent Congressional Actions , by [author name scrubbed] and [author name scrubbed], and CRS Report RL30240, Congressional Oversight Manual , by [author name scrubbed] et al. | This report is part of a suite of reports that discuss appropriations for the Department of Homeland Security (DHS) for FY2016. It specifically discusses appropriations for the components of DHS included in the first title of the homeland security appropriations bill—the Office of the Secretary and Executive Management, the Office of the Under Secretary for Management, the DHS headquarters consolidation project, the Office of the Chief Financial Officer, the Office of the Chief Information Officer, Analysis and Operations, and the Office of Inspector General for the department. Collectively, Congress has labeled these components in recent years as "Departmental Management and Operations." The report provides an overview of the Administration's FY2016 request for Departmental Management and Operations, the appropriations proposed by Congress in response, and those enacted thus far. Rather than limiting the scope of its review to the first title, the report includes information on provisions throughout the proposed bills and reports that directly affect these functions. Departmental Management and Operations is the smallest of the four titles that carry the bulk of the funding in the bill. The Administration requested $1,396 million in total budgetary resources for these components in FY2016, $255 million more than was provided for FY2015. Although only 3.4% of the Administration's $41.4 billion request for the department, the proposed additional funding was 17.8% of the total net increase requested. While the Administration proposed increasing the budget of every component of Departmental Management and Operations, the largest increase, both in dollars ($167 million) and by percentage terms (441%), was to fund a revised plan for consolidation of DHS headquarters offices in the National Capital Region. Senate-reported S. 1619 would have provided $1,346 million, a decrease of $50 million (3.6%) from the request and $205 million (18.0%) above FY2015. House-reported H.R. 3128 would have provided $1,217 million, a $179 million (12.8%) decrease from the request and $76 million (6.7%) above FY2015. On December 18, 2015, the President signed into law P.L. 114-113, the Consolidated Appropriations Act, 2016, Division F of which was the Department of Homeland Security Appropriations Act, 2016. The act included $1,546 million for these components in FY2016, $405 million more than was provided for FY2015, and $150 million more than was requested. Additional information on the broader subject of FY2016 funding for the department can be found in CRS Report R44053, Department of Homeland Security Appropriations: FY2016, as well as links to analytical overviews and details regarding appropriations for other components. This report will be updated if supplemental appropriations are provided for any of these components for FY2016. |
The public disclosure of the details of one's personal finances, ownerships, investments, and income is required from high-level elected and appointed officials in all three branches of the federal government under the provisions of law originally enacted as the Ethics in Government Act of 1978. Such public disclosure requirements in federal law were enacted in the wake of the "Watergate" scandal to facilitate supervision, regulation, and deterrence of conflicts of interest between the private financial interests and the official public duties of federal officers, and to increase the confidence of the public in the integrity of their elected and appointed officials in the federal government. The public reports mandated by the Ethics in Government Act of 1978 have always been available to the public and the press at the ethics office of the employee's agency. Provisions of law more recently adopted by Congress in the so-called "STOCK Act" now require that the personal financial disclosure reports by the highest-level officials in the government—the President, Vice President, Members of and candidates to Congress, and executive officials compensated on the Executive Schedule at level I (Cabinet officials) and level II (Under Secretaries of departments and heads of many executive branch and independent regulatory agencies)—are also to be posted on the Internet for public access and searching. The disclosure reports for other government employees who are required to file public reports will remain publicly available at the employee's agency. Reporting under the disclosure law is to be made annually by May 15 of each year by all federal officials covered by the law, and must also be made periodically during the course of the year by such covered officials and employees with respect to certain securities transactions over $1,000. In addition to the public disclosure reports from high-level officials and employees, there may also be required from other federal employees (who are not required to file public reports) confidential financial disclosure reports that are made to the employee's agency. The law requiring public disclosure of personal financial information applies to the President, the Vice President, all Members of Congress (as well as candidates for President, Vice President, and Congress), federal judges and justices, and to high-level staff in the executive, legislative, and judicial branches of the federal government. For those federal officials and employees not in positions specifically named in the law, whether such employee is required to file public financial disclosure statements is generally determined, in the first instance, by the rate of compensation that the employee is entitled to receive from the federal government, and then, secondly, by the number of days such employee works for the federal government at that salary rate. In the executive branch, any officer or employee of the government who "occupies a position classified above GS-15," or, if not on the General Schedule, is in a position compensated at a "rate of basic pay ... equal to or greater than 120 percent of the minimum rate of basic pay payable for GS-15," and who is compensated at that rate for at least 60 days in a calendar year, is required to file public financial disclosure reports. In a somewhat similar manner in the judicial and legislative branches, employees are generally covered if they earn a salary greater than 120% of the base salary of a GS-15 (regardless of whether they are on the General Schedule or not) and if they work at that rate of pay on more than 60 days in a calendar year. In addition to incumbent federal officials, persons who are nominated by the President to a position for which Senate confirmation is required must also file a public financial disclosure report within five days of transmittal by the President to the Senate of such nomination. This financial disclosure statement is filed with the designated agency ethics officer of the agency in which the nominee will serve, and copies of the report are transmitted by the agency to the Director of the Office of Government Ethics (OGE). The Director of OGE then transmits a copy to the Senate committee which is considering the nomination of that individual. A presidential nominee must file an updated report to the Senate committee reviewing his or her nomination at or before the commencement of hearings, updating the information through the period "not more than five days prior to the commencement of the hearing," concerning information specifically related to honoraria and outside earned income. Committees of the Senate may require any additional information from a nominee that they deem necessary or desirable, and may further require ethics agreements from the nominee as to the disposition of particular assets, or the intention to recuse himself or herself from certain governmental matters. The annual financial disclosure statements mandated under the Ethics in Government Act of 1978—to be filed by May 15 of each year by incumbent officials—require the public reporting and disclosure of detailed financial information about the private financial interests, assets, ownerships, and financial and business associations of the public official, as well as certain financial information relative to the official's spouse and dependent children. The disclosure statement requires public listing of the identity and/or the value (generally in "categories of value") of such items as the following: Income—the official's private income of $200 or more (including earned and unearned income such as dividends, rents, interest, and capital gains) and the source of such income Gifts—gifts received from private sources over a certain amount (including reimbursements for travel over threshold amounts) Assets—the identification of all assets and income-producing property (such as stocks, bonds, mutual funds, other securities, rental property, etc.) of over $1,000 in value (including savings accounts over $5,000) Liabilities—liabilities owed to creditors exceeding $10,000. Information on mortgages on personal residences must be disclosed by the President, Vice President, Members of Congress, and nominees and incumbents in most presidentially appointed and Senate-confirmed positions Transactions—financial transactions, including purchases, sales, or exchanges exceeding $1,000 in value, of income-producing property, stocks, bonds, mutual funds, exchange traded funds, or other securities Outside Positions—positions held in outside businesses and organizations Agreements—agreements for future employment or leaves of absence with private entities, continuing payments from or participation in benefit plans of former employers Blind Trusts—the cash value of the interests in any blind trusts Information in the reports concerning the finances of the spouse and dependent children of covered federal officials is to include particular disclosures with regard to the income, gifts, assets, liabilities, and financial transactions of such individuals. Although the identity of financial assets and of income-producing property over $1,000 in value must generally be disclosed by federal officials, even if such assets are held in "trusts" for the benefit of the official or the official's spouse or dependent children, the identity of the underlying assets need not be disclosed if held in a "qualified blind trust," or in a trust not established by the official (when the official and his or her spouse and children have no knowledge of the holdings in such trust). The conflict of interest theory under which the "blind trust" provisions operate is that since the government officer will eventually not know the identity of the specific assets in the trust (there cannot be any restrictions on the sale or disposition of assets in a "qualified" blind trust and the trustee must be independent of the official), those financial interests could not act as influences on the officer or employee's official decisions, thus avoiding real or apparent conflicts of interests. Assets originally placed into the trust will, of course, be known to the official, and therefore will generally continue to be "financial interests" of the public official for conflict of interest purposes, when applicable, until the trustee notifies the official "that such asset has been disposed of, or has a value of less than $1,000." Under the provisions of the "STOCK Act," signed into law on April 4, 2012, all federal officials who are required to file annual public financial disclosure statements must also file periodic reports during the year which detail financial transactions of $1,000 or more taken by or for the official. These more frequent, periodic transaction reports must be filed within 30 days after the official is notified of a covered transaction in stocks, bonds, or other such securities (but no later than 45 days after the date of the transaction). The requirement for more frequent filing applies generally to transactions in stocks and bonds of individual companies, but does not apply to most mutual funds or to exchange traded funds (ETFs), nor to transactions in real property. The requirement for more frequent and prompt reporting of transactions was adopted as part of the so-called STOCK Act as an adjunct to the existing prohibition on the use of "inside information" by public officials, and was intended to apply to trading in securities whose value could be affected by such information. Federal officials generally file copies of their financial disclosure reports with their designated agency ethics official in the agency in which the reporting official is employed. In the executive branch of government, the President and Vice President file their reports with the Office of Government Ethics (OGE), while all other financial disclosure reports are to be filed with the designated agency ethics officer within the agency or department in which the officer serves. In the legislative branch of government, Members and covered staff of the House of Representatives file their disclosure reports to the Clerk of the House, who forwards a copy to the House Ethics Committee for review. Senators and covered Senate staff file copies of their reports to the Secretary of the Senate, who forwards a copy to the Senate Select Committee on Ethics. In the judicial branch of government, judges, justices, and judicial staff file copies of their reports with the Judicial Conference. The public financial disclosure reports required to be made by officers and employees of the federal government under the Ethics in Government Act of 1978 have always been available to the public and the press for copy or inspection from the official's agency (the designated ethics office) within 30 days after the May 15 filing deadline. Under more recent legislation known as the STOCK Act, reports for the highest-level officials in the government, including the President, Vice President, Members of and candidates to Congress, and executive officials compensated at level I of the Executive Schedule (Cabinet officials), and level II of the Executive Schedule (which includes Deputy Secretaries of the departments as well as the heads of many executive and independent agencies) are now also required to be posted on the Internet by their respective agencies. The public availability or Internet publication of the disclosure reports include, in addition to the annual May 15 reports, the more frequent periodic transaction reports concerning purchases or sales of securities of $1,000 or more in value. As originally adopted, the STOCK Act would have required the Internet posting of all the public financial disclosure reports required from nearly 30,000 employees in the executive and legislative branches of government. Concerns over potential identity theft, the increased opportunities for malicious data mining, and public safety concerns for many federal employees in law enforcement or for those employed overseas, as well as constitutional concerns over financial privacy, led to a study and re-examination of the issue of Internet publication of the detailed financial reports by lower-level federal officials. In a study by the independent National Academy of Public Administration (NAPA), that organization concluded that "the online posting requirement does little to help detect conflicts of interest and insider trading, but that it can harm federal missions and individual employees. " Congress responded by amending the STOCK Act to require the Internet posting of the disclosure reports filed by the highest-level officials in the government, but leaving in place the existing public availability of the disclosure reports for all other employees in the executive and legislative branches. In addition to the legislative and regulatory scheme for public financial disclosure for certain federal officials, there is in place a requirement for confidential disclosure reports to be filed with an employee's agency by some lower-level federal officers and employees. The confidential reporting requirements are intended to complement the public disclosure system, and apply to those employees who do not have to file under the public reporting provisions of the Ethics in Government Act. Generally, the confidential reporting requirements apply to certain "rank and file" employees who are compensated below the threshold rate of pay for public disclosures (GS-15 or below, or less than 120% of the basic rate of pay for a GS-15), and who are determined by the employee's agency to perform duties or exercise responsibilities in regard to government contracting or procurement, government grants, government subsidies or licensing, government auditing, or other governmental duties which may particularly require the employee to avoid financial conflicts of interest. Such a person may be required to file a confidential report if he or she performs the duties of such a position "for a period in excess of 60 days during the calendar year." Additionally, unless required to file public reports, confidential reports are required from all "special Government employees" in the executive branch (those employees who are employed by the government for not more than 130 days in a year), including those who serve on advisory committees. With respect to advisory committees, it should be emphasized, however, that the disclosure provisions of federal law and regulation apply only to persons who are "officers or employees" of the federal government, and thus do not apply to private individuals who are serving on advisory committees as "representatives" of outside, private, or other non-federal entities. | High-level officials in all three branches of the federal government are required to publicly disclose detailed information concerning their financial holdings and transactions in income-producing property and assets, such as stocks, bonds, mutual funds, and real property, as well as information on income, gifts, and reimbursements from private non-governmental sources. Covered federal officials must disclose this information not only for themselves, but also must disclose much of the same required financial information with regard to their spouses and dependent children. Public financial disclosure and reporting requirements, originally adopted in the Ethics in Government Act of 1978, apply to the President, Vice President, all Members of Congress (as well as to candidates for President, Vice President, or Congress), federal judges and justices, and to employees in all three branches of the federal government who are compensated at a rate of pay over a particular amount (generally, 120% of the base salary of a GS-15) for more than 60 days in a calendar year. Covered officers and employees of the federal government must file detailed financial reports on an annual basis by May 15, setting out information for the previous year on income, gifts, reimbursements, financial holdings and assets, financial transactions, outside positions held, and any agreements or understandings for future private employment. In addition to the annual May 15 reports, all covered public filers must file more frequent public reports throughout the year concerning financial transactions of over $1,000 in assets such as stocks or bonds. Such periodic reports on financial transactions must be filed within 30 days of the receipt of notice of any such covered purchase or sale (but not later than 45 days of the actual transaction). For the highest-level officials in the executive and legislative branches of government—the President, Vice President, Members of Congress, and executive officials compensated on Level I of the Executive Schedule (Cabinet officials) and Level II of the Executive Schedule (including sub-Cabinet officials and heads of executive branch and independent agencies)—all of the public reports required to be filed, including the annual report and the periodic transaction reports, are to be posted on the Internet for public availability, searching, and downloading. For all other covered employees in the federal government, the financial disclosure reports remain publicly available to individuals and the press at the employee's agency. |
U.S. attention has focused on Russia's fitful democratization since it emerged in 1991 from the collapse of the Soviet Union. Many observers have argued that a democratic Russia with free markets would be a cooperative bilateral and multilateral partner rather than an insular and hostile national security threat. At the same time, most observers have cautioned that democracy may not be easily attainable in Russia, at least in part because of a dearth of historical and cultural experience with representative institutions and modes of thought. Concerns about democratization progress appeared heightened after Vladimir Putin became president in 2000. Setbacks to democratization have included more government interference in elections and campaigns, restrictions on freedom of the media, civil as well as human rights abuses in the breakaway Chechnya region, and the forced liquidation of Russia's largest private oil firm, Yukos, as an apparent warning to other entrepreneurs not to support opposition parties or otherwise challenge government policy. Democratization faced further challenges following terrorist attacks in Russia that culminated in the deaths of hundreds of school-children in the town of Beslan in September 2004. President Putin almost immediately proposed restructuring all three branches of government and strengthening federal powers to better counter the terrorist threat to Russia. The proposed restructuring included integrating security agencies, switching to purely proportional voting for the Duma (lower legislative chamber), eliminating direct elections of the heads of federal subunits, asserting greater presidential control over the judiciary, and achieving more control over civil society by creating a "Public Chamber" consultative group of largely government-approved non-governmental organizations (NGOs). After this restructuring had been largely implemented, President Putin in his May 2006 State of the Federation address hailed it as "even[ing] out the imbalances that have arisen in the structure of the state and the social sphere." Much controversy has attended the restructuring of the political system. On the one hand, some Russian and international observers have supported the restructuring as compatible with Russia's democratization. They have accepted Putin's argument that his moves counter Chechen and international terrorists intent on destroying Russia's territorial integrity and political and economic development. On the other hand, critics of the restructuring moves have branded them as the latest of Putin's democratic rollbacks since he came to power in 2000. In a sensational move, Putin declared in April 2005 that he would not seek re-election, stating that "I will not change the constitution and in line with the constitution, you cannot run for president three times in a row." According to several observers, this declaration has spurred the maneuvering of Putin's supporters to fine tune a system of "managed democracy" (see below for definitions), if not authoritarianism, in order to gain substantial influence over electoral processes ahead of State Duma elections scheduled for December 2007 and the Russian presidential election set for March 2008. The U.S. Administration and Congress have welcomed some cooperation with Russia on vital U.S. national security concerns, including the non-proliferation of weapons of mass destruction (WMD), strategic arms reduction, NATO enlargement, and since September 11, 2001, the Global War on Terror. At the same time, the United States has raised concerns with Russia over anti-democratic trends, warning that a divergence in democratic values could eventually harm U.S.-Russian cooperation. Following Putin's Beslan proposals, then-Secretary of State Colin Powell urged Russia not to allow the fight against terrorism to harm the democratic process, and President Bush raised concerns about "decisions ... in Russia that could undermine democracy." In the wake of Russia's cutoff of gas supplies to Ukraine in early 2006, Vice President Dick Cheney appeared to reflect an Administration consensus that authoritarianism was deepening in Russia. He stated that Russia's "government has unfairly and improperly restricted the rights of her people" and that such restrictions "could begin to affect relations with other countries." He called for Russia to "return to democratic reform." Some U.S. observers have urged circumspection in criticizing lagging democratization in Russia, lest such criticism harm U.S.-Russian cooperation on vital U.S. national security concerns. Others have urged stronger U.S. motions of disapproval, regardless of possible effects on bilateral relations. The Putin government and state-controlled media have criticized such U.S. Administration statements as "interfering in Russia's internal affairs," as not recognizing the grave threat of terrorism in Russia, and as misrepresenting sensible counter-terrorism measures as threats to democratization. This paper assesses Russia's progress in democratization, including in the areas of elections, media rights, civil society, and federalism. Four scenarios of possible future political developments are suggested—a continuation of the current situation of "managed democracy," deepening authoritarianism, further democratization, or a chaotic interlude—and evidence and arguments are weighed for each. Lastly, U.S. policy and implications for U.S. interests, congressional concerns, and issues for Congress are analyzed. Most analysts agree that modern democracy includes the peaceful change of leaders through popular participation in elections. Also, political powers are separated and exercised by institutions that check and balance each others' powers, hence impairing a tyranny of power. Democracies generally have free market economies, which depend upon the rule of law and private property rights. The rule of law is assured through an independent judicial and legal system. The accountability of government officials to the citizenry is assured most importantly through elections that are freely competed and fairly conducted. An informed electorate is assured through the government's obligation to publicize its activities (termed transparency) and the citizenry's freedom of expression. In contrast, in an authoritarian state the leadership rules with wide and arbitrary latitude in the political sphere but interferes somewhat less in economic and social affairs. The government strictly limits opposition activities, and citizens are not able to change leaders by electoral means. Rather than legitimizing its rule by appealing to an elaborate ideology, an authoritarian regime boasts to its citizenry that it provides safety, security, and order. Some theorists have delineated a political system with mixed features of democracy and authoritarianism they label "managed democracy." In a managed democracy, the leaders use government resources and manipulation to ensure that they will not be defeated in elections, although they permit democratic institutions and groups to function to a limited extent. Presidential advisor Vladislav Surkov and the pro-presidential United Russia Party have advocated use of the term "sovereign democracy," which they define as a culturally appropriate form of government that is not influenced by other countries. Russia certainly has made some progress in democratization since the Soviet period. The extent of progress, however, and the direction of recent trends, are subject to dispute. Democratization has faced myriad challenges, including former President Boris Yeltsin's violent face-off with the legislature in 1993 and recurring conflict in the breakaway Chechnya region. Such challenges, virtually all analysts agree, have hindered Russia from becoming a fully-fledged or "consolidated" democracy in terms of the above definition. Some analysts have viewed Putin as making decisions that have diverted Russia further away from democracy, but they have argued that the country is not yet fully authoritarian and may be described as a "managed democracy." Others insist that he is clearly antagonistic toward democracy, not least because he launched security operations in Chechnya that have resulted in wide scale human rights abuses and civilian casualties. The NGO Freedom House claims that Russia under Putin has suffered the greatest reversal among the post-Soviet states in democratic freedoms, and warns that the main danger to Russia's future political stability and continued economic growth is an overly repressive state. Other observers agree with Putin that stability is necessary to build democracy. He stresses that the government's first priority is to deal with terrorism and other threats to sovereignty and territorial integrity, such as corruption. Some suggest that such a "strong state" may be compatible with free market economic growth. Most analysts agree that Russia's democratic progress was uneven at best during the 1990s, and that the 2003-2004 cycle of legislative and presidential elections and subsequent elections in 2005-2006 demonstrate the increasingly uncertain status of democratization during Putin's leadership. On December 7, 2003, Russians voted to fill 450 seats in the State Duma, 225 chosen in single-member districts and 225 chosen by party lists. Nearly 1,900 candidates ran in the districts, and 23 parties fielded lists. Public opinion polls before the election showed that Putin was highly popular, and it was expected that pro-Putin parties and candidates would fare well. On election day, there was a low turnout of 56 percent and 59.685 million valid votes cast. The Putin-endorsed United Russia party won the largest shares of the party list and district votes, giving it a total of 224 seats. The ultranationalist vote was mainly shared by the newly formed pro-Putin Motherland bloc of parties and Vladimir Zhirinovskiy's Liberal Democratic Party (which usually supports the government). Candidates not claiming party affiliation won 67 district seats (most later joined the United Russia faction in the Duma). Opposition parties and candidates fared poorly. The opposition Communist Party won far fewer seats (52) than it had in 1999 (113 seats), marking its marginalization in the Duma. The main opposition liberal democratic parties (Union of Right Forces and Yabloko) failed to reach the five percent threshold for party representation in the Duma, and were virtually excluded. Election observers from the Organization for Security and Cooperation in Europe (OSCE) and the Parliamentary Assembly for the Council of Europe (PACE) concluded that the Duma race was less democratic than the previous one in 1999. They highlighted the government's "extensive" aid and use of media to favor United Russia and Motherland and to discourage support and positive media coverage of the opposition parties. Such favoritism, they stated, "undermined" the principle of equal treatment for competing parties and candidates and "blurred the distinction" between the party and the state. They further considered the Central Electoral Commission's (CEC's) failure to enforce laws against such bias "a worrisome development that calls into question Russia's ... willingness" to meet international standards. Before the Duma convened on December 29, 2003, most of the nominally independent deputies had affiliated with the United Russia party faction, swelling it to over 300 members. This gave United Russia the ability not only to approve handily Putin's initiatives, but also the two-thirds vote needed to alter the constitution without having to make concessions to win the votes of other factions. The United Russia faction leader assumed the speakership, and its members were named to six of nine deputy speakerships and to the chairmanships of all 28 committees. The United Russia faction took control over agenda-setting for the chamber and introduced a streamlined process for passing government bills that precluded the introduction of amendments on the floor by opposition deputies. The Duma of the 2003-2007 convocation has handily passed Kremlin-sponsored legislation requiring a two-thirds majority, including changes to federal boundaries. Even a highly unpopular government bill converting many in-kind social entitlements to monetary payments (but retaining them for officials and deputies) was overwhelmingly approved in August 2004. The Russian newspaper Moscow Times reported that some Duma deputies complained that the bill was pushed through even though there was not a full text. Many senators in the Federation Council (the upper legislative chamber), who represent regional interests, raised concerns about the shift of the welfare burden from the center to the regions. They allegedly were warned by the Putin government, as were the regional leaders, not to oppose the legislation. Other controversial bills easily passed by the legislature in 2005-2006 included the elimination of gubernatorial elections and single member district balloting for Duma races (see below). The overwhelming successes of pro-Putin parties in the Duma election were viewed by most in Russia as a ringing popular endorsement of Putin's continued rule. Opposition party leaders were discredited by the vote, and Putin's continued high poll ratings convinced most major potential contenders to decline to run against him. Union of Right Forces party bloc co-chair Irina Khakamada and Motherland co-head Sergey Glazyev ran without their party's backing, and Glazyev faced a split within his party bloc from members opposed to his candidacy against Putin. The Communist Party leader declined to run. The party nominated a less-known surrogate, State Duma deputy Nikolay Kharitonov. Similarly, the Liberal Democratic Party leader, Vladimir Zhirinovskiy, declined and the party nominated Oleg Malyshkin. The Party of Life (created by pro-Putin interests in 2002 to siphon votes from the Communist Party) nominated Sergey Mironov, Speaker of the Federation Council. Mironov publicly supported Putin and criticized the other candidates. Despite poll results indicating that Putin would handily win re-election on March 14, 2004, his government interfered with a free and fair race, according to the OSCE. State-owned or controlled media "comprehensively failed to ... provide equal treatment to all candidates," and displayed "clear bias" favoring Putin and negatively portraying other candidates. Political debate also was circumscribed by Putin's refusal to debate with other candidates. Concern that the low public interest in the campaign might be reflected in a turnout less than the required 50 percent, the CEC aired "get out the vote" appeals that contained pro-Putin images, according to the OSCE. While praising the efficiency of the CEC and lower-level electoral commissions in administering the election, the OSCE also reported that vote-counting appeared problematic in almost one-third of the precincts observed. Irregularities included penciling in vote totals for later possible alteration, and in one case, the reporting of results without counting the votes. In six regions, including Chechnya, voter turnout and the vote for Putin were nearly 90% or above, approaching implausible Soviet-era percentages. The CEC instigated troubling criminal investigations of signature-gathering by Glazyev and Khakamada that were not resolved before the election, putting a cloud over their campaigning. Several dozen regional legislative elections have taken place in the past two years. The last fourteen regional elections will take place in March-April 2007. The elections already held have been closely watched by the Putin administration and United Russia to ascertain popular sentiments and to work out strategy for retaining power during the planned December 2007 State Duma election. These regional races have witnessed the United Russia Party gaining the largest proportion of votes and legislative seats in almost all cases. This party in most cases has been strongly backed by the regional governors, the majority of whom are party members. Elections to the Moscow City Duma (Moscow has federal regional status) in December 2005 resulted in United Russia winning nearly 50% of the party list vote and all 15 single member constituencies, giving it a majority of 28 out of 35 seats in the city Duma. The Communist Party remained viable, winning four seats. Several liberal parties cooperated with Yabloko, and it won three seats. A party had to get at least 10% of the votes in order to win seats, resulting in the elimination of six parties, including the Liberal Democratic Party and the Party of Life. Reportedly reflecting the Putin administration's disfavor, the Motherland Party was disqualified from running. Some observers criticized severely circumscribed election monitoring and media coverage, which made it difficult to assess whether the vote was free and fair. According to one report, when the city duma winners met to divvy up responsibilities, the winners in single member districts demanded that all the duma staffers serve them, since they represented constituents who had voted for them, and the party list winners were forced to ally themselves with these deputies in the hope of obtaining staff support. In the formerly breakaway region of Chechnya, legislative elections were held on November 27, 2005, as part of Putin's plan to pacify and control the region. More than 350 candidates ran in single member constituencies and on the lists of eight registered parties for 58 seats in the 2-house legislature. The Electoral Commission announced on December 3 that turnout was 69.6% of about 600,000 voters and that United Russia won 33 seats (a majority of the seats). The Communist Party gained 6, the Union of Right Forces won 4, and the Eurasian Union won one seat. Candidates not claiming a party affiliation won the remaining seats. President Putin the day after the election proclaimed that "a legitimate, representative authority has been elected in Chechnya.... This completes the formal legal procedure of restoring constitutional order." A small group from the Council of Europe evaluated the election. They raised concerns that administrative resources were used heavily to support favored candidates. Other critics charged that all aspects of the election, from the reported turnout figures to the reported winners, had been predetermined. Nine regional legislative elections held on October 8, 2006, were aggressively contested by political parties positioning themselves for the December 2007 Duma race. According to many analysts, the results of these races reflected many of the electoral tactics that United Russia and the authorities will use in the Duma election. In these regional contests, United Russia performed better than previously, while the Liberal Democratic and Communist parties lost ground, and Yabloko (which ran in two regions) won no seats. Where party lists were used, the governors were highlighted on the United Russia Party lists, indicating the favored status of the party (after the election, the governors declined their legislative seats). Central and regional electoral decisions and administrative resources were used to support favored parties and hinder non-favored parties. United Russia successfully used campaign advertising and community outreach to substantially boost its image among many voters who earlier had blamed the party for the monetization of social benefits. During Putin's presidency, Freedom House has lowered its assessment of Russia's media from "Partly Free" to "Not Free." Most recently, the NGO gave Russia a score of six (where one represents the highest level of democratic progress and seven the lowest). It warned that in 2005-2006, the Russian government further tightened controls over major television networks, harassed and intimidated journalists, and otherwise acted to limit what journalists reported. In 2003, the government allegedly used its direct or indirect ownership shares to tighten control over the independent television station NTV, close down another station (TV-6), and rescind the operating license of a third (TVS). In 2005, the pro-government steel company Severstal and some German investors purchased Ren-TV, a television station with a national reach that had been permitted some editorial freedom. It had been owned by the government monopoly United Energy Systems and private investors. After the takeover, the new owners imposed a pro-government editorial stance. Not only does the government reportedly have controlling influence over these major nationwide television networks and other major broadcast and print media, but a Ministry of Culture and Mass Communications created in 2004 has major influence over the majority of television advertising and print distribution. The government has tightened its control over the press even though the subscriber base of newspapers and periodicals is small relative to the population. The Committee to Protect Journalists, a U.S.-based NGO, in late 2006 listed Russia as the "third deadliest country in the world for journalists" over the past fifteen years, behind only Iraq and Algeria. The NGO counted 42 murders of journalists, and most cases are unsolved. It has also assessed Russia poorly in terms of the frequency of lawsuits and the imprisonment of journalists, the suppression of alternative points of view, and biased coverage of the Chechnya conflict. Prominent cases include the July 2004 murder of Forbes reporter Paul Klebnikov, the September 2004 arrest of Radio Free Europe/Radio Liberty reporter Andrey Babitskiy after being attacked by government airport employees, the alleged poisoning in September 2004 of Novaya gazeta reporter Anna Politovskaya, the murder of Novoe delo reporter Magomedzagid Varisov in June 2005, and the murder of Politovskaya in October 2006. Babitskiy and Politovskaya in September 2004 had been en route to southern Russia during the Beslan hostage crisis, where Politovskaya hoped to help the government negotiate with the captors. The murders of Klebnikov and Politovskaya have not yet been resolved. According to Freedom House and other observers, the status of civil society in Russia has worsened during Putin's presidency. The government increasingly has constrained the operations and financing of human rights NGOs that lobby for reforms, and declining public participation in political parties and NGOs weaken their influence over government policy. Worrisome trends have included Putin's criticism in his May 2004 state of the federation address that some NGOs receive foreign funding and "serve dubious group and commercial interests," rather than focusing on "severe problems faced by the country and its citizens." After Putin's address, Russian Foreign Minister Sergey Lavrov met with several NGOs in June 2004 and called for them to present a united front to the world, such as by rebuffing criticism of Russia's human rights policies by the Council of Europe. Critics alleged that Lavrov's call appeared to mark efforts to re-create Soviet propaganda organizations under the control of intelligence agencies, such as the Soviet-era Committee for the Defense of Peace (its successor organization, the Federation of Peace and Accord, took part in the meeting). They also raised concerns that many of the NGOs that met with Lavrov appeared newly created, and that the government's aim was for these groups to crowd out established and independent NGOs. In July 2005, President Putin re-emphasized his concerns about foreign funding for NGO political activities, asserting that "no self-respecting state will allow this, and we will not allow it." In November 2005, the Duma began consideration of a draft NGO bill banning the presence of branches of foreign NGOs in Russia, forbidding foreigners from belonging to Russian-based NGOs, and strengthening the auditing functions of the government to monitor and control foreign and domestic funding of NGOs. Some observers suggested that the bill reflected the Putin administration's perception that foreign-based or foreign-funded NGOs helped trigger "color revolutions" that overthrew governments in Georgia, Ukraine, and Kyrgyzstan, and that such NGOs similarly were subverting the Russian government. Following harsh criticism of the draft NGO bill from many Russian and international NGOs and others, including U.S. officials, President Putin (and many Public Chamber members) suggested some changes to the draft to permit branches of foreign NGOs to operate in Russia under certain conditions. President Putin continued to argue that this legislative change, like others he had orchestrated, was prompted by the need to protect Russia from foreign "terrorist ideology." The bill was approved and signed into law in December 2005 and entered into force in April 2006. Potentially worrisome provisions in the law include the ability of officials from the Federal Registration Service (FRS) to attend meetings of NGOs without their consent or a court order. If activities of the NGO do not match those described in registration documents, the FRS can call for legal proceedings against the NGO. The FRS may cancel the activities and ban financial transactions by Russian branches of foreign organizations. The law also imposes onerous annual reporting requirements on NGOs. According to FRS officials, a major goal of the law was to prevent foreign-based and other NGOs from engaging in activities that might be construed as political. As pointed out by the U.S. Commission on International Religious Freedom, "this purpose is not directly stated in the NGO law" and raises the specter that the FRS could close down democratization and human rights education and other programs deemed "harmful" to Russian "values." In one such case, the Stichting Russian Justice Initiative, a Dutch-based NGO providing legal assistance to Chechens, was denied registration under the new NGO law, allegedly for providing improper paperwork. New definitions of "extremist" activities subject to prosecution were enacted in July 2006 (see also below, " Political Parties ") that some observers warned could be used against NGOs not favored by the government. Perhaps indicative of such warnings, in October 2006 the Russian-Chechen Friendship Society (RCFS), an NGO aimed at facilitating peace in Chechnya and monitoring human rights, was closed down because its head had been given a suspended sentence for publishing articles by separatists. According to the human rights NGO Amnesty International, the closure "delivers a double blow—one to freedom of expression and another to civil society [and] sends a chilling signal that other NGOs stepping out of line can share its fate." In January 2007, Putin stated at a meeting with NGOs that his monitoring of the execution of the NGO law had indicated that "the fears some voiced over a likely onslaught on the NGOs by the authorities have turned out to be devoid of any foundation." He called for Russian businesses to contribute to NGOs to replace support from foreign donors. Several NGOs disagreed with this assessment, telling Putin that the costs of preparing paperwork necessary to register a new NGO were onerous, so that small groups were basically barred from registering and operating legally, and that government inspections also imposed onerous costs. In the wake of the Beslan tragedy, authorities endeavored to manage the large number of public demonstrations throughout the country to make sure they were anti-terrorist, rather than anti-government, gatherings. A few observers suggested that the demonstrations raised new fears in the Putin administration of public passions and spurred the proposal to create a "Public Chamber." As urged by Putin on September 13, "mechanisms to bind the state together" to fight terrorism would include strong political parties to make sure that public opinion is heard and a Public Chamber composed of NGOs that would discuss draft laws, oversee government performance, and possibly allocate state grants. The influence of public opinion also would be bolstered, he claimed, by setting up citizens' groups that would pass on information to security and police agencies and help the agencies "maintain public order." A primary architect of the Chamber's work, deputy chief of the presidential staff Vladislav Surkov, allegedly stated that it would help divert and ameliorate public passions. Rejecting the necessity of a Public Chamber, some democracy advocates called instead for strengthening legislative functions, parties, and NGOs to represent citizens' interests. The 126 members of the Public Chamber were selected in late 2005. One-third were appointed by President Putin. These 42 members in turn selected another 42 members (representing the heads of NGOs and other non-profit organizations), and these 84 members selected the final 42 (representing regionally-based organizations). Members included prominent artists, singers, scientists, editors, lawyers, businessmen, and religious leaders. The first session of the Chamber was held in January 2006. It set up over a dozen public oversight commissions. Virtually all were headed by President Putin's appointees. Addressing the session, President Putin stated that the Chamber would ensure popular influence over state institutions, "real independence" of the mass media, public control over the use of budget funds allocated for presidential projects, input into law-making, and oversight over the activities of NGOs. Some critics compared some of these reputed responsibilities to those of the Soviet-era People's Control Committees, which supposedly permitted workers to oversee the operations of state agencies and to publicize shortcomings. Appearing to belie their reputed functions, the Public Chamber's newly created Commission for Public Monitoring of Law Enforcement and Military Structures, the Commission on Questions of Tolerance and Freedom of Conscience and the Commission on Media held meetings in February 2006 closed to the media. In September 2006, the Public Chamber announced that proposals from over 500 NGOs for government funding would be granted. Reportedly, the presidential administration made the final decisions on funding following recommendations from the Public Chamber. Some critics alleged that mostly pro-government NGOs—including those linked to many members of the Public Chamber or to pro-government political parties—had been selected and that some nonfavored democracy and human rights NGOs had been denied funding. These critics also claimed that the criteria for selection were not transparent, except for the requirement that NGO show that they can "cooperate" with the government. Polls in Russia have been interpreted as both proving and disproving that Russians value democracy. U.S. researcher Richard Pipes has concluded from his examination of polls conducted in 2003 that "antidemocratic [and] antilibertarian actions" by Putin "are actually supported" by most Russians, and that no more than one in ten Russians value democratic liberties and civil rights. The disdain for democracy, he argues, reflects Russians' cultural predilection for order and autocracy over freedom. Other observers reject placing the bulk of blame for faltering democratization on civil society. Russian analyst Alexander Lukin has objected to Pipes' conclusions, arguing that Russians embraced democracy in the late 1980s, and that while the term "democracy" since then has fallen into disfavor in political discourse, Russians continue to value its principles. Recent polls seem to illustrate the mixed attitudes of Russians toward various aspects of democratization. Several polls by Russia's privately-owned Levada Center over the past two years seem to indicate that most Russians value social rights more than political rights and do not object to the idea of well-liked President Putin holding substantial power. According to polls taken by the Levada Center in early 2006, a majority of respondents thought the government should urgently address economic and social issues, while only 12%-13% thought that President Putin or a possible successor should emphasize democratization and human rights. The Levada Center concluded from the polls that "most people would like the country to follow the same course that Putin is taking it on." However, another poll by the Levada Center in November 2005, which asked whether President Putin was doing a relatively good job defending democracy and human rights, appeared to tap some popular concern about recent trends. In this poll, 46% of respondents viewed Putin as doing a good job, but 43% expressed reservations. Popular attitudes toward democratization and human rights can differ according to the questions and issues addressed. Some specific questions have revealed positive attitudes toward aspects of democracy among some fraction of Russians. Although polls suggest that Russians appear to uniformly trust President Putin, a March 2006 poll by the Levada Center found that 60-61% of respondents tended not to trust the court system or prosecutors. According to late 2005 national polls by the Levada Center, 66% of respondents felt that there needed to be an effective political opposition, and 57% felt that the media should scrutinize the conduct of officials. A July 2006 poll by the Levada Center found that 32% of respondents believed that Russia should return to a one-party system, while 42% favored at least a two-party system. A late 2005 poll by the government-financed All-Russia Center for the Study of Public Opinion on Social and Economic Questions (VtsIOM) found that one-half of respondents did not oppose democratization assistance from foreign countries. However, only about one-third viewed such assistance from the United States as acceptable, in part because of suspicions about U.S. intentions. An early 2006 poll by the Levada Center found that 37% of respondents considered it acceptable for Russian NGOs to accept foreign grants, while 42% considered it unacceptable. Several polls appeared to document the initial opposition of many Russians to the elimination of direct gubernatorial elections, but this viewpoint may have changed. Although nearly one-half of those polled nation-wide objected to eliminating such elections in late 2004, less than one-third objected in late 2005, perhaps reflecting growing resignation or indifference. Putin has orchestrated several changes to the electoral system that he claims will create a strong and stable party system with fewer parties. These changes are resulting in party mergers, with small parties joining together or joining larger parties in order to survive. The changes include giving parties the exclusive prerogative to nominate candidates, providing state funding that benefits parties that have received more votes, requiring parties to have at least 50,000 members spread across the country in order to be legally registered (thus eliminating regional parties), making party list voting the only method of election to the Duma (see below) and raising the bar to gaining seats in the Duma from 5% to 7% of the vote. At the same time, the Putin administration has moved against unfavored parties and activities. Many observers suggest that the arrest of Vladimir Khodorkovskiy, the head of the Yukos oil firm, in late 2003 was motivated at least in part by his political ambitions and his support for the democratic liberal opposition Yabloko Party in the upcoming Duma election. In this view, Putin aimed to block the so-called oligarchs (leaders of the top private firms) and other entrepreneurs from gaining greater political influence through support for opposition parties and for candidates in single-member district races. Since Khodorkovskiy's arrest and imprisonment, businessmen sharply have reduced their donations to opposition parties, and business groups have pledged fealty to Putin. Apparent government manipulation of the party system included its substantial support during Putin's first term to bolster the appeal of Unity (renamed United Russia) as the "presidential party." The Putin administration also was widely viewed as helping to create the Motherland bloc in 2003 to appeal to nationalist elements of the Communist Party and to members of small fascist groups. Some observers speculate that the Putin government was surprised by the strength of Motherland's electoral support. Although widely viewed as a creature of the Kremlin, Motherland claimed that it was a "loyal opposition" to the government in the Duma. The "opposition" component appeared to become a reality during early 2005 when Motherland sided with protesters who were against the monetization of social benefits (these benefits previously had involved free or discounted goods and services). Moving against this disloyalty, the Putin administration allegedly blocked the party from participating in most regional elections and orchestrated Dmitri Rogozin's ouster as party head in March 2006. In July 2006, Motherland announced that it would merge with Federation Council chairman Mironov's Party of Life. Paradoxical to the concept of democratic political parties, the merger was worked out in secret and was later announced to the party members as a fait accompli. Also paradoxical was the merger of a larger party possessing some electoral success with a smaller party with less electoral success. In late October 2006, the Pensioners Party also merged with the Party of Life, and the new grouping renamed itself the Just Russia Party. According to one scenario, the Putin administration (and United Russia) in 2005-2006 projected that United Russia, the Communist Party, and the Liberal Democratic Party would likely win seats in a prospective Duma election in 2007 but feared that United Russia might fall short in winning two-thirds of the seats. Deciding not to rely on the support of the Liberal Democratic Party in the Duma, and determined to further reduce the power of the Communist Party, the Putin administration launched the creation of the pro-government Just Russia Party. United Russia hopes to rely on Just Russia to take votes from the Communist Party and the Liberal Democratic Party and win a number of seats. By this means, United Russia hope to form a super-majority in the Duma in alliance with Just Russia (perhaps with some cooperation from a weakened Liberal Democratic Party). Following the enactment of new requirements for party registration, the Federal Registration Service announced in late October 2006 that 19 out of 35 parties had successfully re-registered. The requirements that a party must have more than 50,000 members disbursed throughout every federal component—with at least 500 members in half of the components and 250 in the other half—led to the loss of legal standing for 16 previously registered parties that were essentially moribund, too small, or only based in a few regions. Opposition parties that were re-registered included the Communist Party, Yabloko, and the Union of Right Forces. Analyst Stephen White has suggested that because the large majority of Russian citizens do not belong to political parties or identify with them, the parties remain weak and highly vulnerable to manipulation by the government. This manipulation, in turn, harms the development of stable and legitimate party organizations, memberships, and platforms. He argues that as long as this situation prevails, Russian citizens will lack one of the primary means in a democracy of influencing policy and personnel in the political system. Another analyst, Steven Fish, suggests that the constitutional system plays an important role in creating such a situation. Russia's weak legislature, he argues, discourages citizens from participating in parties, while the strong presidency provides grounds for the growth of authoritarianism. In August 2004, a working group of the CEC, with Kremlin support, proposed to eliminate single-member districts in the Duma in favor of having all seats determined by the proportion of votes each party won nationally. It argued that proportional representation would give more importance to minority parties and regions with small populations. It also argued that proportional voting would reduce the alleged practice of "buying" single member seats. After the Beslan tragedy, Putin in September 2004 included this proposal in his package of electoral "reforms," claiming that proportional elections would strengthen public unity in the war on terrorism. After popular dissatisfaction in Ukraine with vote-rigging resulted in an "orange revolution" there that brought reformists to power, the Putin administration (and the ruling United Russia Party) appeared more committed to making Russia's electoral code less democratic, according to some critics. Another spur to efforts to limit and control popular participation may have been the mass protests in early 2005 over the monetization of social benefits. This shift to party list voting in Duma elections was enacted in May 2005. Other observers familiar with party list voting for legislatures in democratic countries have taken a supportive or neutral stance regarding the new electoral law. German analyst Alexander Rahr argued that party list voting was practiced in Europe and is "quite in line with the political practice of any democracy." Russian analyst Konstantin Simonov likewise asserted that "elections according to party lists, tested by experience in many countries, create perfect opportunities for the development of political parties." These observers argue that eliminating single-member district legislative elections at all levels will eliminate nonparty candidates, hence strengthening parties and making them better able to articulate citizens' interests. Besides establishing party list voting, the 2005 Law on Electing State Duma Deputies banned electoral party blocs, raised the minimum percentage of votes necessary for a party to gain seats in the Duma from 5% to 7%, lowered the percentage of invalid signatures permitted in registering a candidate, and forbade parties or partisan groups from helping transport voters to the polls. Perhaps ominously for foreign NGOs, it stated that their efforts "to assist or impede the preparations for, and conduct of, elections ... will not be tolerated." It also stated that foreign electoral observers had to be invited by the president, the Federal Assembly, or the CEC. Appearing to stifle free debate, the law stated that deputies had to adhere to party discipline as members of party factions in the Duma, and if they did not, they had to resign their seats. Seemingly positive elements of the law included directing Federation Council and Duma members to endeavor to represent their assigned constituents, forbidding legislators from holding most executive branch posts, banning the use of government premises and property (without compensation or equal access) for campaigning, and stipulating days for elections at all levels. Virtually all attempts by opposition deputies in the Duma to change the draft law as submitted by the Putin administration were defeated by the pro-government United Russia Party. Critics of the changes charged that they aimed "to redistribute ... deputy accountability from the voters to the [government loyalists] who compile the party lists." They also raised alarms that, in the condition where United Russia is the dominant party, elections may come to resemble Soviet-era elections where citizens were mobilized to vote for the roster of the Communist Party. Some critics claimed that the Putin government's main aim was to eliminate the surviving minor party and independent "back-bench" deputies, who often were the sole critics of government-initiated bills. One Russian commentator viewed the law as indicating that the Putin administration equated the threat of terrorism to political opposition, and aimed to eliminate both. In July 2006, Putin signed into law amendments to a 2002 law on extremism that widened the category of "extremists" subject to criminal prosecution. Some democratic liberal politicians raised concerns about the broadening of the definition of extremism to include obstructing the activities of government officials, defaming officials, "undermining the country's security, seizing or usurping power, forming illegal armed formations, staging mass unrest, terrorist activities, or public justification of terrorism, as well as inciting racial, ethnic, religious, and social discord by means of violence or calls for violence." Also, public appeals or speeches "prompting" such rioting and acts might be judged as extremist. These politicians warned that such a vague definition of extremism could easily be used to disqualify individuals disfavored by the government from participating in elections. Some journalists likewise raised concerns that defamation suits could result in their being branded as "extremists." In October 2006, the Federation Council proposed amendments expanding the applicability of the extremism law to include closing down political parties so that they could not take part in elections, if they are judged to be "extremist." The Duma is planning to examine the amendments in Spring 2007. The Communist Party and the Union of Right Forces were among parties that denounced the amendments, with Communist Party head Gennadiy Zyuganov terming them another step by United Russia to deprive opposition candidates "of any possibility of taking part in elections at all.... [A]lmost any critical statement addressed to the authorities can be interpreted as extremism if they want." In a surprise move, the head of the CEC, Aleksandr Veshnyakov, also denounced the proposed provisions on extremism, asserting that they should not "exclude parties and politicians from lists of candidates for positions of power only because they criticize the existing order in the country." Veshnyakov denounced a draft law on amendments to electoral laws and civil procedures when it was introduced in early July 2006. He stated that it reflected a view that "everything must be regulated and in that way no candidate the government does not like will be permitted to participate in an election." He warned that if the changes become law, "we will have elections without choices, as it was in fact in Soviet times." He objected to one amendment that would resurrect the practice of early voting (balloting before election day, ostensibly for those unable to get to the polls), which was subject to abuse. He also objected to language creating onerous procedures for a candidate to register and easier grounds for revoking registration. In November 2006, the Duma dropped some of the provisions he objected to and the law was enacted. Provisions included in the enacted law that Veshnyakov viewed as unnecessary or as having some undesirable consequences included the elimination of the option on the ballot to vote against all candidates, a holdover from the Soviet period. He argued that this option was insurance against conditions where the authorities had blocked popular opposition candidates from running. He also felt unease about the elimination of the requirement that a minimum percentage of 20% of voters had to turn out in an electoral district for the results to be valid. He argued that the elimination of this requirement might contribute to un-advertised elections where a scant number of trusted voters would ensure the desired outcome of the authorities. According to legal scholar Peter Solomon, Putin's presidency has witnessed important judicial and legal reforms, but these reforms have been threatened by several "counter-reform" initiatives. These counter-reforms have included efforts to establish greater government influence over the functions of juries and the selection, tenure, and salaries of judges. He argues that although many of the counter-reform efforts have been successfully resisted by the legal establishment, the efforts retard the progress of reforms, and jurists face continuing government pressure to conform. In the case of jury trials, prosecutors have interfered in the selection of jurors, their deliberations, and their verdicts, particularly in high-profile cases. They appeal many cases in which juries have rendered not guilty judgments. Appearing to reflect a view that juries need to be "organized" so that they do not interfere with prosecutors' decisions, President Putin in January 2007 stated that a jury's acquittal in 2006 of individuals charged with the murder of U.S. journalist Paul Klebnikov "of course discredits the very institution [of trial by jury], but this does not mean we must stop its work, we must develop it, strengthen it.... We must think about how to safeguard the independence and security of jurors and we must simply better organize the work of juries." In 2003, opposition parties and groups were somewhat effective in persuading the government to modify amendments it had introduced to tighten restrictions on public assembly. At first, the legislation was bottled up in a committee headed by a Communist deputy whose party opposed the bill. After the election of the new Duma, however, United Russia moved to enact the bill, but complaints from some deputies and public organizations led Putin to intervene to "propose" some changes. The amended bill then was quickly passed and signed by the president in June 2004. Some critics assess the bill as still overly restricting public demonstrations by prohibiting them in front of court houses, jails, and the president's homes, and permitting them to be terminated if participants commit undefined "illegal acts." According to some reports, freedom of assembly and expression were illegally circumscribed in the run-up to the G-8 summit in Moscow in July 2006. Analyst Masha Lipman reported that "more than 100 people were intimidated, harassed or beaten by the police in various Russian cities" to prevent them from coming to Moscow to protest or attend a human rights meeting. He likened the repression to Soviet-era tactics of the 1970s. In January 2007, human rights activist Ella Pamfilova reported to Putin that bans and restrictions by local authorities on rallies and demonstrations were increasing. According to the U.S. Commission on International Religious Freedom, progress in Russia in protecting religious freedom has increasingly been threatened by authoritarian trends within the Putin government "and the growing influence of chauvinistic groups in Russian society, which seem to be tolerated by the government." The Commission has raised concerns that the 2006 NGO law restricts foreign donations for charitable and other activities of religious groups, that the number of anti-Semitic statements by government officials and the media has increased, and that official discrimination against observant Muslims has risen. The U.S. State Department has argued, however, that even though conditions deteriorated for some minority religious groups during 2005-2006, Russian government policy "continued to contribute to the generally free practice of religion for most of the population." The problem of discrimination against ethnic minorities has appeared more acute in recent years. Recognizable ethnic minorities—including some Chechens and other North Caucasians, Roma gypsies, Jews, and foreigners such as South Caucasians, Africans, and Asians—increasingly have been targeted in racist attacks. Human rights activists have alleged that Russian police and security forces and semi-official militias contribute to such abuses and are rarely punished. The Putin government's long-time human rights abuses in Chechnya, its support for the former Motherland Party, and its recent anti-Georgian rhetoric and sanctions contribute to racism and xenophobia, according to these activists. Just after an ethnic Russian-Chechen race riot in a town in northern Russia and Russian moves to deport some ethnic Georgians, in October 2006 Putin called for a law to protect Russia's "indigenous population." This Law on Migration, enacted in December 2006, sets limits on the number of guest workers permitted from various countries and sets quotas on economic activities performed by non-citizens. Some critics of the law assert that it contributes to making ethnic discrimination a policy of the Russian government. According to the law, no foreigners will be permitted to work in retail markets after April 2007. Critics of this ban assert that it particularly targets ethnic Azerbaijanis, Georgians, Tajiks, and Chinese who commonly sell produce and other goods in the markets. The Putin government has substantially reduced the autonomy of the regions. During his first term in office, Putin asserted greater central control over the regions by appointing presidential representatives to newly created "super districts" (groups of regions) to oversee administration. He greatly reduced the influence of the governors in central legislative affairs by forcing through legislation that eliminated their membership in the Federation Council. He also strengthened the powers of central agencies and the authority of national law in the regions. In the latter half of the 1990s, virtually all governors of the regions and presidents of the autonomous republics came to be elected by direct vote. In many of Russia's 21 autonomous republics, this principle was enshrined in their constitutions, and it was also part of regional statutes. During the Yeltsin period, presidential interference in these direct elections was generally characterized as selective and inept, but it became more organized and effective under Putin. According to one estimate, during Putin's first term fewer than a dozen of the elections held in the regions (in 2004 there were 89 regions) resulted in wins for candidates who were not favored by the center. Primary examples where the Putin administration appeared to manipulate local elections included the 2003 St. Petersburg mayoral race and elections of the regional heads in Ingushetia and Chechnya. Voters elected Valentina Matvienko, a Putin proxy, as mayor of St. Petersburg after a campaign where opponents complained of harassment and biased media coverage. The loss of a few regional elections to non-favored candidates and undesired demands by these popularly-elected governors (and ethnic-based republic "presidents") for budgetary resources may have contributed to Putin's September 2004 Beslan proposal to eliminate direct gubernatorial elections. He proposed that regional heads be designated by the president and confirmed by regional legislatures so that the federal system functioned as "an integral, single organism with a clear structure of subordination." In addition, he proposed that these governors should "exert more influence" in forming and "working with" lower-level governments. These "reforms," he stated, would not violate the constitution. His deputy chief of staff, Vladimir Surkov, explained that the "presidential nomination" of regional heads would facilitate anti-terrorism efforts by permitting central authorities to freely crack down on "extremist infection" in the regions. Indicating that the proposal would easily pass in the legislature, pro-Putin party officials praised the proposal as ending the practice of governors constantly lobbying the central government for funds. Most federal subunit leaders such as Moscow Mayor Yuriy Luzhkov and Tatarstan President Mintimer Shaymiyev hailed the proposal, with Luzhkov proclaiming that it would end the election of "popular" rather than "professional" rulers. Besides the possible distaste of these leaders for having to solicit votes, and their desire to remain on the Putin "bandwagon," many governors endorsed the proposal because they would no longer face term limits. Many were in their final term of elected office. Both chambers of the legislature approved the bill and it was signed by Putin and went into effect on December 15, 2004. The last gubernatorial race was held in January 2005 in the Nenetskiy Autonomous Area. In his April 2005 State of the Federation address, President Putin called for the State Council (a conclave of federal officials and heads of regions) to consider procedures that would give the dominant regional party a voice in the presidential appointment of governors. According to some observers, the intention was to codify procedures ostensibly giving regions an indirect means of nominating candidates for governor. He subsequently sent a bill to the Federal Assembly that it approved in December 2005. Under the procedures, the dominant party in a region (that is, the one that garners the most votes in legislative elections) nominates a candidate for governor for consideration by the president. If the president concurs with this choice, the regional legislature (controlled by the dominant party) then confirms the appointment. Some officials admitted that the regional party nomination would be influenced—if not controlled—by the central party leaders. In most cases at present, United Russia's leaders, allied with the presidential administration, would play this role, so the regional nominee also would be the president's preferred nominee. In the majority of cases where President Putin has appointed governors, the incumbent has stayed in place, and in virtually all cases, regional legislatures have voted by overwhelming majorities (80%-100%) to confirm whomever Putin has appointed. As of early 2007, the majority of Russia's regional leaders had been appointed by President Putin (he is also pushing for the merger of regions to reduce their number and make them more manageable; see below). Some observers have raised concerns that the Putin administration, post-Beslan, is seeking to reverse some aspects of local self-government, including by gaining the power to appoint mayors. The 1993 Russian Constitution strictly separated local self-government from the "system of state power" and directed that "local self-government is exercised by citizens by means of referendums, elections, and other forms of direct expression of will and through elected and other organs" (Articles 12, 130). A 1995 law on self-government, decisions of the Constitutional Court, and Russia's ratification of the European Charter of Local Self-Government, have been viewed as codifying the democratic election of mayors (or other popularly determined means of local administration). During Putin's presidency, a 2004 law on local self-government assured cities, towns, and settlements of certain powers and called for large-scale direct elections of local councils and mayors but problematically removed much local financial independence. Observers concerned about democratization trends have warned that there appear to be more complaints by central officials about "incompetent" and "criminal" mayors and about the need to protect local citizens from such popularly-elected mayors. In April 2006, some United Russia deputies in the State Duma—reportedly at the initiative of some members of the presidential administration—introduced a bill that would permit regional governors to assume "interim" control over many functions carried out by mayors. Although this bill would not eliminate direct mayoral elections, it would make affected mayors "figureheads," according to critics. After the bill was criticized by the democratic liberal opposition deputies, many mayors, and elements within the Putin administration, the State Duma "postponed" examination of the bill. In late 2006, a proposal in the Duma that the mayors of regional capitals might be appointed was not endorsed by the United Russia leadership and was not acted upon. The Putin administration has advocated the merging of small federal subunits with larger regions or territories to achieve greater administrative and economic efficiencies. Critics of the merger proposals have asserted that they represent Putin's further assault on Yeltsin-era initiatives to expand local democracy and the civil rights of ethnic minorities that have privileged status in the subunits. The mergers that have been completed have reduced the number of federal subunits from 89 to 84. Most recently, Putin approved the petitions of the legislatures of the Chita Region and the Aga-Buryat Autonomous Area on merging, and referendums will be held in each on March 11, 2007. The merger efforts have involved hard bargaining among local elites, and the Putin administration has offered economic incentives for mergers (although the mergers also relieve the federal government of direct budgetary support for the smaller subunits by shifting support to the larger subunits). One sensational incident involved Adyge Republic head Khazret Sovman, who in April 2006 alleged that he had refused exhortations from President Putin and from Putin's southern district representative to go along with plans to merge Adyge with Krasnodar Territory. Reported popular protests in Adyge against the alleged merger plan contributed to concerns elsewhere in the North Caucasus about possible mergers and led Putin's representative to announce that there were no federal plans for mergers in the North Caucasus. The implications of Putin's rule may be organized into three or perhaps four major trends or scenarios of Russia's future political development, namely democratization, authoritarianism, or a middle ground that many observers term "managed democracy." Another possible scenario (perhaps considered as an interlude) is a period of chaotic instability that may occur if President Putin steps down in 2008. (The breakup of Russia—also termed the "failed state" scenario—is deemed by many observers to be less likely, and is not examined here, but has been advanced by Putin as a justification for his political changes.) The main question in considering the scenarios is whether the current level of managed democracy can endure for some time, or whether it is a stage on the way to either more democratization or more authoritarianism. Implications include how the level of democratization may affect the economy and foreign policy. Scenarios of managed democracy usually envisage the continuation of current policies that hinder democratization. Eventually, according to some analysts, Russia may resume democratization, or it may become authoritarian. Others warn that managed democracy could persist indefinitely, with political processes sometimes leaning toward greater "management" and sometimes toward greater "democracy," but not leading to fundamental changes in policy or personnel. Those who view recent politics as managed democracy suggest that Putin prevented public debate during the 2003-2004 Duma and presidential elections of problems facing Russia—such as Chechnya and privatization—that might have resulted in different electoral choices and policies. Some observers argue that regional, ethnic, economic, bureaucratic, and other groups have been strong impediments to Putin's exercise of more power. Putin has used revenues generated by high world oil prices as largesse to these groups to placate them, rather than using the funds to further democratic and market economy reforms. Such a standoff could persist for some years (even if Putin steps down in 2008), but eventually democratic activism and economic developments could threaten this fragile system of rule. Other observers assert that Putin is necessarily stifling some democratization in order to pursue economic reforms that would be threatened by populism. They suggest that popular demands for prosecuting the oligarchs and other businessmen, re-nationalizing assets, and resurrecting Soviet-era price controls and social subsidies would have been irresistible if democratic institutions functioned freely. They also caution that ultra-nationalists and communists might have garnered dangerous electoral power. In this sense, they claim, Russia has the level of democratization typical of many developing countries. Eventually, according to this view, popular prejudice against free markets—a legacy of Soviet-era propaganda—will abate as the economy grows, and Putin or his successors can permit greater democratization. Another view at least somewhat supportive of Putin's Beslan proposals is that they are necessary to combat terrorism and do not fundamentally set back Russian democratization. According to this view, Russia will continue to cooperate with the United States on the Global War on Terror and issues such as non-proliferation, although differences on some foreign policy issues may occur, such as Russia's criticism of U.S. operations in Iraq. Analyst Dmitriy Simes has suggested that Putin's Beslan proposals to concentrate decision-making "make a lot of sense," in order to strip power away from "political warlords called governors," eliminate power grabs by oligarchs, and end control by regional "corrupt structures" over Duma deputies elected in the districts. Analyst Andrew Kuchins appears to make a somewhat similar argument. Although Putin's Belsan proposals have weakened democratization, assertions that Putin is much less democratic than former Russian President Boris Yeltsin are overblown, the political system is better run in several respects than it was under Yeltsin, a free market economy is still developing, and Russia has not become an imperial state. In contrast, Analyst Anders Aslund has viewed the Putin era as interrupting Russia's substantial movement toward democracy and a market economy during the 1990s. He argues that Putin's rule is a throwback to the early 20 th century and tsarism, both typified by rule by whim without checks and balances, an overweening bureaucracy and security apparatus, and rampant corruption. By constraining democratic and media checks on his power, Putin has been freer to move against the private sector, and foreign investment and economic growth will suffer. Putin's atavism cannot long endure, Aslund states, but it is uncertain whether ultra-nationalist authoritarianism or democratization might come to the fore. Freedom House has argued similarly that the increasing level of governmental corruption under Putin's rule is linked to the declining accountability of the government to its citizens. Several analysts have argued that Russia's heavy reliance on oil and gas for economic growth and budgetary revenues supports managed democracy of a sort found in similar economies such as Venezuela, Azerbaijan, and Kazakhstan. Analyst Lilia Shevtsova asserts that the Russia's energy-based economic boom has "tranquilized" the Putin administration, so that it simply has honed, rather than challenged, the "principles that hold the post-communist Russian system together: personified power, the dominance of the bureaucracy, great power ideology, and state control of all significant property." Some observers suggest that younger, educated Russians are more likely to support democracy, so that generational turnover eventually will end the current era of managed democracy. Many current officials spent their formative years and careers in the Soviet era, and hence may be attuned to authoritarianism, but the numbers of such officials will decline within a decade or so (although in the near term they may cling to power). Other observers are more pessimistic about this support for democratization, citing polls supposedly indicating that younger Russians may be more worldly than their elders, and value freedom over equality, but are not yet committed to the "basic values of human rights, tolerance, and constitutional liberalism." In the 2003-2004 elections, these young Russians appeared to support United Russia or Zhirinovskiy's Liberal Democratic Party rather than liberal parties. Some analysts view current political developments in Russia as marking the descent to undemocratic rule in Russia, although they usually argue that such rule will not approach the repressiveness of the former Soviet Union. The task force of the Council of Foreign Relations has reflected this viewpoint, warning in March 2006 that "under President Putin, power has been centralized and pluralism reduced in every single area of politics. As a result, Russia is left only with the trappings of democratic rule—their form, but not their content." Responding to the opening in July 2006 of a Group of Eight (G-8) summit chaired by President Putin, former vice presidential candidates Jack Kemp and John Edwards (co-heads of the task force) urged the G-8 leaders to push for democratization in Russia. They argued that "a more democratic Russia [would] be forcefully engaged in efforts to end Iran's nuclear weapons ambitions ... would not play host to Hamas ... would not work to kick the United States out of vital bases in Central Asia ... would not be using energy as political leverage ... [and] would not be supporting autocrats in Belarus or undermining democrats in Georgia and Ukraine." Analysts who blame lagging democratization in part on the Soviet legacy point to the high percentage of Russian officials that are holdovers from the Soviet period or received training in Soviet-era organizational methods. These officials have feared democratization and have worked to substantially undermine it, according to this view. Russian sociologist Olga Kryshtanovskaya argues that these holdover officials have relied on ideologically-kindred security, police, and military personnel (the so-called siloviki or "strong ones") to retain power, and have elevated them to many posts. She asserts that about 60% of Putin's top advisors are siloviki , about 20% of the Duma, and over 30% of government officials. Researcher Mikhail Tsypkin has reported that about one-third of the deputy ministers in the government are siloviki who continue to be paid by their agencies. At the regional level, even if security officials do not hold governorships, many hold deputy governorships, Kryshtanovskaya alleges. The siloviki are attuned to order and obedience to authority and view pluralism and free markets as chaotic, Kryshtanovskaya warns, and they will work to ensure that they remain in power following the upcoming 2007-2008 cycle of Duma and presidential elections. Tsypkin has speculated that the Federal Security Service is in charge of voting machines and computerized vote-counting in Russia, giving the siloviki final control over election results. Another proposed reason for authoritarian tendencies is that ageless cultural factors predispose Russians to seek a vozhd (strong leader), and that Russians are not ready for democracy. But some observers, while recognizing the influence of culture, also stress that political leaders such as Gorbachev, Yeltsin, and Putin may bolster or hinder democratization. For instance, U.S. scholar James Billington suggests that under Putin, Russia may be moving toward "some original Russian variant of a corporatist state ruled by a dictator, adorned with Slavophile rhetoric, and representing, in effect, fascism with a friendly face," that he hopes will only be a temporary interlude. Authoritarianism might deepen in the political system if the reported rise in xenophobia and ultra-nationalism among the population is reflected in greater support for political candidates espousing such sentiments in the 2007-2008 cycle of Duma and presidential elections. Although appearing to support such sentiments in some cases, the Putin administration has seemed intent to channel and constrain them by manipulating political party and group formation and activities and by enacting legislation banning parties and candidates from espousing "extremist" views. Some observers warn, however, that newly elected deputies and a new president might support policies that are xenophobic and ultra-nationalist, particularly since countervailing influence by civil society advocates of democratization and human rights has been constrained by recent laws. Some analysts urge patience in assessing Russia's fitful progress toward democracy, and argue that a stable pluralism sooner or later will be established. They point to democracy analyst Robert Dahl's suggestion that it may take new democracies around twenty years, or about a generation, to mature enough to resist backsliding. They argue that a robust civil society will emerge as cultural predispositions favoring all-powerful leaders change. Analyst Christopher Marsh has argued that despite the authoritarian legacy of a thousand years of tsarist and communist party rule in Russia, some cultural aspirations for democracy have developed and form a basis for further democratization. While many observers acknowledge that moves by the Putin administration to raise barriers to political participation can reinforce a political culture of passivity, they point to the popular "color revolutions" in Georgia and Ukraine as evidence that this vicious circle can be broken. These analysts suggest that as the civil society matures, prompted by the growth of the middle class, Russians will rewrite the constitution and otherwise restructure their political system to create a more democratic balance of power. Those researchers who maintain that Putin is essentially committed to democratization argue that the term "managed democracy" exaggerates the degree to which he has been able to dominate politics. Although civil society is underdeveloped, some regions remain authoritarian, and the Kremlin intervenes in elections, "the overall trend is still probably toward democracy," according to analyst Richard Sakwa. Although the numbers of siloviki in top political posts have greatly increased during the Putin era, Sakwa has argued that they do not appear to make policy in the economic, foreign policy, or regional realms. According to some critics, the Putin government's early 2005 replacement of many social benefits in kind (mainly free rides on public transportation, but later including medicine, rent, and utility subsidies) by cash subsidies demonstrated that democratic institutions had not fully functioned. Instead of a democratic process that involved soliciting public input, the government and legislature too hastily enacted the monetization reforms, these critics allege. The monetization reforms caused large-scale protests not seen in Russia in several years, because the cash payments fell short of the former in-kind benefits. Putin's popularity dipped briefly for the first time below the 50% range. The Putin government resisted overturning the monetization reforms but postponed eliminating some in-kind benefits and greatly boosted budgetary funding for cash payments. In January 2005, Putin partly justified the elimination of direct gubernatorial elections by blaming the sitting regional governments for the problems with the monetization reforms. The "constructive opposition" Motherland Party demanded the resignations of "liberal ministers" and a moratorium on the monetization reforms. The United Russia Party faction in the Duma blamed the central ministries and regional governments for problems with the monetization reforms and continued this mostly successful tactic of deflecting blame during regional and local electoral contests in 2005-2007. Protests by many pensioners, war veterans, students, and disabled persons about the monetization reforms galvanized opposition political parties, which moved quickly to abet protests and appeared to gain at least temporary popular support. Some college students and other youth became involved in the protests and set up new groups, viewed by some observers as encouraging aspects of future civil society development. Some observers have warned that Russia could have a period of political uncertainty in 2007-2008 and perhaps beyond if President Putin does not run for re-election. They argue that the current political system bears Putin's personal stamp and lacks strong independent, legitimate institutions. Many officials are now appointed rather than elected and are concerned about their fate under a new president. These officials appear to belong to several bureaucratic factions. They may vie for influence during the 2007-2008 election cycle and beyond, resulting in stalemated political and economic affairs. Putin might seek continuity of government by following former President Yeltsin's example of appointing a premier and then resigning from office. This premier would constitutionally become the acting president and be poised as the Putin-favored front-runner in a presidential election. These observers argue that after a possibly chaotic period of political succession, a more stable system of managed democracy, authoritarianism, or democratization might emerge. Successive U.S. administrations have argued that the United States has "overriding interests" in cooperating with Russia on critical national security priorities, including the Global War on Terror, the threat of weapons of mass destruction, and the future of NATO. They also have agreed that the United States has "a compelling national interest" in seeing Russia consolidate its transition to democracy and free markets. Such a Russia would provide a powerful example and force for democratization and stability in the rest of Eurasia, would expand U.S. opportunities for trade and investment, and would enhance Russia's ties with the Euro-Atlantic community. At least until the last cycle of elections in 2003-2004, the Bush Administration has viewed Russia as having made some progress in democratization. However, the Administration has criticized threats to the process such as state control over media, Khodorkovskiy's arrest, and pressure on NGOs. While the Administration has been critical of Russia's human rights abuses in Chechnya, it also tentatively has supported Russia's efforts to hold elections and a constitutional referendum there (but also has criticized the campaigns and outcomes as not free and fair). Reflecting a positive assessment before the 2003-2004 cycle of Russian elections, President Bush at the September 2003 Camp David summit stated that "I respect President Putin's vision for Russia: a country at peace within its borders, with its neighbors, and with the world, a country in which democracy and freedom and rule of law thrive." In the wake of the 2003 Duma election, however, former Secretary of State Colin Powell was more critical, writing in the Russian newspaper Izvestia in January 2004 that "Russia's democratic system seems not yet to have found the essential balance among the ... branches of government. Political power is not yet fully tethered to law. Key aspects of civil society ... have not yet sustained an independent presence." He also raised "concerns" about Russian actions in Chechnya and in former Soviet republics, and warned that "without basic principles shared in common," U.S.-Russian ties "will not achieve [their] potential." President Bush, however, still appeared to stress Putin's democratic potential during a June 2004 G-8 meeting, hailing "my friend Vladimir Putin" as "a strong leader who cares deeply about the people of his country," although he reportedly also raised concerns about media freedom in Russia. Putin's announcement on September 13, 2004, that he would launch a government re-organization heightened concerns by the U.S. Administration and others that Russia's democratization might be threatened. Although supporting Putin's goal of enhancing anti-terrorism efforts, then-Secretary Powell the next day raised concerns that Russia was "pulling back on some ... democratic reforms" and emphasized that there must be a "proper balance" between anti-terrorism efforts and democracy. Dispensing with Putin's earlier apparent subtlety, Lavrov retorted that the re-organization was an internal affair and that the United States should not try to impose its "model" of democracy on other countries. Russia's efforts in late 2004 to interfere in Ukraine's presidential election raised additional Administration concerns about Putin's commitment to democratization at home and in other Soviet successor states. Despite these concerns, the Administration has stressed that it must maintain a balance between advocating democratization and U.S.-Russia cooperation on anti-terrorism, non-proliferation, energy, and other strategic issues. In testimony at her confirmation hearing in January 2005, Secretary of State-designate Condoleezza Rice reiterated this policy to "work closely with Russia on common problems," while at the same time to "continue to press the case for democracy and ... to make clear that the protection of democracy in Russia is vital to the future of U.S.-Russia relations." Perhaps illustrative of this approach, before a planned summit meeting with President Putin in late February 2005, President Bush stressed that "for Russia to make progress as a European nation, the Russian government must renew a commitment to democracy and the rule of law.... We must always remind Russia [that we] stand for a free press, a vital opposition, the sharing of power, and the rule of law." At the summit, the status of democratization in Russia appeared to be a major issue of contention, but President Bush emphasized continued cooperation with Russia on nonproliferation and anti-terrorism. He reported that he had told Putin that "strong countries are built by developing strong democracies" and had raised concerns with Putin about the rule of law, minority rights, and viable political debate. President Putin countered that Russia's media were free and that the new method of selecting regional governors was akin to the U.S. electoral college. He emphasized that Russia's democracy would be attuned to "our history and our traditions" but would nonetheless be akin to those in other "modern, civilized" societies. At the same time, he seemed to qualify this assurance by stressing that democratization should not interfere with the creation of a strong Russian government and economy. President Bush in turn hailed this declaration of what he termed Putin's "absolute support for democracy in Russia." Advocates of such a balanced U.S. response argue that the United States has economic and security interests in continued engagement with Russia. The Task Force on Russia has argued that "on a number of issues—Iran, energy, HIV/AIDS, and preventing terrorists from acquiring weapons of mass destruction—Russia's cooperation is seen as central to promoting American interests." Although U.S.-Russia cooperation has been "disappointing" on many issues, according to the Task Force, "selective cooperation" should still be pursued where possible. U.S. economic interests include diversified sources of energy. Russia's capabilities to provide oil and liquified natural gas to U.S. markets are growing, and proposed Russian shipping from arctic ports would be quicker and more secure than shipments from the Middle East, according to some experts. Some observers more generally urge a U.S.-Russia relationship like that between the United States and China, where the United States advocates democratization but nonetheless maintains close economic ties that may "mak[e] China richer and eventually freer." Some observers have discerned a greater Administration recognition in recent months that authoritarianism is deepening in Russia. Vice President Dick Cheney reflected this perhaps less hopeful view in May 2006 when he stated that Russia's "government has unfairly and improperly restricted the rights of her people" and that such restrictions "could begin to affect relations with other countries." He called for Russia to "return to democratic reform." He also stated that "no legitimate interest is served when oil and gas become tools of intimidation or blackmail.... And no one can justify actions that undermine the territorial integrity of a neighbor, or interfere with democratic movements." In his May 2006 State of the Federation address, President Putin appeared to respond to Vice President Cheney by criticizing those who follow "stereotypical bloc-based thought patterns" of the Cold War. He also obliquely stated that "comrade wolf knows whom to eat. He is eating and listening to no one.... Where does all the rhetoric on the need to fight for human rights and democracy go to when it comes to ... one's own interests? It turns out that everything is permitted." President Bush was reticent in his public statements about the status of democracy in Russia when he attended the Moscow G-8 Summit in Moscow in July 2006, in line with his declared plan not to publicly "scold" Putin. As Russia prepares for the upcoming 2007-2008 cycle of Duma and presidential elections, the U.S. Administration has urged the Russian government to affirm its commitment to democratization. Several U.S. allies have become increasingly concerned about democratization trends in Russia. After Putin's Beslan proposals, EU Commissioner Chris Patten warned that the Russian government should not try the failed policy of combating terrorism by centralizing power. PACE in January 2005 adopted a resolution stating that it appeared that the Putin government's arrest of Khodorkovskiy "goes beyond the mere pursuit of criminal justice, to include such elements as to weaken an outspoken political opponent, to intimidate other wealthy individuals and to regain control of strategic economic assets." In the wake of Russia's cutoff of gas shipments to Ukraine in January 2006, German Chancellor Angela Merkel visited Russia in April 2006 and reportedly voiced serious concerns about democratization trends in Russia. EU concerns about democratization were reflected in several documents and decisions, including a May 2006 decision at an EU-Russia summit to launch negotiations on a new EU-Russia Agreement that recognizes "common values such as democracy, human rights and the rule of law" and covers energy cooperation. At a European Parliament session in December 2006, European Commission President José Manuel Barroso called for a united EU stance vis-à-vis Russia on respect for human rights. Some advocates of a united Euro-Atlantic stance have called for enhancing the electoral monitoring activities of the European Network of Election Monitoring Organizations, the OSCE, and Russian democracy NGOs. (See also below, Congressional Concerns .) U.S. democratization assistance historically has accounted for less than 10 percent of all U.S. funding for Russia. Most aid to Russia supports security programs (in particular, Comprehensive Threat Reduction initiatives to help secure and eliminate WMD), and economic reform efforts. Democratization aid has included technical advice to parties and electoral boards, grants to NGOs, advice on legal and judicial reforms (such as creating trial by jury and revising criminal codes), training for journalists, advice on local governance, and exchanges and training that familiarize Russian civilian and military officials and others about democratic institutions and processes. Most aid has shifted over the years from government-to-government programs to support for local grass-roots civil society programs, particularly aid to NGOs. In its FY2004 budget request, the Administration called for substantially less FREEDOM Support Act aid to Russia, "in recognition of the progress Russia already has made" in transforming itself into a free market democracy integrated into global political and economic institutions. The budget request averred that Russia would be "graduated" over the next few years from receiving FREEDOM Support Act aid, with ebbing aid dedicated mainly to ensuring "a legacy of sustainable institutions to support civil society and democratic institutions." FY2004 aid was planned to support NGOs, independent media, and exchanges at the grassroots level to foster ethnic and religious tolerance, civic education, and media freedom. However, most FREEDOM Support Act and other Function 150 aid to Russia was focused on non-proliferation and cooperation in the Global War on Terror. Congress disagreed with the Administration's level of support for democratization and increased the amount of aid earmarked for Russia (see also below). In its FY2005 budget request and factsheet on aid to Russia, the Administration averred that it was placing greater emphasis on support for democratization than the year before, stating that "given Russia's strategic importance, the United States has a compelling national interest in seeing Russia complete a successful transition to market-based democracy." The Administration stressed that this emphasis reflected concerns that limits on media freedom, the manipulation of elections, abuses in Chechnya, increased control over the regions, and seeming political prosecutions had "called into question the depth of Russia's commitment" to democratize. The FY2005 assistance focused on supporting independent media, NGOs, local governance, free and fair elections, and government accountability. Additionally, assistance supported regional television stations, radio, and print media, training for young people and political leaders, training for journalists, and partnership work between Russian and American judges and attorneys. In its FY2006 budget request and factsheet on aid to Russia, the Administration stated that democracy support would continue "despite concerns about Russia backsliding on human rights and democratization." It raised concerns about changes in legislative election laws and the elimination of direct elections of governors, government pressure on the media, legislation signed into law in January 2006 that "could severely hinder the work of NGOs," and continuing human rights abuses in Chechnya and elsewhere in the North Caucasus. U.S. assistance programs continued to focus on supporting civil society, independent media, the rule of law, respect for human rights, free and fair elections, and government accountability. An emphasis was placed on expanding cooperation between NGOs and regional governors and mayors in designing and making budgetary decisions on social programs. In its FY2007 budget request for aid for Russia, the Administration argued that despite its "near-term" concerns about rising corruption, an over-centralization of power, and "assertiveness in its own neighborhood," it retained a "deep stake" in encouraging the emergence of a "stable, democratic country with a market-based economy" that is fully integrated with global institutions and cooperates in combating terrorism and the spread of WMD. Concerns were raised that during 2005, the Russian government gained more control over free expression on national television, exerted more pressure on NGOs, continued to commit abuses in Chechnya, and carried out possible political prosecutions. U.S. democracy aid is planned for electoral training in the run-up to Duma and presidential elections and on programs to strengthen civil society, media, and democratic institutions "as a necessary check on the power of the central government." Major congressional concerns with democratic progress in Russia have included passage of the Russian Democracy Act of 2002, signed into law on October 23, 2002 ( H.R. 2121 ; P.L. 107-246 ). The law stated that a Russia that was integrated into the global order as a free-market democracy would be less confrontational and would cooperate with the United States, making the success of democracy in Russia a U.S. national security interest. It warned, however, that further liberalization in Russia appeared uncertain without further assistance, necessitating a "far-reaching" U.S. aid strategy. The "sense of the Congress" was that the U.S. government should engage with Russia to strengthen democracy and promote fair and honest business practices, open legal systems, freedom of religion, and respect for human rights. Among other provisions, the law amended the Foreign Assistance Act of 1961 by adding language stressing support for independent media, NGOs, parties, legal associations, and grass-roots organizations. Responding to the passage of the act, the Russian Foreign Ministry criticized it for underestimating Russia's reform accomplishments and for presuming to teach democratization to Russia. Actions in the 108 th Congress regarding democratization trends in Russia included S.Res. 258 (Lugar; approved by the Senate on December 9, 2003), which expressed concern about Khodorkovskiy's arrest. Following the arrest, Representatives Tom Lantos and Christopher Cox established a Congressional Russia Democracy Caucus to highlight concerns about the decline of freedom of the media, property rights, and other violations of the rule of law in Russia. Other bills included S.Con.Res. 85 (McCain; introduced on November 21, 2003) and H.Con.Res. 336 (Lantos; approved by the House International Relations Committee on March 31, 2004) that recommended that Russia be denied participation in G-8 sessions until it made progress in democratization. Growing concerns in the 108 th and 109 th Congresses about democratization trends in Russia have been evident in deliberations over foreign assistance and have contributed to funding levels for Freedom Support Act aid for Russia that have been higher than the President's requests. Conference managers on H.R. 2673 (Consolidated Appropriations, including foreign operations for FY2004; P.L. 108-199 ; signed into law on January 23, 2004) stated that they were "gravely concerned with the deterioration and systematic dismantling of democracy and the rule of law" in Russia. Calling for not less than $94 million in Freedom Support Act aid for Russia, $21 million above the request, the conferees ( H.Rept. 108-401 ) "expect[ed] a significant portion of these [added] funds to be used to support democracy and rule of law programs in Russia." In H.Rept. 108-599 on H.R. 4818 , foreign operations appropriations for FY2005, the Appropriations Committee raised concerns about risks to democracy and human rights in some Soviet successor states, "particularly in Russia, Ukraine, and Belarus," and urged the Administration "to commit a greater proportion of the resources appropriated ... to support for democracy and human rights NGOs." The Committee also requested a report from the Coordinator for Assistance to Europe and Eurasia on plans to bolster democracy building. Conference managers ( H.Rept. 108-792 ), requested that of the $90 million in Freedom Support Act aid provided for assistance for Russia, $10.5 million above the Administration request, $3.5 million be made available to the National Endowment for Democracy (NED) for democracy and human rights programs in Russia, including political party development (signed into law on December 8, 2004; P.L. 108-447 ). In S.Rept. 109-96 , on the Senate version of H.R. 3057 , foreign operations appropriations for FY2006, the Appropriations Committee warned that "an authoritarian Russia presents a growing danger" to nearby countries and that "offsetting this threat" should be a U.S. priority. They stated that "significant resources" are required to support democracy building efforts in Russia and urged the Administration "to increase the budget request for these purposes in subsequent fiscal years." They called for more support for political process programming in Russia and continued support for programs to strengthen the rule of law in Russia. Conference managers ( H.Rept. 109-265 ) requested that, of the $80 million in Freedom Support Act aid provided for assistance for Russia, $32 million above the Administration request, $4 million be made available to NED for political party development in Russia (signed into law on November 14, 2005, P.L. 109-102 ). Putin's Beslan proposals triggered debate in the 108 th Congress about possible U.S. responses. In introducing H.Res. 760 , condemning terrorist attacks against Russia, Representative Edward Royce stated that while setbacks to democratization in Russia are of concern, the United States and Russia face critical terrorist threats. Senator McCain criticized Putin's proposals as an excuse to "consolidate autocratic rule." He characterized Putin's rule as a "long string of anti-democratic actions," and urged that the United States "make known our fierce opposition" to anti-democratic moves that will rebound to less Russian cooperation with the United States. Representative Curt Weldon the next day warned that punishing Russia in response to democratization lapses would be the "worst step" the United States could take, because it would only boost authoritarianism there. Instead, he called for developing closer economic and security relations with Russia, so that President Bush would have leverage to convince Putin to "allow democracy to survive, to grow, and prosper." Senators McCain and Joseph Biden joined over 100 prominent Western officials and experts in signing a September 28, 2004, letter to NATO and EU leaders that warned that Putin's Beslan proposals "bring Russia a step closer to authoritarianism." They also stated that Putin was reverting to the "rhetoric of militarism and empire" in foreign policy. Putin's policies, they concluded, jeopardize partnership between Russia and NATO and EU democracies. They urged Western leaders to change strategy toward Russia by "unambiguously" supporting democratic groups in Russia and perhaps reducing ties with the Putin government. In the 109 th Congress, trends in Russian democratization were a concern during the hearing and floor debate on the confirmation of Secretary of State-designate Condoleeza Rice. Many Members appeared to endorse Senator Dianne Feinstein's view that Rice's expertise on Russia would prove useful in responding to a more authoritarian Putin government. Senator Joseph Biden criticized the Bush Administration for advocating democratization in the Middle East while "being silent" about declining democratization in Russia. He stated that the Administration had received little in return for "silence" on this issue, not even Russia's cooperation in dismantling WMD. At the hearing, Senator Lincoln Chafee asked Rice why the United States maintained close ties with some authoritarian countries and not with others, and she responded that "some of this is a matter of trend lines," but that "the concentration of power in the Kremlin ... is a real problem [and] is something to be deeply concerned about, and we will speak out." She also stated that "while we confront the governments that are engaged in nondemocratic activities, we also have to help the development of civil society in opposition," and suggested that more such support was needed in Russia. Congressional concerns about the suitability of Russia as a member of the G-8 had been raised in S.Con.Res. 95 and H.Con.Res. 336 in late 2003-early 2004 (mentioned above) in the 108 th Congress, and a follow-on resolution, S.Con.Res. 14 , was introduced on February 17, 2005, in the 109 th Congress. In the House, a similar resolution, H.Con.Res. 143 , was introduced by Representative Christopher Cox on May 3, 2005. The resolutions expressed the sense of Congress that the President and the Secretary of State should work with other democratic members of the G-8 to suspend Russia's participation in the G-8 until it adheres to "the norms and standards of free, democratic societies as generally practiced by every other member nation of the G-8." Senator Lieberman explained that the resolution was inspired by President Putin's efforts to undermine democracy in Russia and that it was a show of U.S. support for democrats in Russia. The Congressional Helsinki Commission co-chairs reacted to Khodorkovskiy's sentencing in early 2005 with a statement that it appeared to be politically motivated and was a selective prosecution that harmed Russia's legal system. The Commission also held a briefing on the implications of the "Yukos affair" on democratization and privatization in Russia in July 2005. Opening the hearing, Co-chair Christopher Smith stated that Khodorkovskiy's trial was reminiscent of Soviet show trials and indicated Russia's "indifference or hostility to the rule of law." S.Res. 322 , introduced by Senator Biden and approved on November 18, 2005, expressed the sense of the Senate that Russia's imprisonment of Khodorkovskiy and his associate Platon Lebedev were politically motivated and violated the rule of law and Russia's international human rights commitments. Strong misgivings about the late 2005 Duma bill restricting the rights of NGOs were registered in a letter from the Congressional Helsinki Commission to the Duma in November 2005 and in H.Con.Res. 312 (introduced by Representative Henry Hyde and approved on December 14, 2005) and S.Res. 339 (introduced by Senator McCain and approved on December 16, 2005). The letter and resolutions called on the bill to be withdrawn or rewritten so that it did not severely restrict the activities of domestic and foreign NGOs in Russia. In the House, Representative Christopher Smith warned that the Duma bill especially targeted NGOs dealing with democracy and human rights for "invasive" government financial and other monitoring. Concerns in the 109 th Congress arising out of Russia's cutoff of gas supplies to Ukraine were reflected partly in the introduction of S. 2435 , the Energy Diplomacy and Security Act, by Senator Lugar in March 2006. The bill called for enhanced U.S. energy diplomacy with energy exporters in support of U.S. national security. At a hearing on Russian energy and politics held by the Senate Foreign Relations Committee in June 2006, Senator Lugar stated that "the United States must engage with Russia on energy security and send a clear and strong message promoting principles of transparency, rule of law, and sustainability. Efforts under the current U.S.-Russia energy dialogue ... should be expanded and fully supported [to sustain] the long-term mutual interests shared by both countries in stable energy markets." At the hearing, Senator Biden stated that "my hope for Russia is that it become a respected, prosperous and democratic state" but that "the current policies of President Putin's government work against these goals [and may] condemn Russia to a future of weakness and instability, and deny Russia its rightful place as a great power." He called for the Bush Administration to coordinate a strong call for Russian democratization at the July 2006 G-8 meeting, to urge NATO to provide Georgia and Ukraine with Membership Action Plans by the end of the year, and to support NGOs and civil society groups in Russia. Marking long-standing congressional concerns about religious freedom in Russia, Representative Christopher Smith introduced H.Con.Res. 190 , which was approved on March 14, 2006. The resolution raised concerns that the rights of minority religious groups in Russia were being increasingly threatened and called on Russia as a member of the OSCE and the chair of the G-8 to uphold "basic, internationally recognized and accepted standards to protect peaceful religious practice." In support of the resolution, Representative Tom Lantos warned that the limited democratic "achievements of the past decade are being reversed" in Russia and called on the other members of the G-8 to warn Russia that it faces suspension from the group unless it re-embraces democratization and respect for human rights. Continuing congressional concerns about the suitability of Russia as a member of the G-8 were raised by Senator Biden on July 14, 2006, with the introduction of S.Res. 530 . As approved the same day, the resolution called on President Bush and other leaders to impress upon President Putin at the G-8 summit (which was due to convene the next day) that his government's "anti-democratic" policies are incompatible with G-8 membership and that his government should guarantee "the full range of civil and political rights to its citizens." Successive administrations and Congresses generally have agreed that a democratic Russia would be a U.S. friend or ally rather than a strategic security threat. They have viewed political developments in Russia as a vital U.S. interest because of Russia's capabilities, including its geographical size (including its extensive borders with Europe, Asia, and Central Eurasia), educated population, natural resources, arms industries, and strategic nuclear weapons. A democratic Russia that is integrated into global free-markets could cooperate with the United States on a range of economic, political, and security issues, rather than use its capabilities for hostile confrontation, in this view. At the same time, setbacks to democratization in Russia have led successive U.S. administrations to argue that the United States should remain engaged with Russia to cooperate on international and security issues and to urge it to democratize. Many observers argue that there has been a close relationship between domestic and foreign policy in Russia, so U.S. policy-makers must try to encourage pluralism and discourage authoritarianism. They maintain that when the Soviet Union (of which Russia was a part) was communist, it opposed the West, and as it began to democratize, its foreign policy became more accommodationist. These observers argue that a prospective Russian dictator would need to rely on the military and security forces to maintain power. These forces have lagged the most in adopting democratic values and continue to favor anti-American foreign policies that, if implemented, would threaten U.S. national security interests. Such policies conceivably might include a hostile nuclear strategic posture, stepped-up proliferation of arms and WMD technologies to governments or groups unfriendly to the United States, and neo-imperialist moves to threaten Europe and to re-impose authoritarian, pro-Moscow regimes in the former Soviet republics. Other observers stress that Russia's cooperation with the United States in the Global War on Terror is a critical U.S. security interest, while the issue of democratization in Russia is of lower priority and if necessary, must be de-emphasized. They assert that Putin, regardless of his political orientation, has been at least somewhat effective in combating terrorist activities in Chechnya and elsewhere in Russia and safeguarding WMD and infrastructure from falling into terrorist hands. A post-Putin leadership in Russia, they argue, would continue these policies, since they accord with Russia's security interests. In the 110 th Congress, S. 198 (Nunn) has appeared to reflect some of these assessments. In introducing the bill on September 8, 2007, Senator Sam Nunn stressed that "the proliferation of WMD is the number one national security threat facing the United States today." He argued that "it is in U.S. interests to eliminate and secure weapons and materials of mass destruction," rather than spend substantial time to decide whether Russia and other prospective recipients of Comprehensive Threat Reduction assistance are satisfying various conditions, including respect for human rights. In the case that conditions are not met, waivers are exercised after lengthy delays, he argued, and these delays harm U.S. interests in combating WMD. The conditions also provide no effective leverage on Russian behavior, he stated. Many observers have maintained that U.S. democratization aid to Russia will at best be effective at the margins, given limited funding and the large scope of the challenge. Those who advocate ending such aid point out that the Russian government increasingly regards it only as interference in its internal affairs, so the aid actually reduces U.S. leverage to encourage Russia to cooperate in the Global War on Terror and other issues. They also maintain that civil society should be able to stand on its own resources, given Russia's recent economic growth. U.S. diplomatic and public expressions of disapproval about Putin's Beslan proposals and actions such as the Chechnya conflict are likewise counterproductive, they assert, because they are regarded by Putin as offensive and reduce U.S. credibility. Instead, the United States should work with Russia only when solicited to foster democratization in Chechnya and elsewhere in Russia. Others reject the view that U.S. democratization aid can only be of marginal effectiveness in Russia. They argue that some of the assistance has proven beneficial, and that there would be much more of a positive effect if the aid were increased. These observers suggest that such aid will serve U.S. interests because Russia will ultimately become a more cooperative partner to the West. They warn against any reduction of such aid at the present time, because Russia's civil society is too fragile to stand on its own in the face of threats from the Russian government. These observers claim that U.S. diplomatic and public expressions of concern to Russia about its democratic policies should be matched by an active U.S. democratization aid effort. In particular, they urge stepped-up democratization aid as Russia prepares for a Duma election in late 2007 and an election to choose a new president in early 2008. They stress that the United States, as the world's oldest democracy and sole superpower, has a responsibility to urge Russia to continue to democratize. They have maintained that such a stance is in line with the Administration's objective of fostering democracy and respect for human rights in the Middle East and elsewhere in the world. Some observers dismiss the view that the United States has little leverage to encourage democratization in Russia. They agree with other analysts that the U.S. advocacy of democratization should not be permitted to endanger cooperation with Russia on critical national security issues, but see a role for minor U.S. threats and sanctions against Russia for civil and human rights abuses. Russia has a large stake in its major ongoing and potential exports of energy and other resources to the United States and the West, they argue, providing the West with major potential economic leverage to encourage democratization in Russia. | U.S. attention has focused on Russia's fitful democratization since Russia emerged in 1991 from the collapse of the Soviet Union. Many observers have argued that a democratic Russia with free markets would be a cooperative bilateral and multilateral partner rather than an insular and hostile national security threat. Concerns about democratization progress appeared heightened after Vladimir Putin became president in 2000. Since then, Russians have faced increased government interference in elections and campaigns, restrictions on freedom of the media, large-scale human rights abuses in the breakaway Chechnya region, and the forced breakup of Russia's largest private oil firm, Yukos, as an apparent warning to entrepreneurs not to support opposition parties or otherwise challenge government policy. Democratization faced further challenges following terrorist attacks in Russia that culminated in the deaths of hundreds of school-children in the town of Beslan in September 2004. President Putin almost immediately proposed restructuring the government and strengthening federal powers to better counter such terrorist threats. The restructuring included integrating security agencies, switching to party list voting for the Duma (lower legislative chamber), eliminating direct elections of the heads of federal subunits, and asserting greater presidential control over civil society by creating a "Public Chamber" consultative group of largely government-approved non-governmental organizations. All the proposals had been enacted into law or otherwise implemented by early 2006. Some Russian and international observers have supported the restructuring as compatible with Russia's democratization. They have accepted Putin's argument that the restructuring would counter Chechen and international terrorists intent on destroying Russia's territorial integrity and political and economic development. On the other hand, critics of the restructuring have branded them the latest in a series of anti-democratic moves since Putin came to power. They have characterized these moves as fine tuning a system of "managed democracy," if not authoritarianism, in order to gain more influence over electoral processes ahead of Duma and presidential races in 2007-2008. The stakes for various power groups seeking to avert unwanted popular electoral "interference" are high, since Putin has declared that he will not seek another term. The U.S. Administration and Congress have welcomed some cooperation with Russia on vital U.S. national security concerns, including the non-proliferation of weapons of mass destruction (WMD), strategic arms reduction, NATO enlargement, and since September 11, 2001, the Global War on Terror. At the same time, the United States has raised increased concerns with Russia over anti-democratic trends, warning that a divergence in democratic values could increasingly stymie U.S.-Russian cooperation. Some U.S. observers have urged restraint in advocating democratization in Russia, lest such efforts harm U.S.-Russian cooperation on vital concerns, while others have urged stronger U.S. advocacy, regardless of possible effects on bilateral relations. This report may be updated as events warrant. See also CRS Report RL33407, Russian Political, Economic, and Security Issues and U.S. Interests, by [author name scrubbed]. |
For nearly a decade, the former Yugoslav Republic of Macedonia managed to escape the kindof brutal ethnic conflict in Croatia, Bosnia, and Kosovo that accompanied the breakup of the formerYugoslavia in the 1990s. The international community gave high priority to preventing the spreadof ethnic conflict to Macedonia, since it was feared that war in Macedonia could quickly involvesome or all of Macedonia's neighboring countries and lead to a broader Balkan war. Macedonia washeld up as a model, albeit an imperfect one, of inter-ethnic coexistence and democratic rule, withactive participation of the Albanian community in political institutions, despite persistent discordin inter-ethnic relations. The swift emergence in early 2001 of a militant ethnic Albanian guerrillamovement in western Macedonia therefore caught many observers by surprise. By March 2001, violent conflict between the rebels and Macedonian security forces had spread to several areas around the city of Tetovo, prompting the Macedonian government to embark on amajor military campaign to quell the insurgency in western Macedonia. With strong internationalbacking, the government opened all-party talks on inter-ethnic issues in April. A national unitygovernment comprised of all major political parties was created in May. Clashes between rebel andgovernment forces continued in some areas of the country, as marathon talks among all coalitionparties on political reforms remained deadlocked. Negotiations finally reached agreement on keyreform issues in early August. The political parties signed a framework agreement on August 13,paving the way for the deployment of a small NATO force to begin disarming the rebel forces. Operation Essential Harvest, comprising 4,500 European forces, began collecting rebel weapons onAugust 27 and completed its mission within a month. A much smaller task force has remained inMacedonia to provide security for international civilian monitors overseeing the process ofimplementing inter-ethnic reforms. Implementation of the framework agreement has progressedslowly, but has moved forward in recent months. Several factors may have accounted for the emergence in early 2001 of the rebel insurgency in Macedonia. One may have been the increasing radicalism of disparate ethnic Albanian militantgroups operating in Kosovo, Serbia, and Macedonia, and linked to organized crime and regionalsmuggling rings. The unresolved status of Kosovo and limited progress in realizing Kosovarself-government since the end of the Kosovar war in mid-1999 may have fueled ethnic Albanianradicalism. (1) In addition, the international embraceof the post-Milosevic Yugoslav and Serbianleadership after the fall of Milosevic in late 2000 may have discouraged some ethnic Albanians'hopes for Kosovar independence, to which the international community has not agreed. Some ethnicAlbanian rebels in Macedonia (as well as in Serbia) may have sought to provoke a heavy-handedresponse by the Serb or Macedonian forces, in order to elicit Western sympathy and support. Another contributing factor to the Macedonian conflict was the continued activism of members ofthe Kosovo Liberation Army (KLA), who were supposed to have disbanded and given up theirweapons to the NATO-led Kosovo Force (KFOR) after the end of the 1999 conflict in Kosovo. Instead, many former KLA members regrouped in the demilitarized buffer zone around Kosovo andtransferred arms and personnel to Macedonia. A border agreement between Macedonia and theFederal Republic of Yugoslavia (FRY) in February 2001, intended to tighten border controls, mayhave also triggered clashes between Macedonian border police and ethnic Albanian smugglers. Finally, underlying inter-ethnic tensions and poor economic conditions (especially among ethnicAlbanians) in Macedonia provided fertile ground for a drawn-out conflict. Macedonia is one of six former republics of the Socialist Federal Republic of Yugoslavia. (2) Under Yugoslav leader Josip Broz Tito, Macedonians were granted the status of constituent nation,language, and culture equal to that of the other Yugoslav republics. Following the example ofSlovenia, Croatia, and Bosnia-Herzegovina, Macedonia declared its independence in late 1991 afterholding a national referendum on the issue. Under the provisional name "The Former YugoslavRepublic of Macedonia," Macedonia became a member of the United Nations in May 1992. Itsubsequently joined several other international organizations under this provisional name. Macedonia has a unicameral parliament, the 120-seat National Assembly (Sobranje), and a popularly elected President. From 1991 to 1999, socialist leader Kiro Gligorov served as President. Gligorov took credit for Macedonia's success in achieving international recognition and forpreventing the country from being drawn into other Yugoslav conflicts. In the last parliamentary elections held in October and November 1998, the Macedonian electorate voted out the long-standing former communist leadership in favor of a coalition headedby the nationalist Internal Macedonian Revolutionary Organization-Democratic Party forMacedonian National Unity (VMRO-DPMNE), led by Ljubco Georgievski. The coalition includedthe Democratic Alternative (DA) party led by Vasil Tupurkovski, and the Democratic Party ofAlbanians (DPA) led by Arben Xhaferi. (3) Coalitiontensions, especially between the DA andVMRO-DPMNE, persisted (though the tensions were unrelated to inter-ethnic issues). Thegovernment underwent several cabinet reshuffles and steadily lost popularity. In the 1999presidential elections, Boris Trajkovski of the governing VRMO-DPMNE party narrowly defeatedTito Petkovski of Gligorov's Social Democratic Party (SDSM), primarily on the strength of theethnic Albanian vote. Some voting irregularities were reported in the presidential vote as well as inlate 2000 municipal elections. In November 2000, the Democratic Alternative party withdrew from the coalition in an apparent effort to bring down the government and join ranks with the opposition. However, the Georgievskigovernment quickly replaced the DA with the small Liberal Party and managed to remain in power,despite low popularity ratings and numerous political scandals. The opposition, meanwhile, was notable to unify as a governing alternative to the VMRO-DPMNE-led coalition. In May 2001, at theurging of the international community, an all-party coalition replaced the previous government ona temporary basis until early elections could be organized. The next elections will likely be held inSeptember 2002. Formerly the poorest republic in the Yugoslav federation, Macedonia continues to face economic difficulties stemming from internal reforms, external challenges, and more recently,internal ethnic conflict. Macedonia's economy was hit hard by U.N. sanctions against the FederalRepublic of Yugoslavia (FRY) from 1992 to 1996, by a unilateral Greek trade embargo from 1994to 1995, and by the Kosovo conflict in 1999. GDP growth, extremely modest in the second half ofthe last decade, reached nearly 5% in 2000. The 2001 insurgency, however, drove up militaryspending, expanded the budget deficit, and contracted economic activity, trade, and investment. Asa result, GDP declined nearly 4.6% in 2001. Unemployment estimates range from one-third toone-half of the work force. Corruption is considered endemic. (4) In April 2001, Macedonia becamethe first southeast European country to conclude a Stabilization and Association Agreement with theEuropean Union. However, the EU repeatedly postponed a planned donors' conference forMacedonia because of Macedonia's lack of progress in implementing political reforms. Theconference was finally held in March 2002, during which donor countries pledged over $500 millionin financial and developmental assistance. Macedonia's military, the Army of the Republic of Macedonia (ARM), has been undergoing a major restructuring and reform process. Macedonia participates in NATO's Partnership for Peace(PFP) program and is among the "Vilnius" group of ten countries seeking to join NATO. The Armyof the Republic of Macedonia comprises about 16,000 active duty soldiers, 60,000 reserves, and10,000 paramilitary police. It is organized into two infantry brigades and one border guard brigade. The ARM includes a small marine wing and an army air force with a limited number of aircraft andhelicopters. (5) Since early 2001, Ukraine and Bulgariahave served as Macedonia's primary armssuppliers. In addition to the state security structures, other armed groups gained prominence duringthe 2001 conflict, including the ethnic Albanian National Liberation Army and Albanian NationalArmy. Several Macedonian paramilitary groups also emerged, with some reportedly in close contactwith the regular army and police. (6) Prior to the conflict in 2001, relations between the Slav Macedonian majority and ethnic Albanian minority in Macedonia were considered tense, if not explosive. Though not to becompared with the situation in Kosovo under Milosevic's rule, Macedonia nonetheless remained alargely segregated country. Albanians in Macedonia as a whole demanded greater cultural andeducational rights, such as recognizing Albanian as an official language and providing state supportfor their underground Albanian-language university in Tetovo. (7) Albanians long sought greaterrepresentation in the government, armed forces and police. They objected to the preamble of theconstitution that made reference to the Macedonian nation, claiming that it thereby relegatedAlbanians to the status of second-class citizens. They claimed to represent as much as 40% of thecountry's population, not the 22.9% recorded in the June 1994 census. A new census was scheduledto be held in June 2001, but was postponed in view of the recent conflict. In contrast, many Macedonians asserted that the Albanian minority enjoyed sufficient rights, comparable to or better than other minority communities in Europe. They remained suspicious ofAlbanian demands for autonomy, which they feared could lead to eventual secession or partition andunification with Albania or Kosovo. Ethnic tensions led to open clashes on several occasions duringthe 1990s, especially in the western cities of Tetovo and Gostivar. The conduct of the 1999presidential elections, with charges of violence and ballot-stuffing in ethnic Albanian districts,heightened inter-ethnic tensions, although neither presidential candidate was ethnic Albanian. Inspite of these problems, one of the two major ethnic Albanian parties has been in the governmentsince Macedonia's independence, with ethnic Albanian cabinet ministers. The conflict in neighboring Kosovo in 1999 exacerbated inter-ethnic tensions in Macedonia. About 250,000 Kosovar Albanian refugees flooded into Macedonia during the height of the crisis. Macedonian authorities were at times reluctant to accept Kosovar Albanian refugees and pressed formany thousands of them to be evacuated to third countries. The Kosovo Liberation Army (KLA)maintained a presence in Macedonia during the conflict. Macedonian authorities frequentlyintercepted and seized weapons deliveries en route to Kosovo. Attacks by ethnic Albanian guerrilla forces on Macedonian police and security forces in late 2000 and early 2001 appeared to catch the Macedonian government and international communityby surprise. The attacks began in small villages such as Tanusevci in western Macedonia, close toor on the Kosovo border, where the Albanian minority is concentrated. In March 2001, clashesspread to the city of Tetovo (located about 30 km west of the capital, Skopje). After a brief lull,fighting resumed in several areas, reaching a new level in early June, as rebel forces captured townsjust outside of Skopje and to the north around Kumanovo. In January, a group calling itself the National Liberation Army (NLA, or UCK in Albanian) claimed responsibility for the attacks on police forces. Initial reports gave conflicting informationon the NLA. Macedonian President Trajkovski and Prime Minister Georgievski claimed that therebels were primarily Kosovo Liberation Army members who had infiltrated the country fromKosovo. The government estimated that the rebels numbered only in the hundreds and charged themwith trying to divide the country and create a pan-Albanian state. Macedonian officials blamedNATO for not doing enough to disarm the Kosovo rebel forces, discourage their encampment in thebuffer zone (Ground Safety Zone) area between Kosovo and Serbia, or prevent their entry intoMacedonia. Members of the National Liberation Army claimed that the rebel force comprised a few to several thousand men, mainly from Macedonia. Its leaders included Ali Ahmeti and his uncle, FazliVeliu, from western Macedonia. (8) Ahmeti claimedthat the rebels' only objective was to improve therights of the Albanian community in Macedonia. On March 19, western news agencies reported alist of political demands by the NLA rebels that included: international mediation to resolve theirdifferences with the Slavic majority and determine the exact size of the ethnic Albanian community;changes in the Macedonian constitution recognizing Albanians as a constituent people; and, therelease of all political prisoners. Rebels said that they sought the federalization of the country, butnot its dismemberment. They called on all ethnic Albanians in Macedonia to join their ranks, andon ethnic Albanians world-wide to support their movement with volunteers and funds. (9) By August,the NLA claimed a strength of 16,000, although other estimates suggested they numbered about2,000-2,500 full-time NLA combatants. (10) Neither of the two main ethnic Albanian political parties initially claimed association with the NLA. On March 20, the two mainstream ethnic Albanian parties signed a declaration condemningthe use of force in pursuit of political objectives. However, they expressed sympathy with the rebels'demands for Albanian equity and eventually established contacts with NLA leaders, aware thatwould lose support among ethnic Albanians if appearing to side with the Macedonian authorities. On March 11, a group of nationalist Albanian politicians (including two members of parliament)launched a new nationalist Albanian political party called the National Democratic Party. Althoughit claimed no direct link to the National Liberation Army, its political manifesto included demandsfor the federalization of the country and greater autonomy for the Albanian population. (11) In August,a splinter ethnic Albanian rebel group calling itself the Albanian National Army (ANA) claimedresponsibility for an ambush attack against a Macedonian army convoy that killed 10 soldiers. Theself-styled ANA rejected the framework agreement signed by Macedonia's political leaders onAugust 13 and pledged to continue to fight for a "greater Albania." (12) Following the terrorist attacksagainst the United States on September 11, NLA leaders asserted that they had no association withOsama bin Laden or any other radical Islamic movements. In response to the initial rebel attacks in early 2001, the government made preparations to launch a military offensive to drive out the rebels out of Macedonian towns and villages and intoKosovo. President Trajkovski said that the government had first to "neutralize the terrorist threat,"but offered the prospect of entering into political dialogue with legitimate political parties oninter-ethnic relations. The government steadfastly refused to negotiate any terms with the rebels,whom they called "terrorists." In late March, the Macedonian armed forces began a series ofoffensives to regain control of rebel-held villages, mainly around Tetovo. At first, the armyencountered little organized resistance and managed to regain control over some villages. After a lull of several weeks, during which time the Macedonian and Albanian political parties launched roundtable discussions, violence resumed in some areas and began a new stage of theconflict. On April 28, ethnic Albanian guerrillas ambushed a Macedonian army and police convoyin the village of Vejce near Tetovo, killing eight and wounding three others. The attack sparked riotsby Slav Macedonians against ethnic Albanian businesses in the southern city of Bitola, near Greece. On May 3, Albanian rebels launched another ambush on security forces in Vaksince, near Skopje,killing two Macedonian soldiers and kidnaping a third. In response, the government deployedhelicopters gunships and began counter-attacks against rebel forces in several villages in theKumanovo region. During a brief truce in mid-May, the government declared victory amid reportsof widespread desertions among rebel forces. Sporadic clashes persisted in some villages in the hillsabove Tetovo. At the end of May, government forces launched another offensive in the north of the country, using long-range attacks on rebel-held villages, but proved unable to deal a defeating blow to therebels, who countered the attacks and advanced toward Tetovo and Skopje. Five Army soldiers werekilled in a rebel attack in Tetovo on June 6. On June 10, rebel forces captured Aracinovo, on theoutskirts of the capital, threatening the start of an urban warfare-style conflict. On June 11, bothsides announced a cease-fire, which was later extended until June 27. Government forces ended thetruce on June 22 and bombarded rebel territory near Aracinovo. Another local cease-fire arrangedby EU envoy Javier Solana included terms for the evacuation of Albanian guerrilla forces fromAracinovo under international supervision. NATO assisted in implementing the evacuation;however, clashes resumed in Tetovo and angry demonstrators in Skopje protested theNATO-assisted escort of armed Albanian rebels from Aracinovo. On July 1, rebel forces advancedinto four more villages outside of Tetovo, prompting fierce counter-attacks by government forces. NATO and EU envoys brokered separate open-ended cease-fire agreements on July 5, grantinganother chance for the political dialogue to produce results. Both sides reportedly used the cease-fire period to resupply and regroup their forces. Numerous truce violations were reported. A severe break-down took place in late July when Albanian rebelsadvanced into territory around Tetovo. Thousands of Slav Macedonians fled their homes and dozenswere wounded in the offensive. On July 25, NATO secured an agreement with the rebels to reinstatethe cease-fire, have the rebel forces pull back from their advanced positions, and allow displacedpersons to return to their homes. Meanwhile, hundreds of Slav Macedonian protesters in Skopje,angered by what they perceived to be Western support for the Albanian minority, attacked the U.S.embassy and other Western missions on July 24. The deadliest fighting in the conflict occurred in early August, just as political talks were drawing to a successful close (see section on Peace Talks, below). On August 7, Macedonian policelaunched a raid on rebel forces in Skopje, killing five. (13) The police seized a cache of weapons fromthe rebels and accused them of planning an attack on the capital. The next day, 10 Macedoniansoldiers were killed in a rebel ambush between Skopje and Tetovo. Angry demonstrators stagedviolent protests in Skopje, and battles continued between the rebel and government forces in Tetovoover the next few days. The Macedonian army deployed fighter jets and reportedly dropped bombson rebel-held villages near Tetovo. On August 10, 8 more security forces were killed after theirvehicle struck two land mines outside of Skopje. In a retaliatory anti-terrorist raid on the village ofLjuboten (near Skopje) on August 12, government forces killed at least five ethnic Albanians. Thegovernment claimed the ones killed were NLA terrorists engaged in combat, but others claimed theywere civilians executed in cold blood. Another truce was announced on August 12, but fresh clasheswere reported over the next few days, even as political leaders signed a peace agreement on August13. On August 19, NLA leader Ali Ahmeti announced that the rebel group would honor the peaceaccord and agreed to surrender weapons to NATO. During the half-year conflict, an estimated 250 persons were killed. (14) Many of this numberwere killed during the final week of peace talks. More than 170,000 persons fled their homes, ofwhich 70,000 fled to Kosovo. Since the start of the implementation phase of the peace agreement,sporadic clashes have broken out, but have not led to resurgence of sustained conflict. By March2002, about 140,000 refugees and displaced persons had returned to their homes. (15) From the start of the conflict, Western leaders and envoys emphasized that the conflict in Macedonia required a political solution over a military one. They promoted the strategy of fosteringa meaningful dialogue among all political parties that could lead quickly to tangible results onminority issues and prevent a longer-term conflict. They feared that prolonged violent conflict wouldonly further polarize the ethnic communities, as well as incur greater civilian casualties andhumanitarian consequences. On April 2, President Trajkovski convened the first meeting of representatives of all of Macedonia's political parties to address inter-ethnic issues. The NLA demanded that it participatein the negotiations, but the Macedonian leadership steadfastly refused, saying it would only meetwith elected representatives. On April 23, at the fifth round of all-party talks, President Trajkovskiannounced agreement on several minor issues. The parties agreed to postpone the census, takemeasures to encourage displaced persons to return to their homes, and assist in the reconstructionof homes destroyed during the fighting. In addition to these talks, the parties discussed the creation of a more inclusive coalition government. Western leaders had strongly pressed for building a broad coalition as a first steptoward a peaceful resolution to the conflict. Under strong international pressure, the group of partiesagreed to form a national unity government on May 11, even while a brief cease-fire was unraveling. Parliament overwhelmingly approved the new government on May 13, by a vote of 104 to 1. Theprevious governmental parties (VMRO-DPMNE, DPA, and LP) were joined by the SocialDemocratic Alliance of Macedonia (SDSM) and the Party for Democratic Prosperity (PDP). LjubcoGeorgievski remained Prime Minister. The parties agreed to hold early elections in 2002. Some observers contend that the creation of the all-party government, rather than promoting unity or compromise, instead fostered greater divisions, as the parties looked ahead to the nextelections and sought to consolidate their bases of support. Indeed, the Social Democratic Partywithdrew from the coalition later in 2001 and political tensions within the government haveremained high. Although the NLA never formally joined the governing coalition, former NLAleaders formed a coordinating council with the established ethnic Albanian parties in February2002. (16) Marking this move toward the politicalmainstream, former NLA leaders pledged to"maintain the process of consolidation, peace, democratic development, and economic progress." (17) On June 8, President Trajkovski presented to parliament a security strategy that included the offer of a partial amnesty for the NLA. The strategy called first for a consolidated governmentaleffort to quell the rebel forces. It then outlined plans to facilitate the disarmament of the rebel forcesand the reconstruction of homes. The government adopted the plan on June 12. On June 14,President Trajkovski requested NATO's assistance in disarming the rebel forces if a politicalagreement was reached. Trajkovski opened marathon talks with the political parties on June 15. Thefocus of discussions was on changes to the Macedonian constitution that would elevate the statusof the Albanian community. By June 20, however, President Trajkovski announced that the talkshad become "totally deadlocked." He lay most of the blame on the Albanian side, claiming that theysought veto powers and intended to turn the state into a federation of the Slav and Albaniancommunities. Talks briefly resumed on June 25, after another cease-fire was reached, but broke upthe next day in the midst of the angry public demonstrations outside of the parliament building inSkopje. In July, the discussions were revived with the arrival in Macedonia of EU envoy Francois Léotard and U.S. envoy Ambassador James Pardew. On July 4, the government agreed to studyconstitutional reform proposals prepared by outside French counsel. President Trajkovski announcedon July 5 that the political dialogue on reforms had resumed, corresponding to the latest announcedcease-fire. On July 7, peace envoys Léotard and Pardew presented to the negotiating parties a singleframework document that was to be the basis for further negotiation. The parties agreed to workfrom the comprehensive framework document, reportedly based on an earlier proposal by Frenchconstitutional law expert Robert Badinter. Talks resumed on July 9, but quickly stalled as clashesintensified near Tetovo. Political talks, relocated to the southern lakeside retreat of Ohrid, resumed on July 28. On August 1, negotiators announced the first major breakthrough in the talks - a provisional agreementon use of the Albanian language. The parties agreed to allow Albanian to be considered an officiallanguage at the local level in areas where Albanians comprise 20% or more of the population. Thelanguage agreement was to remain subject to agreement on a final package of reforms. The nextequally contentious item for discussion was the issue of police reform. On August 5, EU foreignpolicy chief Javier Solana, during a brief visit to Macedonia, announced that the parties had cometo agreement on increasing Albanian representation in the police, while keeping the force undercentral government control. New demands coupled with renewed violence threatened to derail thetalks once more. Nevertheless, negotiators pressed on and the parties initialed a final politicalagreement on August 8. The parties signed the Ohrid agreement in Skopje in a private ceremony on August 13. The following day, the NLA agreed to surrender its weapons under NATO supervision. In exchange, thePresident pledged to grant amnesty to the NLA, excluding those suspected of war crimes. OnAugust 15, the Macedonian government formally approved the deployment of a NATO force tocollect weapons. Notwithstanding the achievement of reaching agreement on the framework peace document,its swift implementation was considered key to preventing a resumption of violent conflict. Resistance by both sides in the conflict delayed implementation of various aspects of the accords. Western leaders and mediators feared that extremist elements on both sides might encourage amilitary solution over political reforms. EU envoy Alain le Roy has encouraged Macedonia'spolitical leaders to move beyond the 2001 conflict and focus on the country's substantial economicand development challenges. On the Macedonian side, the more nationalist political leaders initially accused the West of supporting the Albanian rebel cause and resisted pressure by the international community to moveforward in implementing the framework agreement. Prime Minister Georgievski, considered to beamong the most hardline and nationalist Slav Macedonian politicians, referred to the peaceagreement as "shameful" because it came while the rebels still occupied Macedonian territory.Georgievski also criticized the number of weapons that NATO agreed to collect, calling thedisarmament terms "humiliating." (18) On theAlbanian side, the NLA's exclusion from the politicaltalks was thought to undermine the rebels' commitment to disarm. Nevertheless, NLA leadersswiftly agreed to the terms of the agreement, although most observers believe that the rebels continueto have access to arms. The emergence of another, more hardline, Albanian rebel group, theself-styled Albanian National Army, pointed to growing divisions among the Albanian forces. Recurring incidents of violence, meanwhile, periodically threatened to derail further progress inimplementing peace. Given this environment, the timetable for parliamentary action was considered ambitious. The Macedonian parliament opened debate on the Ohrid framework agreement on August 31, butSpeaker Stojan Andov blocked further discussion over the following weekend in protest ofunsuccessful attempts by Macedonian refugees to return to their homes. On September 4, PrimeMinister Georgievski harshly criticized the agreement, but nevertheless urged the parliament to passit in order to gain international support. After lengthy debates, parliament gave initial endorsementto the framework plan on September 6 by a vote of 91 out of 112 members present. The landmarkvote launched the next phase of implementation - parliamentary consideration of individualamendments to the constitution and other laws enhancing minority rights. However, numerouscontentious issues contributed to substantial delays in the parliamentary process. First, some members of parliament pressed for the consideration of a public referendum, in order to put the framework agreement's reforms before public opinion. Western leaders criticizedthe referendum initiative, fearing that it would sink the peace process and encourage the Albanianrebels to revert to violence. NATO Secretary-General Lord Robertson, visiting Skopje on September14, called the referendum proposal a "peace wrecking amendment," and said that it was time for theMacedonian parliament to fulfill their part of the peace deal. In the course of several missions toMacedonia, EU foreign policy chief Solana and NATO Secretary General Robertson pressedMacedonia's political leaders to revive the stalled parliamentary process of considering the peaceagreement's amendments. In late October, the Macedonian side insisted on re-opening the wordingof the constitution to include mention of the "Macedonian people" instead of just Macedonia'scitizens, as called for in the framework agreement. Finally on November 16, the Macedonianparliament adopted the constitutional changes outlined in the framework agreement, voting on eachone individually and then the amended constitution as a whole. Another stumbling block in the peace process was the issue of granting amnesty to former ethnic Albanian rebels. In August, President Trajkovski pledged to grant an amnesty to theinsurgents, although this aspect was not formally included in the framework agreement. On October9, the government issued a proclamation endorsing the President's pledge on amnesty, but themeasure was considered to be unclear as to who would be covered by the amnesty. Many politicians,including Prime Minister Georgievski, opposed any moves to pardon those they considered to be"terrorists." In early 2002, international mediators reportedly leaned hard on the Macedonian leadership, warning hardliners against provoking a new crisis and conditioning the offer of internationalfinancial assistance on further progress in implementing the framework agreement. (19) Macedonia'sfour main parties agreed to move forward on the adoption of priority laws in order to facilitate theholding of an international donors' conference and to prepare for early elections. After extensive debate and international mediation, parliament passed (with the necessary two-thirds majority) a law on local self-government on January 24, 2002. The law provides for thedevolution of power from the central government to local authorities in the areas of budgeting,planning, education, public services, culture and welfare. Ethnic Albanians dropped their demandto include the right of municipalities to merge with one another, which the Macedonian parties fearedcould lead to the country's partition. On March 7, 2002, on the eve of an international donors'conference for Macedonia, parliament passed an amnesty law that would pardon persons detainedor under investigation for crimes for high treason, armed rebellion, mutiny, and conspiracy againstthe state. The law is expected to eliminate charges against several thousand ethnic Albanians. Theamnesty does not apply to war crimes that could come under UN indictment. Former NLA leaderswelcomed the law for removing a major barrier to the peace process. Outside of the parliamentary process, international monitors have organized and overseen the phased reintroduction of ethnically-mixed police patrols into former rebel strongholds in anapproximately 150-km region. The first phase of the confidence-building plan was launched inDecember 2001. By March 2002, police units had re-entered 63 of 120 villages. Operation Essential Harvest. On June 14, President Trajkovski formally requested that NATO assist in implementing plans to demilitarize therebel forces. On June 20, NATO members agreed to a "concept of operations" for a NATO missionin Macedonia to supervise the disarmament of the rebel groups, once agreement on a peace plan wasreached. In a letter to President Trajkovski, NATO Secretary-General Robertson reportedly assuredthe Macedonian leader that the proposed operation would be confined in scope to the collection ofweapons and would be deployed for a limited duration of time. (20) On June 29, NATO members gave final approval to the "Essential Harvest" operational plan. The plan conditioned deployment of troops on a political agreement signed by the main politicalparties, a status of forces agreement, an agreement by the rebels to voluntarily disarm, and a stablecease-fire. Weeks of continued fighting precluded the possibility of deployment. Following thesigning ceremony for the peace agreement on August 13, the alliance deployed a vanguard team ofabout 400 troops to Macedonia. On August 20, NATO SACEUR Gen. Ralston visited Macedoniato assess the state of the truce, the primary pre-condition yet fully to be achieved. The North Atlantic Council approved the full deployment of Operation Essential Harvest on August 22. 11 NATO member states contributed forces to the operation, which totaledapproximately 4,500 troops. Britain led contributions with 1,400 armed forces. Next was Italy, with800; France, with 550; Germany, with 400; Greece, with 400; Canada and the Netherlands, each with 200; Spain and Turkey, each with 150; the Czech Republic, with 125; Belgium, with 100;Hungary, with 50; Norway, with 12; Poland, with 6; and Denmark, with 1. Major General GunnarLange of Norway was the overall force commander. NATO forces established 15 collection centersto gather and destroy weapons surrendered voluntarily by the NLA. Estimates varied widely on thenumber of rebel arms to be turned in. The NLA claimed to have about 2,300 weapons; thegovernment's estimates range from 8,000 to 85,000. Reliable figures on NLA arms holdings maynot even exist, given the group's lack of an integrated structure. (21) On August 24, NATO and theNLA reached agreement on a target of 3,300 weapons to be collected. NATO said that the force inMacedonia would only exercise military force in self-defense and will not seek to imposedisarmament by force. NATO troops in the Task Force Harvest mission began collecting weapons on August 27 and gathered over 400 weapons that day. One day earlier, the operation suffered its first casualty, whena British soldier was killed after being struck by a thrown rock or piece of concrete. Within days,the mission completed the 1st stage of weapons collection, drawing in 1,210 weapons, or more thanone-third of the total goal. The 2nd stage began on September 7, after parliament voted to approvethe agreement, and the 3rd stage finished on September 26. Task Force Harvest commanders reportedthat, in total, the mission collected 3,875 weapons in the 30-day period, exceeded targeted amounts. The collection included: 4 tanks/APCs, 17 air defense weapon systems, 161 mortar/anti-tankweapons, 483 machine guns, and 3,210 assault rifles. NATO also collected a total of nearly 400,000mines, explosives, and ammunition. (22) NLA leaders claimed they had ordered the full disbandment of its forces on September 27. Upon the completion of Operation Essential Harvest, Lord Robertson noted that the Macedonianparliament, unlike NATO, had not kept to its schedule for implementing political reforms. Operation Amber Fox. From the start of the Essential Harvest operation, many observers expressed concerns about a potential security vacuumthat would result after the planned departure of NATO forces. They feared the resumption of violentconflict between the rebel and governmental forces, and pointed to the need for security forinternational monitors on the ground. In spite of these concerns, the alliance made clear that theEssential Harvest operation would adhere to a strict timetable. Moreover, alliance officials said thatNATO had no plans to deploy an extended peacekeeping operation in Macedonia ("MFOR") similarto the SFOR or KFOR operations in Bosnia and Kosovo. Many in the Macedonian government opposed an extended deployment of NATO troops in Macedonia which they feared might solidify a territorial division of the country or preventMacedonian security forces from reclaiming rebel-held ground. Macedonian President Trajkovskisaid he would favor the reintroduction of the U.N. Preventive Deployment mission to providesecurity along Macedonia's borders. Other options were also considered, such as the creation of anEU force or ad hoc "coalition of the willing." In the end, a NATO or NATO-led follow-on option gained the most international support. On September 19, 2001, the Macedonian government formally requested that NATO provide a "lightpresence" to protect international monitors in Macedonia after the completion of Operation EssentialHarvest. The North Atlantic Council approved the Operational Plan for the new operation, dubbed"Amber Fox," on September 26. The mandate for "Task Force Fox" is to provide a monitoringpresence and security for international civilian personnel overseeing implementation of the peaceplan. The NAC issued an Activation Order for Operation Amber Fox on September 27. Task Force Fox is commanded by German Brig. Gen. Heinz-Georg Keerl and comprises some 700 troops from NATO member nations, together with 300 troops already in country (1,000 total). Of these, about 600 troops come from Germany, with the rest from France, Portugal, Spain, Greece,and Poland. The operation's initial mandate ran for three months and was later extended until theend of March 2002. In February 2002, at the request of the Macedonian government, NATO furtherextended the mandate for Task Force Fox until June 26, 2002. Some NATO officials have expressedconcerns about the prospect of transferring command of the Macedonia operation over to theEuropean Union (see section on the European Union, below), unless NATO and the fledgling EUrapid reaction force first reach agreement on institutional and operational links. (23) NATO's presence through Operation Amber Fox provides security for the civilian monitoring mission in Macedonia under the auspices of the Organization for Security and Cooperation in Europe(OSCE). OSCE agreed in September 2001 to increase its longstanding monitoring mission inMacedonia to 210 observers. The OSCE mission in Macedonia comprises confidence-buildingmonitors, police advisors, and police trainers. Its current mandate runs until the end of June 2002. KFOR. Until August 2001, NATO's presence in Macedonia served a supporting role for the NATO mission in neighboring Kosovo, KFOR,authorized under U.N. Security Council Resolution 1244 (1999). KFOR currently comprises a totalof 37,000 troops from NATO members and partner countries and is commanded by French Lt. Gen.Marcel Valentin. About 2,200 additional forces serve in the KFOR Headquarters Rear in Skopje,Macedonia, responsible for KFOR communications and logistics in the area surrounding Kosovo. (24) Several KFOR participating nations in Kosovo also have National Support Elements in Macedonia. Kosovo's border with Macedonia runs about 220 km, or 130 miles. The United States and Germanycommand KFOR sectors (Multinational Brigades East and South) that share the Kosovo-Macedonianborder. In response to the conflict in Macedonia in early 2001, NATO initially took limited steps to try to quell the violence. The alliance sent military advisors to assist the Macedonian governmentrespond to the rebel attacks. In March, KFOR began to increase force levels along the border andintensify border patrolling to detain suspected rebels and their weapons. KFOR forces have detainedseveral hundred suspected rebels since mid-2001. KFOR reinforced its forces at the border area witha peacekeeping reserve of about 300 British and Norwegian infantry troops (dubbed Task ForceViking). NATO increased its liaison presence in Skopje and appointed German AmbassadorHans-Joerg Eiff to be NATO's senior representative in Macedonia. Through its cooperation andcoordination cell in Skopje, NATO coordinates alliance and direct bilateral military assistance toMacedonia. NATO political envoy Pieter Feith played a critical role in negotiating cease-fireagreements in Macedonia. Until plans got underway for Operation Essential Harvest, NATO resisted calls for military intervention in the conflict. In March 2001, NATO SACEUR Gen. Ralston testified before Congressthat any additional troops being considered for the region should go toward the KFOR mission, nota new Macedonia mission. Gen. Ralston advised against an expansion of the KFOR mission intoMacedonia. He pointed out that the Kosovo-Macedonia border, by virtue of its mountainous terrain,could not be sealed off completely. He also noted alliance concerns about the security of KFOR'smain supply route through Macedonia. The Macedonian government's position on NATOinvolvement focused on NATO's role in stopping the infiltration of rebels and arms from Kosovo,rather than deployment in Macedonia. Later, both the Macedonian government and the rebel forcesagreed to have NATO assist in implementing plans to demilitarize the rebel forces. In early October 2001, NATO members agreed to consider offering additional armed forces to the Balkans missions to allow the United States to divert some of its troops, if necessary, to theanti-terrorist campaign in Afghanistan. The European Union has taken a leading role in diplomatic and economic responses to the Macedonian conflict, and may step into a military role as well. On March 19, 2001, after meeting with Macedonian Foreign Minister Kerim, EU foreign ministers agreed on a package of measures intended to support the Macedonian government. Themeasures included assistance for border control and for the promotion of inter-ethnic relations. OnApril 9, 2001, Macedonia became the first southeast European country to conclude a Stabilizationand Association Agreement (SAA) with the European Union. The EU established the Stabilizationand Association Agreement during the 1999 Kosovo crisis in order to promote stronger regional tieswith the EU and to increase assistance to five countries in southeastern Europe, includingMacedonia. The EU designated about $36 million in assistance for Macedonia for 2001. InSeptember, EU commissioner Chris Patten signed a financial aid agreement with Macedoniantotaling about $39 million. The EU has frequently used the promise of foreign assistance as leverageon the Macedonian parties. At the June 25, 2001, ministerial meeting in Luxembourg, EU foreignministers warned that future EU economic assistance to Macedonia would be contingent upon apolitical settlement to the conflict. The ministers also stated that prospects for Macedonia'sintegration into the EU would depend on positive results from the political dialogue between theethnic groups in Macedonia. On August 13, the EU welcomed the peace agreement signed by the rival Macedonian parties and pledged to organize a donors' conference for Macedonia. The EU set a tentative date ofmid-October 2001 for the conference, but conditioned it on parliamentary approval andimplementation of the constitutional reforms outlined in the framework agreement. The conferencewas postponed several times and used by EU officials as an inducement to the Macedonian partiesto reach agreement on implementing the Ohrid agreement. In response to recent progress, the EUagreed to convene the donors conference on March 12, 2002. Donor countries and internationalfinancial institutions pledged over $500 million in donor assistance in 2002, exceeding pledgingtargets. Donor pledges went toward balance of payments assistance, reconstruction andrehabilitation projects, assistance for the implementation of the framework agreement, anddevelopment assistance projects. During the conflict and following the Ohrid agreement, EU foreign policy high representative Javier Solana conducted numerous diplomatic missions to Skopje, alone or with other EU andNATO officials. The achievement at Ohrid has been seen as an important diplomatic success forSolana's office and the EU's common foreign and security policy. (25) In addition to Solana, the EUnamed Francois Léotard, a former French Defense Minister, to be Special Permanent Envoy forMacedonia. Leotard was later succeeded by French diplomat Alain le Roy. EU leaders have supported extensions of NATO's mandate in Macedonia, but have recently considered the possibility of eventually taking over the Macedonia military mission from thealliance, in the context of the EU's nascent European Security and Defense Policy (ESDP). InFebruary 2002, EU foreign ministers expressed support in principle for such a move. In a Marchmeeting of the European Council, EU leaders said they would be prepared to take responsibility forthe NATO operation in Macedonia following elections in Macedonia and at the request of theMacedonian government. The Council called for EU planners to develop options in consultationwith NATO, and for permanent arrangements between NATO and the EU on military operations tobe in place before final decisions on an EU force for Macedonia are made. France and Spain, whichholds the EU presidency until June 2002, are thought to be the strongest supporters of the EU takingover the peace mission in Macedonia. The timing of such a transfer has yet to be determined. From 1993 to 1999, the United Nations maintained a small military peacekeeping presence in Macedonia under a conflict prevention mandate, the first case of a preventive deployment of U.N.forces prior to an actual conflict. The United States contributed hundreds of U.S. armed forces tothe U.N. preventive deployment force for several consecutive years. In early 1999, China vetoed afurther extension of the U.N. mandate in Macedonia, in apparent retaliation for Macedonia'srecognition of Taiwan, bringing an end to the U.N. operation in Macedonia. In March 2001, the Macedonian government appealed to the U.N. Security Council to address Macedonia's internal conflict. On March 16, the Security Council issued a state that condemned the"continuing extremist violence" and called it a "threat to the stability and security of the entireregion." Without making an explicit reference to Kosovo, the Council said that the violence was"supported from outside the country." The U.N. Special Envoy to the Balkans Carl Bildt (ofSweden) expressed extreme alarm at the situation in Macedonia and urged NATO to take action toseal Kosovo's border with Macedonia. On March 21, the Security Council passed a resolution (Resolution 1345) condemning the violence and terrorist activities in Macedonia and in southern Serbia. The resolution noted that theviolence has been supported externally by ethnic Albanian extremists, but did not name Kosovo asthe source of the violence. It also called on KFOR to further strengthen its efforts to prevent thetransfer of arms and personnel across borders and to confiscate weapons within Kosovo. The Security Council was not expected to consider authorization for the Task Force Harvest mission in Macedonia, since the Macedonian government had requested the deployment and workedout a mutually-acceptable status of forces agreement. The Security Council welcomed the signingof the peace agreement on August 13 and called for its "full and immediate implementation." Itcondemned the ongoing violence by extremists. As debate turned to the possibility of a longer-term NATO military presence in Macedonia, many countries, including some of the European NATO allies, recommended U.N. Security Councilauthorization for such a force. (26) Others, however,considered Macedonia's official request to NATOto deploy a small, follow-on force to Macedonia sufficient authorization. Moreover, few countries supported Macedonian President Trajkovski's proposal to reinstate the earlier U.N. preventivedeployment mission to take the place of NATO troops in Macedonia. In addition to requiring newSecurity Council authorization, such a U.N. force would likely need a lengthy period of time toorganize and deploy. On September 26, the same day that NATO approved plans to deployOperation Amber Fox, the Security Council passed Resolution 1371 on Macedonia. The resolutionexpressed support for the full and timely implementation of the framework agreement and endorsedthe establishment of a multi-national security presence in Macedonia. The United States has long maintained that stability in the Former Yugoslav Republic ofMacedonia is important for Balkan stability and U.S. interests. The United States recognized theFYROM in early 1994 and established full diplomatic relations following the September 1995bilateral agreement that established normalized relations between Greece and Macedonia. TheClinton Administration appointed a special envoy to help resolve the Greek-Macedonian dispute. A U.S. military contingent served in the small U.N. preventive deployment mission in Macedoniafrom 1993 until early 1999, when the U.N. mission's mandate expired. Through bilateral economic and military aid programs and support for multilateral development programs, the United States has supported Macedonia's efforts to restructure and stabilize itseconomy, strengthen democratic institutions, and integrate into European structures. During a visitto Macedonia in June 1999, President Clinton expressed thanks to the Macedonian government forits response to the Kosovo conflict and support of the NATO mission on its territory. In FY 2001,the United States provided over $180 million in Support for East European Democracy (SEED) Actfunds, and several millions more in humanitarian aid and security assistance. In FY 2002, the UnitedStates is providing approximately $50 million in bilateral SEED Act assistance and $11 million inmilitary aid. For FY 2003, the Administration has requested $50 million in SEED Act assistanceand $11 million in military aid. On March 23, 2001, President Bush issued a statement strongly condemning the violence by the Albanian extremists and supporting the actions of the Macedonian government. Bushencouraged the government to act with restraint and to work with elected Albanian representativesto address legitimate concerns of the ethnic Albanian community. The Administration agreed tosupply a unit of U.S. Predator unmanned aerial vehicles (UAVs) to Skopje to assist NATO in aerialreconnaissance, and to increase intelligence-sharing with the Macedonian government. In May,President Trajkovski met with President Bush, Secretary Powell, and Defense Secretary Rumsfeldin Washington. Among other things, President Trajkovski reportedly requested that the UnitedStates designate the NLA a terrorist organization. President Bush announced a $10 million aidcommitment over four years to support the new multilingual university in Tetovo. On May 11, theBush Administration welcomed the formation of the wider government coalition in Macedonia andurged it to accelerate progress in advancing inter-ethnic reforms. During President Bush's trip toEurope in June 2001, the President consulted on Macedonia with the NATO allies, the EuropeanUnion, and with Russian President Vladimir Putin. Bush expressed strong support for the intensifiedpolitical process underway to achieve greater minority rights in Macedonia. President Bushwelcomed the August 13 signing of the peace agreement and called on the parties to lay down theirweapons in order to implement the deal. A White House statement said that "the cease-fire must berespected, the insurgents must disarm and disband, and Macedonia's Assembly must adopt thenecessary constitutional amendments and legislation." President Trajkovski made another visit toWashington in February 2002. About half of the border between Kosovo and Macedonia lies in the U.S.-led sector of KFOR. Currently about 5,500 U.S. forces (about 14% of the total) serve in KFOR. In addition, the UnitedStates maintains Camp Able Sentry, a logistics unit in Macedonia (with about 500 U.S. armedforces) supporting U.S. forces in KFOR. During the 2001 conflict, the United States augmentedsecurity at the U.S. embassy in Skopje. In June, the Administration reportedly told its allies in NATOthat it did not want to contribute U.S. armed forces to a proposed NATO disarmament mission inMacedonia, although it would not object to the creation of such a mission by other countries. (27) OnJune 27, President Bush said that he would not rule out the possibility that U.S. armed forces mightbe sent to Macedonia, and that no option was "off the table." Administration officials said that theUnited States would participate in the force in ways involving logistics, command and control,communications, and intelligence, largely utilizing U.S. military assets already on the ground in theBalkans. (28) In August, the Pentagon specified thatU.S. military personnel and facilities in Kosovoand Macedonia would provide medical, intelligence, and logistical support to the Essential Harvestmission, in addition to their duties as part of KFOR. (29) No U.S. troops took part in the weaponscollection process, nor were additional U.S. armed forces sent to the region to assist the EssentialHarvest operation or reinforce the existing U.S. presence in the Balkans. In 2001, President Bush designated several ethnic Albanian groups and their leaders "extremist" for their violent actions that threatened peace and stability in the former Yugoslavia. TheAdministration approved measures to isolate and sanction extremist forces in the Balkans, includingmembers of the NLA. These included blocking the assets and property of the named extremistgroups and individuals, prohibiting U.S. payments to these groups and individuals, and barring theirentry into the United States. (30) Following the September 11 terrorist attacks on the United States, former U.S. Balkans envoy James Pardew said that the United States would remain firmly committed to and focused on thepeace process in Macedonia. (31) He said thatneither changes in U.S. policy toward Macedonia nordelays in the timetable for the peace process should result from the terrorist assault on the UnitedStates. Some analysts assert that the United States has a greater stake in stabilizing Macedonia,given that a prolonged conflict could attract foreign Islamic extremists to the region. (32) At the sametime, U.S. and other NATO representatives have generally dismissed Macedonian claims of linksbetween the ethnic Albanian rebels and Osama bin Laden or other Islamic extremist groups. InMarch 2002, Macedonian police killed seven reportedly Afghan and Middle Eastern men who theyclaimed were planning to attack the U.S. and other western embassies in Skopje. Also in March, aMacedonian official claimed that Skopje had transferred four terrorism suspects to U.S. custody. However, the government retracted the statement after the United States denied the claim of anyhandover. In Congress, the Senate Foreign Relations Committee held a hearing on Macedonia on June 13, 2001. Ambassador James Pardew, Senior Advisor at the State Department, outlined theAdministration's strategy with regard to Macedonia. He said that the United States supportedPresident Trajkovski's strategy for peace and the inter-ethnic dialogue on political reforms. TheUnited States would also continue U.S. bilateral assistance to Macedonia to promote inter-ethnicrelations and to enhance the capabilities of the Macedonian security forces. Committee ChairmanSen. Biden expressed concern about the United States not taking on a leadership role in theMacedonian conflict. He cited the inability of past European efforts to resolve earlier conflicts inthe Balkans. At a March 2002 hearing before the House International Relations Subcommittee on Europe, Assistant Secretary of State Elizabeth Jones said that the United States remained committed to an"in together, out together" policy with the European allies. In the long term, she said that the U.S.strategy for the Balkans was to deal with the region "normally," through trade and investment andwithout troops on the ground. (33) | Sharing borders with Kosovo and Serbia, the Former Yugoslav Republic of Macedonia (FYROM) managed to avoid becoming directly involved in the drawn-out wars in Bosnia andKosovo in the 1990s. Inter-ethnic relations between the Slav majority and ethnic Albanian minorityin Macedonia, while often tense, never reached the crisis state of Albanian-Serb relations in theprovince of Kosovo. Since Macedonia's independence in 1991, ethnic Albanian political parties inMacedonia have been represented in government and in parliament. However, in early 2001, ethnic Albanian rebels calling themselves the National Liberation Army (NLA) stepped up attacks on Macedonian security forces first in several villages near the cityof Tetovo and by the western border with Kosovo, and later near the capital, Skopje. The NLA wasthought to have ties to the Kosovo Liberation Army (KLA) and rebel Albanian forces operating insouthern Serbia. In March, the Macedonian government began a counter-insurgency campaign. Itopened talks on political reforms with elected ethnic Albanian representatives, but refused tonegotiate with the rebels themselves. Clashes between the rebels and government forces continuedthrough the summer of 2001, notwithstanding intermittent cease-fire agreements and ongoingpolitical talks. With U.S. and European diplomatic intervention, the parties signed a frameworkagreement on August 13, amidst the deadliest violence of the conflict. Implementation of theagreement has progressed slowly and with difficulty. Substantial recent progress enabled the holdingof a long-delayed international donors' conference on March 12, 2002. In spite of recentachievements, some observers continue to fear the prospect of a new uprising by ethnic Albanianextremists or armed provocations by forces supporting Macedonian hardliners. In June 2001, NATO formulated and approved plans to launch a limited operation in Macedonia to oversee the disarmament of the ethnic Albanian rebel forces. On August 22, NATO gave finalapproval for the deployment of Operation Essential Harvest comprising about 4,500 troops in total. The operation completed collection of a targeted amount of rebel weapons (nearly 4,000) onSeptember 26, 2001. NATO then deployed a smaller follow-on force (Task Force Fox) to providesecurity for international civilian monitors. NATO's peacekeeping force in Kosovo (KFOR) has alsobeen involved in patrolling and reinforcing the Kosovo border in order to try to cut off Albanianrebel supply routes. The United States maintains some KFOR support forces in Macedonia, but didnot contribute forces to either the Task Force Harvest or Task Force Fox missions in Macedonia. In early 2002, the European Union agreed to consider taking over the military mission in Macedoniafrom NATO. |
The Fair Housing Act (FHA) was enacted "to provide, within constitutional limitations, for fair housing throughout the United States." The original 1968 act prohibited discrimination on the basis of "race, color, religion, or national origin" in the sale or rental of housing, the financing of housing, or the provision of brokerage services. In 1974, the act was amended to add sex discrimination to the list of prohibited activities. The last major change to the act occurred in 1988 when it was amended to prohibit discrimination on the additional grounds of physical and mental handicap, as well as familial status. However, legislation that would amend the FHA is routinely introduced in Congress, including proposals to extend the act's anti-discrimination provisions to prohibit discrimination based on sexual orientation, gender identity, marital status, source of income, and status as a military servicemember or veteran; and to make clear that the act does not support disparate impact discrimination claims. This report provides an overview of the types of discriminatory practices barred by the FHA, as well as certain activities that are exempted from the act's coverage. It also analyzes various legal tests applied by courts to assess both intentional (a.k.a., disparate treatment) discrimination and disparate impact discrimination claims brought under the act. Additionally, the report addresses several specific types of discrimination that have been the source of fair housing litigation, including how the act's proscription on discriminating against families with children interplays with housing communities for older persons; how the prohibition against discriminating on the basis of sex can provide protections to lesbian, gay, bisexual, and transgender (LGBT) individuals who are not expressly protected under the act; and the intersection of local zoning laws, group homes, and the FHA's protections against discrimination on the basis of mental and physical disabilities. The report concludes with an overview of how the act can be enforced, as well as the potential remedies available to victims of unlawful discrimination and potential penalties that can be assessed against violators. The FHA prohibits discrimination on the basis of race, color, religion, sex, handicap, familial status, or national origin in the sale or rental of housing, the financing of housing, the provision of brokerage services, or in residential real estate-related transactions. In general, the FHA applies to a broad assortment of housing, both public and private, including single family homes, apartments, condominiums, mobile homes, and others. The act's coverage extends to "residential real estate-related transactions," which include both the "making [and] purchasing of loans ... secured by residential real estate [and] the selling, brokering, or appraising of residential real property." Thus, the provisions of the FHA extend to the secondary mortgage market. HUD regulations elaborate upon the types of housing practices in which discrimination is prohibited and provide illustrations of such practices. Under the regulations, the housing practices in which discrimination is prohibited include the sale or rental of a dwelling; the provision of services or facilities in connection with the sale or rental of a dwelling; other conduct which makes dwellings unavailable to persons; steering; advertising or publishing notices with regard to the selling or renting of a dwelling; misrepresentations as to the availability of a dwelling; blockbusting; and the denial of "access to membership or participation in any multiple-listing service, real estate brokers association, or other service ... relating to the business of selling or renting dwellings." Yet another provision makes it unlawful to "coerce intimidate, threaten, or interfere with" individuals for exercising, or aiding others in the exercise of their rights under the FHA. Finally, as noted above, the FHA applies to public as well as private housing. As a result, a number of lawsuits over the years have challenged the fair housing practices of state and local housing authorities and even HUD itself, particularly with respect to discrimination in low-income public housing. For example, in one 2005 case, African American residents of public housing in Baltimore sued HUD and various local agencies on race discrimination grounds. The court ultimately held that HUD had violated the FHA "by failing adequately to consider regional approaches to ameliorate racial segregation in public housing in the Baltimore Region." Although the FHA is broadly applicable, it includes some exemptions. For one, the FHA does not apply to single family homes that are rented or sold without the use of a real estate agent by a private owner who owns no more than three single family homes at the same time, provided that certain other conditions are met. In addition, neither a religious group nor a nonprofit entity run by a religious group is prevented by the act "from limiting the sale, rental, or occupancy of dwellings that it owns or operates for other than a commercial purpose to persons of the same religion, or from giving preferences to such persons, unless membership in such religion is restricted on account of race, color, or national origin." The act also does not prevent a private club "from limiting the rental or occupancy of [] lodgings to its members or from giving preference to its members" if those lodgings are not being run for a commercial purpose. "Housing for older persons," as the term is defined by the act, is exempted from the FHA's proscription of discrimination on the basis of familial status. In other words, "housing for older persons" may exclude families with children. The FHA does not "limit[] the applicability of any reasonable local, State, or Federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling." In 1995, the Supreme Court considered the issue of zoning restrictions in the context of group homes for the handicapped. In City of Edmonds v. Oxford House, Inc. , a group home for 10 to 12 adults recovering from alcoholism and drug addiction was cited for violating a city ordinance because it was located in a neighborhood zoned for single-family residences. The ordinance that Oxford House, Inc. was charged with violating defined "family" as "persons [without regard to number] related by genetics, adoption, or marriage, or a group of five or fewer [unrelated] persons." The Supreme Court held that the city's zoning ordinance did not qualify for this exemption because the ordinance's definition of family was not a restriction regarding "'the maximum number of occupants' a dwelling may house." According to the Court, the FHA: does not exempt prescriptions of the family-defining kind, i.e., provisions designed to foster the family character of a neighborhood. Instead, §3607(b)(1)'s absolute exemption removes from the FHA's scope only total occupancy limits, i.e., numerical ceilings that serve to prevent overcrowding in living quarters. Because the ordinance in question set a numerical ceiling for unrelated occupants but not related occupants, the Court concluded that it was designed to preserve the "family character of [] neighborhood[s]," not to place overall occupancy limits on residences. As a result, the Court held that the ordinance was not exempt from the FHA's prohibition against disability discrimination. The Court did not decide whether or not this ordinance actually violated the FHA. Additionally, in response to concerns that occupancy limits could conflict with the prohibition against familial status discrimination, Congress enacted Section 589 of the Quality Housing and Work Responsibility Act of 1998. This legislation required HUD to adopt the standards specified in the March 20, 1991, Memorandum from the General Counsel , which states that housing owners and managers have discretion to "implement reasonable occupancy requirements based on factors such as the number and size of sleeping areas or bedrooms and the overall size of the housing unit." HUD concluded that "an occupancy policy of two persons in a bedroom, as a general rule, is reasonable" under the FHA. In July 2015, HUD issued final regulations designed to implement an FHA mandate that executive agencies administering HUD programs, as well as HUD-grantees and other recipients of HUD funding, further the FHA's goals of reducing segregation and housing barriers. The rule was issued in response to recommendations expressed in a Government Accountability Office (GAO) report on HUD's oversight of grantees' compliance with these mandates. Among other things, HUD's Affirmatively Furthering Fair Housing rule requires covered entities to "identify and evaluate fair housing issues" in a standardized fashion through an "Assessment of Fair Housing" (AFH) plan; incorporate housing data accumulated and publicly disseminated by HUD, when establishing housing-related goals, plans, and decisions; and allow members of the public "to provide input about fair housing issues, goals, priorities, and the most appropriate use of HUD funds ...." The rule went into effect on August 17, 2015; however, participants will have at least one year to submit their first AFH plan, with smaller participants being given more time. FHA discrimination claims fall into two broad categories: intentional, also referred to as disparate treatment discrimination, and disparate impact discrimination. Courts apply different legal tests to assess the validity of intentional versus disparate impact discrimination claims. Disparate treatment claims allege that a defendant made a covered housing decision based on "a discriminatory intent or motive." Disparate impact claims, on the other hand, involve allegations that a covered practice has "a disproportionately adverse effect on [a protected class] and [is] otherwise unjustified by a legitimate rationale." These two categories of discrimination are explored in turn. Intentional discrimination claims under the FHA can be supported either through (1) direct evidence of discrimination or (2) indirect/circumstantial evidence. Courts apply different legal tests to assess claims involving direct and indirect evidence. Additionally, courts apply a different legal framework to assess a subset of disparate treatment claims in which statutes or local ordinances that discriminate on their face against a protected class are challenged. "Direct evidence is evidence showing a specific link between the alleged discriminatory animus and the challenged decision sufficient to support a finding ... that an illegitimate criterion actually motivated the adverse ... decision." When a plaintiff provides sufficient direct evidence to support an intentional discrimination claim, the defendant generally has the burden of proving, by a preponderance of the evidence, that it would have denied or revoked the housing benefit regardless of the impermissible motivating factor in order to avoid liability under the FHA. FHA disparate treatment claims based on circumstantial evidence from which discrimination may be inferred generally are evaluated under the so-called McDonnell Douglas burden-shifting scheme. Under McDonnell Douglas , the initial burden rests with the plaintiff to establish a prima facie case of intentional discrimination by a preponderance of the evidence. A plaintiff can establish a prima facie case by evidencing that (a) she is a member of a protected class; (b) she qualified for a covered housing-related service or activity (e.g., housing rental or purchase); (c) the defendant denied an application for or revoked use of the plaintiff's housing benefit; and (d) the relevant housing-related service or activity remained available after it was revoked from or denied to the plaintiff. If a plaintiff is able to establish a prima facie case, then the burden shifts to the defendant to provide evidence that the revocation or denial of the housing benefit furthered a legitimate, nondiscriminatory purpose. The Supreme Court has explained that "[t]he explanation provided must be legally sufficient to justify a judgment for the defendant." The justification requires actual evidence and must be more than "an answer to the complaint or [an] argument by counsel." If the defendant is able to meet this burden, then the plaintiff can still prevail on her disparate treatment claim if she is able to show, by a preponderance of the evidence, that the stated purpose for the denial or revocation was really just a pretext for discrimination. Laws that explicitly differentiate between a protected class and unprotected groups are generally "characterized as claims of intentional discrimination." (These types of claims frequently come up in the context of local zoning laws that impact group homes, which are discussed in the " Group Homes and Zoning Restrictions " of this report.) As the Supreme Court has explained in the Title VII employment context, "the absence of a malevolent motive does not convert a facially discriminatory policy into a neutral policy with a discriminatory effect." Plaintiffs, therefore, establish a prima facie case of intentional discrimination by simply proving that the law in question treats an FHA-protected class differently. Upon meeting this burden, the U.S. courts of appeals are split as to which of two disparate treatment tests defendants must meet. A minority of courts, including the Eighth Circuit, applies a rational basis test, which merely requires the defendant town or city to show there is a legitimate, nondiscriminatory purpose for classification (or denial from a variance) on the basis of a FHA protected class. This is a relatively low burden to meet. The majority rule, which is followed by the Sixth, Ninth, and Tenth Circuits, on the other hand, requires the defendant to meet a more exacting test—to show that the justification for the facial discrimination is (1) beneficial to the members of the protected class; or (2) reasonably related to a matter of public safety that is "tailored to the particularized concerns [of the] individual residents" that are targeted by the law in question. In June 2015, the Supreme Court, in the 5-4 decision in Texas Department of Housing Community Affairs v. Inclusive Communities Project , confirmed the long-held interpretation that, in addition to outlawing intentional discrimination, the FHA also prohibits certain housing-related decisions that have a discriminatory effect on a protected class. Historically, courts have generally recognized two types of disparate impacts resulting from "facially neutral decision[s]" that can result in liability under the FHA. The first occurs when that decision has a greater adverse impact on one [protected] group than on another. The second is the effect which the decision has on the community involved; if it perpetuates segregation and thereby prevents interracial association it will be considered invidious under the Fair Housing Act independently of the extent to which it produces a disparate effect on different racial groups. The Supreme Court's holding in Inclusive Communities that "disparate-impact claims are cognizable under the [FHA]" mirrors previous interpretations of the Department of Housing and Urban Development (HUD) and all 11 federal courts of appeals that had ruled on the issue. However, HUD and the 11 courts of appeals had not all applied the same criteria for determining when a neutral policy that causes a disparate impact violates the FHA. In a stated attempt to harmonize disparate impact analysis across the country, HUD finalized regulations in 2013 that established uniform standards for determining when such practices violate the act. The Inclusive Communities Court did not expressly adopt the standards established in HUD's disparate impact regulations. Rather, the Court adopted a three-step burden-shifting test that shares some similarities with these standards. At step one, the plaintiff has the burden of establishing evidence that a housing decision or policy caused a disparate impact on a protected class. At step two, defendants can counter the plaintiff's prima facie showing by establishing that the challenged policy or decision is "necessary to achieve a valid interest." The defendant will not be liable for the disparate impact resulting from a "valid interest" unless, at step three, the plaintiff proves "that there is an available alternative practice that has less disparate impact and serves the entity's legitimate needs." In addition, the Court outlined a number of limiting factors that lower courts and HUD should apply when assessing disparate impact claims. The Court made clear that, before a plaintiff can establish a prima facie case of discriminatory effect based on a statistical disparity, courts should apply a "robust causality requirement" that requires the plaintiff to prove that a policy or decision led to the disparity. The Court stressed that a careful examination of the plaintiff's causality evidence should be made at preliminary stages of litigation to avoid "the inject[ion of] racial considerations into every housing decision"; the erection of "numerical quotas" and similar constitutionally dubious outcomes; the imposition of liability on defendants for disparities that they did not cause; and unnecessarily protracted litigation that might dissuade the development of housing for the poor, which would "undermine [the FHA's] purpose as well as the free-market system." It likely will take years to gain a strong understanding of how the Inclusive Communities decision will affect future disparate impact litigation under the FHA (and other laws such as Title VII of the Civil Rights Act of 1964). While plaintiffs historically have faced fairly steep odds of getting their disparate impact claims past the preliminary stages of litigation, much less succeeding on the merits of those claims, it is possible that the "cautionary standards" stressed by the Inclusive Communities majority might result in even fewer successful disparate impact claims and swifter disposal of claims that are raised. This section addresses several different types of discrimination that have been the source of a significant number of legal disputes or otherwise raise unique legal issues under the FHA. While the FHA prohibits discrimination based on sex, the act does not explicitly prohibit discrimination on the basis of sexual orientation or gender identity. Bills that would extend the FHA's anti-discrimination provisions to prohibit discrimination based on sexual orientation or gender identity, however, have been frequently introduced in Congress in recent years. Nevertheless, certain forms of discrimination against members of the LGBT community can violate the FHA. For instance, a landlord who harasses or otherwise discriminates against an LGBT individual because of his or her failure to conform to stereotypes regarding gender roles could, under certain circumstances, be held liable under the FHA for discriminating on the basis of sex. Additionally, HUD has recommended that Congress amend the FHA to provide protections based on sexual orientation; issued guidance explaining that most discrimination suffered by transgender individuals will violate the FHA's prohibition on sex discrimination; and taken steps to ensure that its programs are open to all families regardless of sexual orientation by requiring that grant applicants seeking HUD funding comply with local and state anti-discrimination laws. In 2012, HUD issued new regulations that prohibit discrimination on the basis of sexual orientation, gender identity, or marital status in specified HUD programs. Notably, the regulations were issued pursuant to HUD's authority under Section 2 of the Housing Act of 1949 — not the FHA . Section 2 charges HUD to pursue "the goal of a decent home and a suitable living environment for every American family" and to seek equal housing opportunity for all. The scope of the 2012 regulations is limited to specified HUD programs, and does not extend to cover the wide array of entities that are prohibited from engaging in housing discrimination under the FHA. In addition to prohibiting discrimination on the grounds discussed above, the FHA also prohibits discrimination in housing on the basis of handicap. The act defines "handicap" as "(1) a physical or mental impairment which substantially limits one or more of such person's major life activities, (2) a record of having such an impairment, or (3) being regarded as having such an impairment." The definition of handicap expressly precludes the current, illegal use of or addiction to a controlled substance. However, because this exclusion does not apply to former drug users, the definition of handicap could encompass individuals who have had drug or alcohol problems that are severe enough to substantially impair a major life activity, but who are not current illegal users or addicts. As a result, recovering alcoholics and drug addicts can fall within the definition of "handicap." Discrimination on the basis of handicap under the FHA includes not allowing handicapped individuals to make reasonable changes to a housing unit that will "afford [them] the full enjoyment of the premises." However, a landlord can premise the changes on the handicapped individual's promise to return the unit to its original state. A landlord may not increase a required security deposit to cover these changes, but can require handicapped persons to, in certain circumstances, make payments into an escrow account to cover restoration costs. Discrimination against a handicapped person also includes "refus[ing] to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy the dwelling." In addition, all "covered multifamily dwellings" built after March 13, 1991, must meet certain design and construction specifications that ensure they are readily accessible to and usable by handicapped persons. The FHA's protection for handicapped persons does not require "that a dwelling be made available to an individual whose tenancy would constitute a direct threat to the health or safety of other individuals or whose tenancy would result in substantial physical damage to the property of others." It also is unlawful to ask about the handicaps of an applicant for housing, or someone with whom the applicant is associated. However, the regulations do allow raising certain questions that may have some bearing on one's handicap, as long as they are posed to all applicants. For example, all applicants could be asked whether they would be able to mow the lawn, if required in a rental agreement. Several other federal laws also protect individuals with disabilities from various forms of housing discrimination. The Americans with Disabilities Act (ADA), which broadly prohibits discrimination against individuals with disabilities, generally does not apply to housing. However, it does cover "public accommodations," which includes "an inn, hotel, motel, or other place of lodging except for an establishment located within a building that contains not more than five rooms for rent or hire and that is actually occupied by the proprietor of such establishment as the residence of such proprietor." The ADA also covers "commercial facilities," which it defines as "facilities intended for nonresidential use ... whose operations affect commerce." The term excludes, however, "facilities that are covered or expressly exempted from coverage under the Fair Housing Act." In other words, the ADA leaves to the FHA the determination as to which statute applies to any particular facility. Under Section 504 of the Rehabilitation Act of 1973, discrimination against individuals with disabilities is prohibited in any federally funded or federally conducted program or activity. Finally, under the Architectural Barriers Act of 1968, certain publicly owned residential buildings and facilities, must be accessible to individuals with physical disabilities. The FHA's prohibition against discrimination on the basis of handicap extends to protect group homes for the disabled from discrimination by certain types of state or local zoning laws. While the FHA does not "limit[] the applicability of any reasonable local, State, or Federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling," it does generally prohibit "[l]ocal zoning and land use laws that treat groups of unrelated persons with disabilities less favorably than similar groups of unrelated persons without disabilities." Nevertheless, some municipalities have attempted to restrict the location of group homes for disabled individuals by enacting zoning ordinances that establish occupancy limits for group homes. Typically justified as a way to maintain the residential character of certain neighborhoods, such occupancy limits frequently operate to restrict group homes for recovering drug users or other disabled individuals. It is also possible that a city could violate the FHA's reasonable accommodation requirement for refusing to authorize a variance from such an occupancy ordinance under certain circumstances. As a result, these limits are the subject of controversy and legal challenges under the FHA, and the Department of Justice and HUD have issued joint guidance on the issue. Determining whether zoning ordinances violate the FHA requires a case-by-case assessment, based on the ordinance language and the specific facts surrounding the alleged violation and/or the city's denial of a variance from the ordinance. This makes predicting how a court will rule on a particular ordinance difficult. This is especially true in light of the fact that, as mentioned in the " Disparate Treatment Discrimination " section above, the lower courts do not apply a single, uniform test. If a plaintiff is able to establish a prima facie case by showing that a state or local law is facially discriminatory, then a minority of courts, notably the Eighth Circuit, merely requires that the defendant's show that the ordinance is rationally related to a legitimate, nondiscriminatory purpose. Most courts, such as the Sixth, Ninth, and Tenth circuit courts of appeal require defendants to meet a more exacting standard—to show that the justification for the facial discrimination is (1) beneficial to the disabled; or (2) reasonably related to a matter of public safety that is "tailored to the particularized concerns [of the] individual residents" that are targeted by the law in question. The group home joint guidance states that "[t]he Department of Justice and HUD take the position, and most courts that have addressed the issue agree that density restrictions are generally inconsistent with the Fair Housing Act." For example, the Sixth Circuit Court of Appeals, in Larkin v. Department of Social Services , addressed a state licensing requirement that group homes for the handicapped may not be spaced within a 1,500 foot radius of other such group homes and must notify the communities in which the group homes are to be located. The court ruled that these spacing and notification requirements discriminated on their face by "singl[ing] out for regulation group homes for the handicapped...." Once the court ruled that these non-uniform conditions were facially discriminatory, the court applied the more demanding test employed by the majority of courts that required the defendant to "demonstrate that they are warranted by the unique and specific needs and abilities of those handicapped persons to whom the regulations apply." The Sixth Circuit held that the state had failed to meet this burden because the ordinance "is too broad, and is not tailored to the specific needs of the handicapped." The group home joint guidance also addresses claims that localities failed to make "reasonable accommodations" for group homes. It explains: Whether a particular accommodation is reasonable depends on the facts, and must be decided on a case-by-case basis. The determination of what is reasonable depends on the answers to two questions: First, does the request impose an undue burden or expense on the local government? Second, does the proposed use create a fundamental alteration in the zoning scheme? If the answer to either question is "yes," the requested accommodation is unreasonable. One example of a necessary reasonable accommodation might be allowing a deaf tenant to have a hearing dog in an apartment complex that normally prohibits pets. Another example might be the provision of a variance from an ordinance that bars five or more unrelated people from living in a single family home, for a group home of five handicapped individuals, where it is shown that such a home would "have no more impact on parking, traffic, noise, utility use, and other typical concerns of zoning than an 'ordinary family.'" In contrast, it likely would not be unreasonable to deny a variance from this ordinance for a group home of 35 handicapped individuals. The Fair Housing Amendments Act of 1988 added "familial status," which generally means living with children under 18, to the grounds upon which discrimination in housing is prohibited. One exception to the 1988 law barring familial status discrimination, however, is that "housing for older persons" may discriminate against families with children. The committee report that accompanied the 1988 amendments explains the purpose of this exemption: In many parts of the country families with children are refused housing despite their ability to pay for it. Although 16 states have recognized this problem and have proscribed this type of discrimination to a certain extent, many of these state laws are not effective.... The bill specifically exempts housing for older persons. The Committee recognizes that some older Americans have chosen to live together with fellow senior citizen[s] in retirement type communities. The Committee appreciates the interest and expectation these individuals have in living in environments tailored to their specific needs. "Housing for older persons" is defined as housing that is (1) provided under any state or federal housing program for the elderly; (2) "intended for and solely occupied by persons 62 years of age or older"; or (3) "intended and operated for occupancy by persons 55 years of age or older" and that meets several other requirements such as having at least 80% of units occupied by a minimum of one individual 55 or older. An individual who believes in good faith that his or her housing facility qualifies for the familial status exemption will not be held liable for money damages, even if the facility does not in fact qualify as housing for older persons. The Secretary of HUD, the Attorney General, and victims of discrimination may each take action to enforce the FHA's protections against discrimination. HUD has primary administrative enforcement authority of the act, which it typically fulfills through administrative adjudications. However, the Department of Justice may also bring actions in federal court under certain circumstances. Within one year of the occurrence or end of an alleged discriminatory housing action, a harmed party may file a complaint with the Secretary, or the Secretary may file a complaint on his own initiative. When a complaint is filed, the Secretary must, within 10 days, serve the respondent—the party charged with committing a discriminatory practice—with notice of the complaint. The respondent must then answer the complaint within 10 days. From the filing of the complaint, the Secretary has 100 days, subject to extension, to complete an investigation of the alleged discriminatory actions. During this time, the Secretary must, "to the extent feasible, engage in conciliation with respect to" the complaint and, as warranted, the Secretary may enter into a conciliation agreement, which can include binding arbitration and the harmed party being awarded monetary damages or other relief. At the completion of the investigation, the Secretary must determine whether "reasonable cause exists to believe that a discriminatory housing practice has occurred or is about to occur." If he finds no reasonable cause, then he must dismiss the complaint. If he finds reasonable cause, then he must file a charge on behalf of the harmed party in the absence of a conciliation agreement. If a charge is filed, then the Secretary or any party to the dispute may elect to have the case heard in a federal district court. Otherwise, the case shall be heard by an administrative law judge (ALJ). In such a hearing, parties may appear with legal representation, have subpoenas issued, cross examine witnesses, and submit evidence. The ALJ must initiate a hearing within 120 days of a charge being issued, unless adhering to that time frame is impracticable. He also must "make findings of fact and conclusions of law within 60 days after the end of the hearing ... unless it is impracticable to do so." "If the [ALJ] finds that a respondent has engaged or is about to engage in a discriminatory housing practice," the ALJ is to order the harmed party relief, which can include monetary damages, civil penalties, and injunctive or other equitable relief. The ALJ may also impose a civil penalty of up to $10,000 for a first offense or more if it is not a first offense. The ALJ's orders, findings of fact, and conclusions of law may be reviewed by the Secretary. Parties also are authorized to appeal administrative orders to the federal courts. The Secretary may seek enforcement of an administrative order in a federal court of appeals. Such court may "affirm, modify, or set aside, in whole or in part, the order, or remand" it to the ALJ for additional proceedings. The court also may grant any party "such temporary relief, restraining order, or other order as the court deems just and proper." Reasonable attorney's fees also may be awarded to a prevailing party, except where the United States is the prevailing party. The Attorney General (AG) may bring a civil action in federal district court if (1) the AG has reasonable cause to think that an individual or a group is "engaged in a pattern or practice" of denying one's rights under the FHA and "such denial raises an issue of general public importance"; or (2) the Secretary refers to him a case involving a violation of a conciliation agreement or of housing discrimination. In such a civil action, the court may issue preventive relief, such as an injunction or a restraining order; provide monetary damages; issue civil penalties; or provide some other appropriate relief. In some instances, prevailing parties may be able to recover reasonable legal costs and fees. Individuals who use force or the threat of force to "willfully injur[e], intimdiate[] or interfere[] with ..." a person's ability to own, rent, sell, or otherwise engage in housing-related activities because that person's race, color, national origin, handicap, sex, religion, or familial status also could be subject to criminal penalties. An "aggrieved person" may initiate a civil action, in either a federal district or a state court, within two years of "the occurrence or the termination of an alleged discriminatory housing practice, or the breach of a conciliation agreement." If the Secretary has filed a complaint, an aggrieved person may still bring a private suit, unless a conciliation agreement has been reached or an administrative hearing has begun. The AG may intervene in a private suit if he determines that the suit is of "general public importance." If the court determines that discrimination has occurred or is going to occur, it may award punitive damages, actual damages, equitable relief (e.g., restraining order, injunction), or other appropriate relief. In some instances, prevailing parties may be able to recover reasonable legal costs and fees. | The Fair Housing Act (FHA) was enacted "to provide, within constitutional limitations, for fair housing throughout the United States." The original 1968 act prohibited discrimination on the basis of "race, color, religion, or national origin" in the sale or rental of housing, the financing of housing, or the provision of brokerage services. In 1974, the act was amended to add sex discrimination to the list of prohibited activities. The last major change to the act occurred in 1988 when it was amended to prohibit discrimination on the additional grounds of physical and mental handicap, as well as familial status. However, legislation that would amend the FHA is routinely introduced in Congress, including S. 1858/H.R. 3185, H.R. 501, and H.R. 3145 in the 114th Congress. Key Takeaways The FHA prohibits discrimination on the basis of "race, color, religion, sex, handicap, familial status, or national origin...." In general, the FHA applies broadly to all sorts of housing, public and private, including single family homes, apartments, condominiums, mobile homes, and others. The act's coverage also extends to the secondary mortgage market. However, the act includes some exemptions. For example, the FHA does not "limit[] the applicability of any reasonable local, State, or Federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling." While the FHA prohibits discrimination based on sex, the FHA does not prohibit discrimination on the basis of sexual orientation or gender identity. However, certain forms of discrimination against members of the LGBT (lesbian, gay, bisexual, transgender) community can violate the FHA. In June 2015, the Supreme Court held in Texas Department of Housing and Community Affairs v. Inclusive Communities Project that, in addition to intentional discrimination, disparate impact claims are cognizable under the FHA—a view previously espoused by HUD and the 11 U.S. Courts of Appeals to render opinions on the issue. Although plaintiffs historically have faced fairly steep odds of getting their disparate impact claims past the preliminary stages of litigation, much less succeeding on the merits, the "cautionary standards" stressed by the Inclusive Communities Court might result in even fewer successful disparate impact claims being raised in the courts and swifter disposal of claims that are raised. In July 2015, HUD issued final regulations designed to implement an FHA mandate that executive agencies administering HUD programs, as well as HUD-grantees and other recipients of HUD funding, affirmatively further the FHA's goals of reducing segregation and housing barriers. The FHA may be enforced in varying ways by the Attorney General, by the Department of Housing and Urban Development (HUD), and by victims of discrimination. Potential remedies available under the act include actual damages, punitive damages, equitable relief, and reasonable legal costs. Violators also may be assessed civil penalties. |
According to USDA, FY2012 agricultural exports are forecast to reach $131 billion, slightly below the fiscal 2011 record level of $137 billion. U.S. agricultural imports are forecast to reach $106.5 billion in FY2012, a record high and a $12 billion increase over FY2011 agricultural imports. The expected $24.5 billion U.S. agricultural trade surplus for FY2012 is below FY2011's all-time high of $42.9 billion. In 2011/2012, a forecast 48.8% of the U.S. wheat crop will be exported, while 13.8% of the U.S. corn crop will move into world markets. The export share of soybeans is forecast to be 41.7% in 2011/2012. Oilseed exports are down slightly due to early-season shipments from South America. Cotton's export share in 2011/2012 is forecast to be 70.2%. Cotton is the United States' most export-dependent field crop. U.S. livestock products are much less export-dependent than crops. Beef exports, which grew from around 4% of production in 1990 to almost 10% by 2003, have slowly recovered from export bans on U.S. beef following the 2003 discovery of a BSE-infected cow in the United States. The beef export share of production in 2012 is forecast to be 11%. Pork exports as a share of production have grown substantially, from 1.6% in 1990 to a forecast 22.1% in 2012. Poultry's export share of production has almost tripled since 1990, from 6.2% to a forecast 18.3% in 2012. The United States exports a wide range of agricultural products, including horticultural products, field crops, livestock products, and poultry. Horticultural product exports (fruits, vegetables, tree nuts, and their preparations)—forecast at $28 billion for FY2012—comprise the largest commodity category of U.S. agricultural exports in FY2012. Oilseeds (mainly soybeans) and oilseed products (mainly meal and oil)—with a forecast value of $25 billion in FY2012—are the second-largest commodity component of U.S. agricultural exports. Livestock and poultry products together would amount to more than $24 billion in FY2012. Field crop exports (including feed grains, wheat, cotton, and tobacco) are forecast to account for more than $35 billion of U.S. agricultural exports in FY2012. Bulk agricultural export s include products like wheat, coarse grains, cotton, and soybeans. Intermediate product s have been processed to some extent and include products like wheat flour, soybean oil, and feeds. Consumer-ready products include both processed products such as breakfast cereals and products such as fresh fruits and vegetables, meat and dairy products, and wine and beer. Until 1990, bulk agricultural exports were the mainstay of U.S. farm export trade. The total of high-value (intermediate plus consumer-ready) products has exceeded the value of bulk agricultural exports in every fiscal year since FY1991. In FY2011, high-value exports accounted for 56.3% of total U.S. agricultural exports and bulk exports for 43.6%. Canada , with Mexico a U.S. partner in the North American Free Trade Agreement (NAFTA), is the largest market for U.S. agricultural exports, with exports valued at $19 billion. Mexico is the second-largest market, with exports valued at $17.5 billion. Total U.S. agricultural exports to its NAFTA partners are forecast at $36.5 billion for FY2012. Chi na is third-largest market for U.S. agricultural exports in FY2012, with exports valued at $17 billion. Japan ($13.5 billion forecast for FY2012), which was the number-one U.S. destination for agricultural products for many years, is forecast to be the fourth-largest export destination. It is followed by the EU-27 , the fifth-largest U.S. farm export market, with forecast agricultural exports of $10 billion. Other Asian markets— South Korea , Taiwan , Hong Kong —also are major markets for U.S. agricultural exports, with forecast values in FY2012 of $6.9 billion, $3.5 billion, and $3.3 billion, respectively. Wheat: The United States is the major supplier of wheat and wheat products to the world market, with a forecast export market share of 18.6% in marketing year 2011/2012. Australia (15.1%), the Russian Federation (14.0%) and Canada (12.9%) are major competitors in this market (see Figure 7 and Table 7 ). Rice: Thailand (22% export market share forecast for 2011/2012) is the world's major rice exporter, but Vietnam (21%) has emerged as a major competitor. India (14.1%) and Pakistan (11.8%) are forecast to have the third- and fourth-largest export market shares in 2011/2012. The United States would be the world's fifth-largest rice exporter with a forecast share in 2011/2012 of 9.6% (see Figure 8 and Table 8 ). Corn: The United States has the world's largest export market share for corn, with a 2011/2012 forecast share of 44.4% (see Figure 9 and Table 9 ). Since the mid-1990s, Brazil has increased its share of world corn exports, while China, an exporter of corn during most of the last 16 years, has lost export market share. Soybeans: Brazil is forecast to be the world's main supplier of soybeans to the world market in 2011/2012, with a share of 40.7%. Brazil's export market share has grown compared to its 10.9% share in 1995/1996. The United States is forecast to have the second-largest export market share at 37.4%, down from 73% in 1995/1996 (see Figure 10 and Table 10 ). Cotton: U.S. cotton exports are estimated to be 30.1% of the world total in 2011/2012. U.S. competitors include India (16.4%), Australia (11%), Uzbekistan (7.5%), and West/Central African countries (6.4%) (see Figure 11 and Table 11 ). Beef: Australia, with 16.8% (forecast) of world exports in 2012, is the largest supplier of beef to world markets. The U.S. share of world beef exports is forecast to be 15.2% in 2012. Lingering effects of mad cow disease continue to affect demand for U.S. beef in world markets; the U.S. share of world beef exports had reached 18.9% in 2000. (See Figure 12 and Table 12 .) Pork: The United States is forecast to have the largest export market share for pork (35.3%) in 2012. Main competitors for pork export market shares include the EU (29.0%) and Canada (17.7%). (See Figure 13 and Table 13 .) Poultry: Brazil is the world's leading supplier of poultry meat to the world market (36.1% forecast export market share for 2012). The United States, with 31.7% of world poultry meat exports, and the EU, with 11.7%, have lost market share to Brazil over the past decade. (See Figure 14 and Table 14 .) Dairy Products: For 2012, New Zealand (29.3%) and the EU (27.3%) are forecast to be the leading suppliers of nonfat dry milk to world markets (see Figure 15 and Table 15 ). The EU (44.5%) is the leading supplier of cheese to world markets (see Figure 16 and Table 16 ), while New Zealand (61.1%) is the world's largest exporter of butter (see Figure 17 and Table 17 ). Brazil is the world's leading exporter of sugar, with an export market share forecast at 42.0% for 2011/2012. DR-CAFTA (including the Dominican Republic and Central American countries), with 5.4% of global sugar exports, is forecast to be the world's second-largest exporter of sugar in 2011/2012. The United States is a sugar importer, with negligible sugar exports (forecast to be 0.3% for 2011/2012). High-value horticultural products (fruits, nuts, vegetables, and preparations; wine and malt beverages; nursery stock and flowers; and others) are the largest category of U.S. agricultural imports, and are forecast to be $43.3 billion in FY2012. Other sizeable commodity imports forecast for FY2012 are livestock and dairy ($13 billion), grains and feeds ($9.3 billion), and oilseeds and products ($8.1 billion). Imports of tropical products such as coffee, cocoa, sugar, and products are forecast to be $31.1 billion in FY2012. NAFTA partners Canada ($20.7 billion) and Mexico ($17.3 billion) and the EU-27 ($16.8 billion) are forecast to be the source of more than 50% of total U.S. agricultural imports ($106.5 billion) in FY2012. Indonesia is expected to ship $4.7 billion of farm products to the United States in FY2012; agricultural imports from Brazil are expected to reach $4.4 billion in FY2012. Australia, with whom the United States entered into a free trade agreement (FTA) in 2005, is forecast to provide the United States with $2.4 billion worth of agricultural imports in FY2012. Colombia, a prospective FTA partner, is forecast to ship $2.6 billion of farm products to the United States in FY2012. Economic growth in Asia has contributed to relatively consistent long-term growth in U.S. agricultural exports to the region. Despite some year-to-year variation, the EU, the United States' fifth-largest agricultural export market, has been a relatively stable market for U.S. agricultural exports, with little growth since 1992. Agricultural exports to countries in the former Soviet Union have declined in value since the 1992 break-up of the USSR. Agricultural exports to Latin America, including Mexico, and to Canada have grown rapidly since the early 1990s, due in part to geographic proximity and NAFTA, among other factors. Like the EU, Japan also has been a relatively stable and slow-growing market for U.S. agricultural exports. U.S. agricultural exports to China, fueled by rates of GDP growth in excess of 9%, have grown rapidly since the early 1990s (16.4%). FY2012 U.S. agricultural exports to China are forecast to be more than 10 times their value in FY2001, when China became a member of the World Trade Organization. Rapid income growth in Southeast Asia also has stimulated demand for U.S. agricultural exports since 1992. Agricultural exports to South Asia also have shown growth since 1992. Growth in U.S. agricultural trade with Canada and Mexico, both NAFTA trading partners, and with Latin America has been particularly strong since 1992. U.S. agricultural exports to Canada are forecast to be $19 billion in FY2012. U.S. agricultural exports to Mexico are expected to be $17.5 billion in FY2012. U.S. agricultural exports to Latin America (excluding Mexico) are expected to reach $12.3 billion in FY2012, down from $12.4 billion in FY2011. The Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 , 2008 farm bill) was enacted into law in June 2008 and will govern most federal farm and food policies through 2012. The 2008 farm bill provides price and income support to U.S. agricultural producers through 2012. In addition, the farm bill authorizes programs for conservation, rural development, nutrition (domestic food assistance), trade, and food aid. Budgetary outlays for all U.S. agricultural programs were $139.3 billion in FY2011. By one widely used measure, the producer support estimate (PSE) calculated by the Organization for Economic Cooperation and Development (OECD), the United States provided an estimated $25.6 billion in agricultural support to producers in 2010 (provisional estimate). PSEs measure assistance to producers in terms of the value of monetary transfers generated by agricultural policy. Transfers are paid by consumers or by taxpayers in the form of market price support, direct payments, or other support. They are a broader measure of support than direct government spending alone. The percentage PSE measures support in relation to gross farm receipts. As a percent of gross farm receipts, the PSE for the United States is 7% in 2010, the third-lowest among OECD countries ( Figure 24 , Table 24 ). OECD attributes a decrease of 3% (over 2009) in the PSE expected for the United States for 2010 to a decrease in market price support for dairy. Over a longer period, the trend in producer support in the United States has been downward, dropping from a PSE of 22% in 1986-1988 to 7% in 2010. Among U.S. commodities, sugar is the most highly subsidized product in the United States, with a provisional single commodity transfer estimated at 28.3% of the gross value of sugar production in 2010 ( Figure 25 , Table 25 ). With agricultural exports totaling $137 billion in FY2011, the United States is the world's largest exporter of agricultural products. The United States applies tariffs and tariff quotas to products entering the United States from abroad. According to the World Trade Organization (WTO), the United States' average applied tariff for agricultural products is 8.9%, which is above the average applied U.S. tariff for non-agricultural products (4%), but relatively low compared to other WTO member countries. About 170 tariff lines (a tariff line is a product as described in a schedule or list of tariffs) are subject to tariff quotas, including beef, dairy products, and sugar. The average in-quota tariff was 9.1% in 2007, while the out-of-quota was 42%. Under the WTO Agreement on Agriculture, the United States made export subsidy reduction commitments for 13 commodities. The 2008 farm bill repealed authority for the Export Enhancement Program (EEP), which was used to fund subsidies for those products, with the exception of dairy products. Export subsidies, in the form of cash bonuses, can be provided to exporters of dairy products under the Dairy Export Incentive Program (DEIP), which was reauthorized in the 2008 farm bill through 2012. Prior to its repeal, no expenditures were made for EEP from FY2002. Spurred by declining prices for dairy products in 2008-2009, USDA announced in May 2009 DEIP allocations for nonfat dry milk, butter fat, and cheeses. DEIP bonuses of $19 million were awarded in FY2009. In FY2010, DEIP bonuses of $2 million were awarded. No bonuses were awarded in FY2011. A federally chartered public corporation operated by USDA, the Commodity Credit Corporation (CCC), makes credit guarantees available to private financial institutions who finance the purchase of U.S. agricultural exports. Under the GSM-102, the CCC guarantees repayment of credit made available to finance U.S. agricultural exports on credit terms of up to three years. Exporters tallied $4.1 billion of agricultural exports under the GSM-102 program in FY2011. USDA announced $5.4 billion in CCC guarantees for agricultural exports under the GSM-102 program for FY2012. The CCC also operates the Facilities Guarantee Program (FGP), which guarantees credit to U.S. banks that finance export sales of U.S. goods and services that are used to improve agricultural export-related facilities in emerging markets (storage, processing, and handling facilities). Two export market development programs, the Market Access Program (MAP) and the Foreign Market Development Program (FMDP), assist producer groups, associations, and firms with promotional and other activities. The United States is the world's leading supplier of food aid. It provides more than half of the global total. The United States provides food aid mainly through P.L. 480, also known as the Food for Peace Program. Wheat and wheat flour are the main commodities provided as food aid, but rice and vegetable oils are also important in P.L. 480 programs. Higher-value products are made available in special feeding programs. Responsibility for implementing food aid programs is shared by USDA and the U.S. Agency for International Development (AID). P.L. 480 food aid is provided on a grant basis through Title II of the Food for Peace Act of 2008, the successor legislation of the Agricultural Trade and Development Assistance Act of 1954 (P.L. 480). Two other food aid programs are conducted under Section 416(b) of the Agricultural Act of 1949 and the Food for Progress Act of 1985. The former provides surplus CCC inventories, if available, as donations; the latter provides concessional credit terms or commodity donations to support emerging democracies or countries making free market economic reforms. A recently enacted food aid program, the McGovern-Dole School Food for Education Program, finances school feeding and child nutrition projects in poor countries. | U.S. agricultural exports, imports, and the agricultural trade surplus are expected by the U.S. Department of Agriculture (USDA) to reach record levels in FY2011. FY2011 U.S. farm exports are forecast by the U.S. Department of Agriculture to reach $137 billion, while agricultural imports are expected to reach $93 billion. The agricultural trade surplus is projected to be $44 billion. Exports of high-value products (e.g., fruits, vegetables, meats, wine and beer) have increased since the early 1990s and now account for 60% of total U.S. agricultural exports. Exports of bulk commodities (e.g., soybeans, wheat, and feed grains) remain significant. Leading markets for U.S. agricultural exports are China, Canada, Mexico, Japan, the European Union (EU), South Korea, and Taiwan. The United States in 2011 is forecast to be the world's leading exporter of corn, wheat, soybeans, and cotton. The U.S. share of world beef exports, which declined after the 2003 discovery of a case of "mad cow disease" in the United States, is recovering as more countries have re-opened their markets to U.S. product. The United States, European Union, Australia, and New Zealand are dominant suppliers of dairy products in global agricultural trade. New Zealand and the United States are the main suppliers of nonfat dry milk to world markets, while the EU is the leading supplier of cheeses. China has been among the fastest-growing markets for U.S. agricultural exports. Agricultural exports to Canada and Mexico, both partners of the United States in the North American Free Trade Agreement (NAFTA), have also grown rapidly. Most U.S. agricultural imports are high-value products, including fruits, nuts, vegetables, wine, and beer. The biggest import suppliers are NAFTA partners Canada and Mexico, and the EU. Together these three are forecast to provide more than 50% of total U.S. agricultural imports in FY2011. Brazil, Australia, Indonesia, New Zealand, and Colombia are also important suppliers of agricultural imports to the United States. According to estimates by the Organization for Economic Cooperation and Development (OECD), the United States provides the third-lowest amount of government policy-generated support to its agricultural sector among OECD countries. The United States' average applied tariff for agricultural products is estimated by the World Trade Organization to be 8.9%, a little more than twice the average applied tariff for non-agricultural products. Export subsidies, export credit guarantees, and market development programs are among the programs used by the United States to promote U.S. agricultural exports. The United States also provides U.S. agricultural commodities to developing countries as food aid for emergency relief or use in nonemergency development activities. |
To address the turmoil in financial markets, Congress passed and the President signed the Emergency Economic Stabilization Act (EESA; H.R. 1424 , P.L. 110-343 ) on October 3, 2008. The act authorizes the Secretary of Treasury "to restore liquidity and stability to the financial system of the United States" (Sec. 2) by purchasing or insuring "troubled assets." The Secretary will design the mechanism for purchasing the troubled assets and methods for pricing and valuing these assets. The act broadly defines troubled assets as (1) mortgages and any securities based on such mortgages whose purchase the Secretary determines will promote financial market stability, and (2) any other financial instrument whose purchase the Secretary and the Federal Reserve Board Chairman determines will promote financial market stability. The act authorized the Treasury Secretary to use $700 billion to enhance liquidity and to inject capital into financial markets by purchasing (1) mortgages and pools of mortgages, (2) preferred stock in ailing financial institutions, and (3) troubled mortgage-backed securities (MBSs). Secretary Paulson had indicated that reverse auctions would be used to purchase mortgage-backed securities from troubled financial institutions. Well-designed auctions can help price such assets in an efficient manner. The Bush Administration Treasury Secretary at the time, Henry Paulson, soon decided to use the Troubled Asset Relief Program (TARP) to inject capital into financial institutions by purchasing special preferred equity shares. Members of the Bush Administration have said that they came to believe that direct capital injections would provide greater leverage to stimulate borrowing and that the sharp deterioration in financial markets in mid October 2007—during the time that Congress was considering EESA—required strategies that could be implemented more quickly. In mid-January 2009, Congress declined to block a Presidential request to release the second tranche of $350 billion in TARP funds. On January 22, 2009, the House passed a measure ( H.J.Res. 3 ) to disapprove release of those funds on a 270-155 vote, but the Senate had declined on January 15, 2009, to pass a related measure ( S.J.Res. 5 ) by a 42-52 vote. On February 10, 2009, Treasury Secretary Timothy Geithner outlined a "Financial Stability Plan" intended to address continued financial and economic turmoil. Geithner said that he aimed "to use private capital and private asset managers to help provide a market mechanism for valuing the assets." According to some experts, market pricing of such assets implies that reverse auctions would play an important role in the plan. Many proposed plans to address financial turmoil involve asset purchases by federal entities. Market-based pricing would probably involve auctions or similar mechanisms. This report provides Congress with information on the uses, design, and functions of auctions. It reviews some common types of auctions used by the federal government and some of the issues of auction design that may face the Treasury Department. The deterioration in the credit quality of mortgage-related assets and similar types of assets, according to many experts, is closely linked with the credit crunch that emerged in August 2007, and which worsened in the fall of 2008. Many have therefore argued that creating a government-sponsored vehicle to absorb troubled assets, either directly by asset purchases or indirectly by acquiring equity shares in institutions that hold troubled assets, would strengthen lenders' balance sheets, which in turn would stimulate new lending. Thus, the federal government, in this view, can encourage lending by shouldering some portion of risks associated with troubled assets. Government purchases of troubled assets, however, present two types of risks to federal stakeholders. First, uncertainty about the fundamental value of troubled assets implies that federal stakeholders will bear financial risks, especially when those risks are related to systematic economic trends. Second, the government may overpay for troubled assets or for equity in firms that hold such assets. In early February 2009, the chair of the EESA Congressional Oversight Board expressed concern that the Troubled Asset Relief Program (TARP) had overpaid for assets it had acquired. Details of Secretary Geithner's proposals have not yet been released. The plan outline released on February 10, 2009, indicates that market-based asset purchases, which presumably would involve auction mechanisms, would play an important role. Congress, therefore, may wish to understand how Treasury proposals determine asset purchase prices when it considers enabling legislation and while it conducts on-going oversight of TARP and related programs. In early October 2008, the Bush Administration proposed using reverse auctions to purchase mortgage-related securities from financial institutions, which are similar to the multiple-unit Dutch auctions that the Treasury uses to sell government securities. While the Bush Administration focused on other strategies to address continuing financial turmoil, a "Financial Stability Plan" outlined by President Obama's Treasury Secretary, Timothy Geithner, may include reverse auctions as part of the proposed "Public-Private Investment Fund." In a reverse auction, a buyer accepts bids from multiple potential sellers. In reverse multi-unit Dutch auctions, a buyer (e.g., the U.S. Treasury) buys a given number of units from private parties (e.g., financial institutions) at a price set by the last accepted bid. The box below contains a hypothetical example of a reverse Dutch auction. Auctions provide a means of selling objects whose value to potential owners is unknown to the seller. Many different auction mechanisms are in common use. A large research literature in economic theory and experimental economics examines how different types of auctions work. On the one hand, well-designed auctions can provide an expeditious and efficient method for selling or acquiring objects. On the other hand, poorly designed auctions have caused governments to forego large amounts of revenue. Moreover, poorly designed auctions may increase the likelihood that valuable resources are allocated to buyers who value those resources less than others—a source of inefficiency. In particular, auctions suitable for some applications may be unsuited for other applications. The American government has used reverse auctions since Robert Morris, who headed the Treasury Department, used them to procure supplies for troops in the Revolutionary War. In recent decades, the Treasury Department has used auctions to sell federal securities. Over time, the federal government has gained valuable experience in conducting and designing auctions, which has reduced costs and increased revenues compared to other methods. Current U.S. Treasury auctions, which use a multi-unit Dutch auction mechanism to sell securities, have apparently provided a starting point for Administration proposals to buy "troubled assets" via reverse Dutch auctions. Because the reverse Dutch auction process would, in approximate mirror fashion, resemble Treasury auctions of government securities to primary dealers, key market participants could quickly familiarize themselves with new bidding procedures. Those administering Treasury reverse auctions, however, recognize that differences between Treasury securities and troubled assets have consequences for auction design. Designing reverse Dutch auctions may present some tradeoffs between enhancing competition among bidders and overpaying for assets relative to their quality. Careful auction design, however, can help minimize these problems. In the Dutch auction mechanism used to sell U.S. Treasury securities, all successful buyers pay the same price; in other words, it is a uniform-price mechanism. Uniform-price mechanisms, according to some experts, may encourage more aggressive bidding, which raises expected revenues. While details of the Treasury reverse Dutch auctions remain unspecified, the U.S. Treasury would probably announce that it wished to buy a given amount of mortgage-related securities (MBSs) of specific types or issues for a given auction. Bidders would then list securities they wish to sell and specify prices. The Treasury would then buy the securities listed at the lowest prices until the specified amount was reached. The price offered by the last successful bidder would then be paid to all successful bidders. As noted above, federal stakeholders bear the costs of risks caused by uncertainty about the value of troubled assets and by the possibility of overpaying for assets. These risks are heightened when quality differences among assets are large. The diversity or heterogeneity of troubled assets may present challenges to the Treasury auction program. The mortgage-backed securitization process was intended to create marketable assets with credit characteristics that could be readily assessed by credit agencies and buyers. Credit rating agencies claimed that the rating process sorted asset-backed securities and other assets into categories with essentially homogenous profiles. All assets of a specific type receiving a given rating were supposed to embody essentially similar risk characteristics. Confidence in the credit rating process has deteriorated over the past two years, however. Credit rating agencies, according to the Securities and Exchange Commission (SEC), struggled to keep up with more complex types of securities and had difficulty assessing risks embedded in subprime mortgage-backed assets. In addition, according to the SEC, none of the rating agencies examined had specific written procedures for rating residential MBSs and collateralized debt obligations. Thus, some buyers may doubt that credit ratings represent a true gauge of asset quality. Tightened market liquidity in capital markets since August 2007 may stem in part from potential buyers' uncertainty about the credit quality of MBSs and other assets. Buyers may worry that sellers could have incentives to sell assets with difficult-to-detect risks before assets without such hidden hazards. Similar problems may occur with reverse Dutch auctions used to buy troubled assets. A typical Treasury auction sells a large volume of identical government securities whose characteristics are well understood. The reverse Dutch auctions used by the Treasury would need to be adapted to buy highly diverse and relatively small-volume securities, whose characteristics may not be well understood by many buyers. A typical mortgage-backed security issue, while enormous relative to a single housing mortgage, is small when compared to the size of a typical Treasury security issue, and individual tranches (slices) of MBSs are smaller still. Different MBSs and related structured finance assets are very diverse, although their structures and pricing follow some general principles. Thus, selling Treasury securities is like selling commodity steel; buying mortgage-backed securities is like buying used cars. If the Treasury were to run a large number of narrowly defined reverse auctions, it would be more difficult to prevent certain types of market manipulation. For example, a bidder who gains control of a large proportion of an issue might exert influence on auction outcomes. But, if a wider variety of securities or assets were allowed in the same auction, which would sharpen competition, sellers may have an incentive to submit bids for those assets with hidden flaws. Reverse Dutch auctions may therefore be vulnerable to adverse selection, meaning that the average credit quality of submitted assets of a given type may be systematically worse than the average credit quality of all assets of that type. In addition, if assets submitted to an auction were on average worse than other assets of a given type, then auction prices might be biased downwards. Some empirical research has found that adverse selection problems can lower prices on eBay auctions. If reverse auctions for troubled assets generated downwardly biased prices, that could affect valuations of assets held by other firms through mark-to-market accounting requirements. Thus, a downward bias in auction prices due to adverse selection could affect the market value or even solvency of some firms, whether or not they participated in auctions. Moreover, managing a portfolio bought via reverse Dutch auctions susceptible to adverse selection could present financial risks to the federal government. While adverse selection could push prices down (relative to prices appropriate for the average of all assets of a given category), the quality of assets accepted by the Treasury through the reverse auction mechanism could also be lower (relative to average quality of all assets of a given category). To the extent that Treasury overpays for assets relative to their quality due to adverse selection, costs to the taxpayer rise. Whether this effect presents a significant financial risk to the taxpayer is difficult to determine before the reverse Dutch auctions have been running for some time. Auction mechanisms, however, might be designed that could mitigate these adverse selection problems. Analysts close to government auction design discussions have outlined a design in which several similar securities could be listed for an auction. Price offsets or "handicaps" could be applied relative to a benchmark security. For instance, an auction might encompass a specified set of MBSs, underwritten by the same investment bank in the same month. Bids offering a specific MBS issue with a higher average default rate on the underlying mortgages would be reduced by an offset calculated using a financial asset pricing model. Other auction mechanisms might also mitigate these problems. For example, a firm could be required to let the government select an asset randomly from all of its holdings of a specific type of asset if its bid were successful. Or participating firms could be required to post a performance bond that could be used to compensate the government if a firm's assets sold in auctions turned out to be systematically worse than average. Charles Plott, a pioneer in auction design, has designed and tested a reverse Dutch auction that was able to mitigate adverse selection concerns in another context. Uncertainty about the composition of firms' holdings could be an additional source of adverse selection in the administration of the Troubled Asset Relief Program. Some claim that financial institutions have avoided offering to sell large amounts of subprime and other troubled assets out of a concern for the institution's reputation. Other market participants might infer that a would-be seller has a large inventory of subprime and other troubled assets and thus may be a risky counterparty. That inference could adversely affect a potential seller's stock price and its ability to raise capital, thus providing a reason for firms to hold troubled assets. In other words, some firms may worry that attempting to sell troubled assets may damage its reputation, market value, and ability to trade. However, many view the former investment bank Merrill Lynch's sale of troubled assets as a sound strategic move. If financial markets were to associate participation in the Troubled Asset Relief Program (TARP), including bidding in Treasury reverse auctions, with financial weakness, then firms might be less willing to participate. Reputational issues, in the view of many financial experts, have discouraged some firms from participating in certain federal government or Federal Reserve programs. For example, in recent years some have viewed firms using the Federal Reserve's discount window as "desperate." The Federal Reserve Term Auction Facility (TAF), in the view of some, was designed to provide liquidity to firms while avoiding the stigma that some might perceive to be associated with the discount window. U.S. Treasury, however, has stressed that TARP is "not targeted at failing firms," but instead is designed to attract broad participation among financial institutions. The effectiveness of the reverse auction asset purchase program could be reduced if reputational issues caused some firms to forego participation in TARP. Factors that reduce the number of active bidders in an auction can decrease expected revenues and can dampen competition among bidders. The choice of how auction results are released and how much detail is disclosed may affect firms' willingness to submit bids. For example, if firms believe that market analysts can observe or infer from announced auction results that the firm holds large inventories of troubled assets, then that firm may become reluctant to participate in the auction. Designing Treasury reverse auctions for troubled assets and associated announcements of results to avoid any such possible reputational effects may enhance firms' willingness to participate. The order or sequencing in which reverse securities auctions take place may affect the results of auctions. First, the initial reverse auctions might be a learning process for both bidders and the U.S. Treasury. This might imply that smaller, simpler auctions should precede larger and more complex auctions. In the past, new auction designs have sometimes presented unanticipated operational problems or unforeseen strategic vulnerabilities. Careful design and testing of auction mechanisms, however, can minimize such problems. Second, if the Treasury interventions in financial markets do start to unfreeze credit markets as intended, then asset prices will change. Bidders' anticipation that asset prices will rise after the initial auctions (or because of other types of government intervention) could induce bidders to submit fewer assets in earlier auctions. Third, sequencing may raise operational issues because of the large number of asset types, and because of the intrinsic complexity of some mortgage-related securities. The September 20, 2008, Treasury proposal suggested that reverse auctions would play a central role in restoring liquidity to credit markets. It argued that auctions could help stabilize asset and credit markets in two ways. First, firms with illiquid assets would sell them at prices determined by a competitive process, which would supply firms with liquid proceeds of those sales. Second, auction results could provide pricing benchmarks that might stimulate trading in other assets. Some believe that this could improve liquidity conditions in credit markets; others, however, are skeptical. The reverse auction program essentially swaps Treasury securities for troubled mortgage-backed securities. If the prices at which Treasury securities are exchanged for troubled assets are close to current market prices for those assets, then financial institutions may gain liquidity, but might not receive much additional capital. What prices the "troubled" mortgage-related assets will sell at is, therefore, a key question. Merrill Lynch, for example, sold a large stake of senior mortgage-related collateralized default obligations (CDOs) to Lone Star Funds, a private capital fund, for about 22 cents on the dollar. If other assets sold at Treasury reverse auctions at prices reflecting similar discounts, the solvency of some financial institutions might be put in doubt. Some commentators, however, have suggested that Treasury might believe that such assets are underpriced in current conditions. Assets might be underpriced, relative to fundamental factors, because of the rapid deleveraging of financial institutions, which increased the supply of assets and the demand for liquidity. As the price of liquidity rises, measured as the cost of overnight interbank borrowing relative to comparable Treasury rates, highly leveraged financial institutions may come under additional pressure to sell assets. Thus, deleveraging and falling asset prices may create a self-reinforcing spiral. To the extent that buying assets via a reverse auction process might strengthen the link between assets and their underlying values, more normal market conditions might be restored. But others argue that the low prices of "troubled" assets reflect their intrinsic value, and that previous prices were above those justified by fundamentals. Federal Reserve Chairman Ben Bernanke spoke of "hold to maturity" valuations of assets, which would seem to imply that prices above current market levels might be paid. While paying above-market prices for assets would inject capital into financial institutions, it would also increase the costs and risks to taxpayers. How auctions could be designed to ensure "hold to maturity" valuations of assets is unclear. One economist with knowledge of auction design discussions has said that reverse auctions would be designed in a hard-nosed manner to minimize taxpayer costs. But, if current asset prices accurately reflect fundamental value and if the Treasury reverse auctions are run efficiently, comparatively little capital would be injected into the financial sector. While this would minimize costs and risks to taxpayers, such an auction program might provide limited support for financial institutions. Some economists have argued that other means of injecting capital into the financial sector, such as purchases of preferred stock or capital injections balanced by equity warrants (i.e., options to claim an equity stake), might be a better strategy. On October 8, 2008, the U.S. Treasury emphasized that EESA gives it authority to directly inject capital into firms, and is developing strategies to do so. Asset purchases and direct capital injections may have different implications for affected firms. Proceeds of asset purchases would presumably be counted as trading profits, which firms can use without restriction. Capital injections, however, generally provide firms with financial resources that are subject to restrictions. For example, capital injections might provide the U.S. Treasury with the right to demand management changes or equity warrants. Treasury purchases of preferred equity shares would probably commit firms to make regular, specified payments back to the Treasury. Proceeds from asset purchases, however, might be available for dividends, executive compensation, reducing debt, or other purposes. Federal interventions to restore more normal conditions to financial markets would provide substantial benefits to those connected to the financial sector, either directly or indirectly. Of course, some may receive greater benefits than others from a resuscitation of the financial sector. A large-scale federal intervention could impose substantial costs and risks on taxpayers and federal program beneficiaries, although the scale and nature of those costs and risks may depend on how interventions are structured and administered. If Treasury reverse auctions were conducted in a hard-nosed and efficient manner, direct costs to taxpayers and beneficiaries could be minimized. Furthermore, the federal government might well eventually sell assets for more than their purchase price. Such auctions, however, might supply little extra capital to the financial sector, and thus may fail to achieve a normalization of market conditions. Other measures, such as debt/equity swaps, purchases of preferred stock, or trading stock warrants for capital injections, might present the taxpayer with greater financial risks, but might also be better suited to addressing current financial conditions. Auctions in recent years have been used to address a wide range of policy issues. Auctions may capture higher revenues for governments and can allocate scarce resources more efficiently than traditional methods. Different policy issues, however, may require different types of auctions to achieve reasonable results. To provide a basis for evaluating the reverse auction mechanisms that may be used in TARP, this section discusses potential problems that may arise in using auctions, and how those problems can be minimized by careful design of auction mechanisms. The most common auction mechanisms used to sell single items are the first-price sealed-bid auction, the English or ascending-price open-bid auction, and the Dutch or descending-price auction. In the first-price sealed-bid auction, bidders submit bids to the seller, who then selects the highest bid when selling an item or the lowest bid when buying an item. In the English or ascending-price auction, bidders announce prices that must exceed previous prices by a set amount. The last bidder to remain receives the object at her last announced price. In flower markets in Amsterdam and other trading centers in the Netherlands, bidders watch a price clock that starts at a high price and descends at a constant rate. The first bidder to press a button buys the lot of flowers at the price indicated on the price clock. Similar descending-price mechanisms are called Dutch auctions. Treasury auctions for government securities, which use sealed-bid rules, are often described as "Dutch" auctions even though they do not use a descending-price mechanism as in flower auctions. Treasury securities auctions, however, are strategically equivalent to a particular descending-price (Dutch) auction. An auction mechanism is strategically equivalent to another auction mechanism when bidders' incentives, the identity of the winner, and the final sale price are the same for both. Some auction rules, however, may be operationally easier to carry out. For example, bidders can mail in responses for a sealed-bid auction, while English auctions require bidders (or their agents) to gather in the same place. A descending-price (Dutch) auction, under certain conditions, is strategically equivalent to a sealed-bid, first-price auction. A rational bidder calculates what the item for sale is worth to her. If a bidder bid her value, however, she would make zero gain in a first-price auction because the price paid would exactly match the item's value to her. A rational bidder therefore shades her bid downwards, trading off a larger gain (value minus price paid if she wins the auction) against the possibility that she would lose the item by lowering her bid. The same calculation applies to both the sealed-bid, first-price auction and to the descending-price auction, so the two auctions may be considered strategically equivalent. An English (ascending-bid) is strategically equivalent to a second-price sealed-bid auction when bidders know what the object up for auction is worth to them. When bidders have imperfect information about the value of an item, an English or ascending-bid auction may force better-informed bidders to reveal valuable information to less well informed bidders. For example, the value of an antique may depend on who made it, how rare it is, and on who owned it before. A knowledgeable bidder, who may know more about an item's value, will attempt to use bidding strategies that conceal private information. The value to bidders of some auctioned items may be linked. For example, the value one energy company places on an Offshore Continental Shelf (OCS) lease that would allow exploration and extraction of oil and gas will correlate to the value other energy companies place on the same lease. Different companies might have strengths and weaknesses in exploration and extraction techniques, so the value of the lease will not be the same to each company. Any company that got the lease, however, would sell oil and gas on the same world markets. Auctions that sell items whose value to bidders is correlated are called common-value auctions. Bidders in a common-value auction may have different indications of an item's value. For example, many energy companies may have private information about the geological structures of areas covered by an OCS lease. A company holding an OCS lease in a nearby area that had run seismic tests might have more precise information about those geological structures, and thus would have a more precise estimate of the value of the OCS lease up for auction. When bidders have imperfect signals of value, bidders with overly optimistic signals are likely to win auctions. Such bidders, however, will suffer losses because the true value of the item is less than their optimistic estimate. This is the winner's curse: such auction winners would have been better off losing. Sophisticated bidders in common-value auctions shade their bids downward to account for the winner's curse. Sophisticated auction designers release as much information as possible about an item's value so that revenues are not reduced by bidders who shade their bids downwards. That is, bidders with better information bid more aggressively. Certain auction mechanisms, as noted above, are functionally equivalent to certain other auctions run using different rules. The auctions discussed above (Dutch, English, first-price and second-price sealed bid) in theory deliver the same profits to bidders and the same revenues to sellers. Moreover, any (independent private value) auction that awards the item to the highest bidders and attracts the same pool of participants also in theory provides the same profits to bidders and the same revenues to sellers. This result, known as the Revenue Equivalence Theorem, implies that to affect expected revenues requires changing who participates in an auction. For example, minimum bid rules can raise expected revenue, but may lower an auction's economic efficiency. Experimental research has found that some expected auction equivalences hold, while others do not. Experimental testing of revenue equivalence of auction mechanisms is an active research area. Auctions in which multiple units are sold simultaneously are more complex than single-unit auctions. Computing optimal bidding strategies in multiple-unit auctions may be complex and difficult. Designing multiple-unit auctions so that government revenue is maximized and so that scarce resources are likely to be assigned to those who value them the most can be challenging. The federal government, however, has successfully used complex multi-unit auctions to allocate electromagnetic spectrum for wireless communication and related uses. Bidders in some situations can benefit by strategically withdrawing bids on some items in order to lower prices on other items. The logic of this strategy is analogous to standard monopoly or oligopoly pricing models. A monopolist or a firm with some market power can raise profits by reducing output below the level that would prevail in a competitive market. Just as entry by new competitors can reduce the market power of existing firms, auction designs that encourage many bidders to participate can limit the effect of demand-reduction strategies. Auctions that sell complementary goods can be extraordinarily complex. Items are considered complements when groups of items are more valuable than the sum of individual items. For example, take-off rights from a specific airport that a government might auction off will be more valuable if the airline can obtain landing rights at a different airport. Federal Communications Commission auctions of electromagnetic spectrum involve complementarities because a license in one geographic area may be more valuable to a telecommunications firm that holds a license in an adjacent area. Complementarities among troubled assets may complicate current reverse auctions implemented as part of TARP. For instance, some assets backed by sub-prime loans were often linked to collateralized default obligations(CDOs), which provided something akin to insurance to investors holding those assets. In that case, the asset backed by a pool of sub-prime loans and the associated CDO would share a strong complementarity, which could affect behavior in a reverse auction. The U.S. Treasury, as noted above, uses a multi-unit Dutch auction mechanism to sell government securities to primary dealers. The federal government and some corporations have used reverse Dutch auctions for some procurements. Treasury auction mechanisms can, under certain circumstances, be vulnerable to manipulations related to the demand-reduction strategies discussed above. The U.S. Treasury and many entities that use auctions, however, have developed methods designed to detect or mitigate manipulation strategies. In some multiple-unit auctions, such as Dutch auctions, all successful bidders pay the same price. Such auctions are called uniform-price auctions. In other auctions, such as first-price auctions, in which successful bidders pay their bids, different bidders pay different prices for identical items. Such auctions are often called discriminatory or multiple-price auctions. A 2002 International Monetary Fund report found that 10 of 18 advanced industrial countries surveyed used uniform-price auctions, and 15 of 18 used multiple-price auctions. The U.S. Treasury claims that a uniform-price auction raises slightly more revenue than a multiple-price auction because it reduces winner's curse risks. | To address the turmoil in financial markets, the Emergency Economic Stabilization Act (EESA; H.R. 1424, P.L. 110-343), enacted on October 3, 2008, authorizes purchases of "troubled assets." The act passed the Senate on October 1, 2008, passed the House on October 3, 2008, and was signed into law the same day. While the last Bush Administration Treasury Secretary, Henry Paulson, initially proposed using reverse Dutch auctions to purchase troubled assets—primarily mortgage-related securities from financial institutions—he soon chose to shelve the reverse auction program. A "Financial Stability Plan" outlined by his successor, Secretary Timothy Geithner, may include reverse auctions, according to some experts. Much of this plan would require Congressional authorization. Auctions are especially useful for selling assets whose value to potential owners is unknown to the seller. Reverse auctions are useful when a buyer does not know what value sellers place on assets. Auction results could clarify the market value of troubled assets. The price discovery properties of auctions could stimulate trading by reducing private traders' uncertainty about the value of troubled assets. The EESA Congressional Oversight Board expressed concern over asset pricing in the Troubled Asset Relief Program (TARP). Well-designed auctions can reduce the chances of overpaying for assets. In reverse Dutch auctions, a buyer purchases multiple objects from private parties at a price set by the last accepted bid. The government has used reverse auctions since the Revolutionary War. Designing efficient reverse Dutch auctions may present some tradeoffs between enhancing competition among bidders and overpaying for assets relative to their quality. Careful auction design, however, can help minimize these problems. A reverse auction program essentially swaps Treasury securities for troubled mortgage-backed securities. If Treasury securities are exchanged for troubled assets at prices close to those assets' current market prices, costs to the taxpayer would be minimized. Financial institutions, however, may gain some liquidity, but might not receive much additional capital. Some economists argued that other means of injecting capital into the financial sector, such as purchases of preferred stock or capital injections balanced by equity warrants (i.e., options to claim an equity stake), would be a better strategy. Since passage of EESA, the U.S. Treasury has been working to design methods to inject capital into firms and restore market liquidity. In mid-January 2009, Congress declined to block release of the second tranche of $350 billion in TARP funds. The heterogeneity of troubled assets may present challenges to the Treasury auction program. The reverse Dutch auctions would need to be adapted to buy highly diverse and relatively small-volume securities, in a way that minimizes risks of trading manipulation. Reverse Dutch auctions may be vulnerable to adverse selection, meaning that the average credit quality of submitted assets of a given type may be systematically worse than the average credit quality of all assets of that type. Auction mechanisms might be designed that could mitigate these problems. Recent academic research in auction theory and in experimental economics has examined how various types of auctions work. Auctions may capture higher revenues for governments and can often allocate scarce resources more efficiently than traditional methods of selling or purchasing. Different policy problems, however, call for different types of auctions. Government economists involved in designing reverse auctions to buy troubled assets have drawn upon academic research and internal Treasury research. This report will be updated as events warrant. |
Article I, Section 8, clause 7 of the Constitution grants Congress power to establish post offices and post roads. Pursuant to this power, Congress enacted the Postal Reorganization Act of 1970, which created the United States Postal Service as an independent establishment in the executive branch of the U.S. government. It enacted this statute to permit the Postal Service to operate more like a business than a government entity. Before the 1970 act became law, the Cabinet-level Department of the Post Office operated postal services. While Congress applied to the Postal Service some statutes, including those relating to veterans' preference and retirement, that apply to federal entities and prohibited postal employees, like other federal employees, from striking, it provided in Section 1209(a) of Title 39 of the United States Code that, "Employee-management relations shall, to the extent not inconsistent with the provisions of this title, be subject to the provisions of subchapter II of chapter 7 of Title 29." This language cites the National Labor Relations Act (NLRA), which governs private sector employee-management relations. These relations in most federal departments and agencies are regulated by chapter 71 of Title 5 of the U.S. Code, known as the Federal Labor-Management Relations Statute. Congress in the 1970 act, codified at Title 39 of the U.S. Code, also granted the U.S. Postal Service broader employee-management authority than exercised by most other federal departments and agencies. A provision of the act, 39 U.S.C. Section 1005(f), identifies subjects of Postal Service collective bargaining: compensation, benefits, and other terms and conditions of employment. This scope differs from the one that applies to most federal agencies, which is limited to conditions of employment. For those agencies, the phrase "conditions of employment" is defined in 5 U.S.C. Section 7103 expressly to exclude policies, practices, and matters relating to political activities prohibited under subchapter III of chapter 73 of Title 5 (i.e., the Hatch Act); classification of any position; and, significantly, conditions of employment that are specifically provided for in federal statute. This final exclusion precludes collective bargaining over conditions of employment such as Federal Employees Group Life Insurance (FEGLI) and the Federal Employees Health Benefits Program (FEHBP) because they are specifically provided for in 5 U.S.C. chapters 87 and 89, respectively. Addressing the transition from the Postal Office Department to the businesslike U.S. Postal Service, Congress in 39 U.S.C. Section 1005(f) indicated that compensation, fringe benefits, and other terms and conditions of employment that were in effect immediately prior to the effective date of the section (i.e., July 1, 1971) would continue to apply to officers and employees of the Postal Service in accordance with chapters 10 and 12 of Title 39, which relate to employment and employee-management relations, respectively. The final sentence of Section 1005(f) states the following: No variation, addition, or substitution with respect to fringe benefits shall result in a program of fringe benefits which on the whole is less favorable to the officers and employees in effect on the effective date of this section, and as to officers and employees for whom there is a collective-bargaining representative, no such variation, addition, or substitution shall be made except by agreement between the collective bargaining representative and the Postal Service. Congress provided procedures for terminating collective bargaining agreements in Section 1207 of Title 39. This section states that a party wishing to terminate or modify an agreement while it is in effect must serve timely written notice on the other party. If parties cannot agree on a resolution or adopt a procedure for a binding resolution of a dispute, the Director of the Federal Mediation and Conciliation Service must appoint a mediator. This section also grants authority to establish an arbitration board under certain circumstances and provides that a board decision is conclusive and binding on the parties. Collective bargaining agreements are contracts between the Postal Service and unions that prescribe employee-management relations on subjects that Congress has permitted to be collectively bargained. Can Congress through legislation modify the scope of bargaining or terms of collective bargaining agreements? Congress has authority prospectively to modify the scope of bargaining or terms of collective bargaining agreements after they expire. In the 1970 act, Congress granted the Postal Service and collective-bargaining representatives authority to bargain collectively over compensation, fringe benefits such as health insurance and life insurance, and other conditions of employment, but it could amend that statute to limit the scope of bargaining subjects in the future. For example, Congress could mandate that rates of employee premiums for health or life insurance no longer will be subjects of collective bargaining. Enacting a statute to modify the scope of bargaining or terms of agreements before they expire, however, may present legal questions to be resolved by a court. For example, a court may have to determine whether such a statute may cause the Postal Service to breach a contract or exceed constitutional limits under the Takings and/or Due Process Clauses of the Fifth Amendment. Some sections of Title III "Postal Service Workforce" as reported favorably to the full House by the House Committee on Oversight and Government Reform on October 13, 2011, would directly modify some provisions of Title 39 of the U.S. Code that relate to Postal Service collective bargaining agreements and employee-management relations. Many of these sections appear to have been based on recommendations of the President's Commission on the United States Postal Service issued in 2003. Section 301(a), "Modifications Relating to Pay Comparability," of H.R. 2309 would amend the first sentence of 39 U.S.C. Section 101(c), which states that, "As an employer, the Postal Service shall achieve and maintain compensation for its officers and employees comparable to the rates and types of compensation paid in the private sector of the economy of the United States." This subsection would insert "total" before "rates and types of compensation" and insert "entire" before "private sector." Section 301(b) would make a corresponding change to the second sentence of 39 U.S.C. §1003(a), which provides that, "It shall be the policy of the Postal Service to maintain compensation and benefits for all officers and employees on a standard of comparability to the compensation and benefits paid for comparable levels of work in the private sector of the economy." "Total" would be inserted before "compensation and benefits" each place it appears and "entire" would be inserted before "private sector." Section 301(c) would provide that for purposes of amendments made by Section 301, any determination of total rates and types of compensation or total compensation and benefits "... shall, at a minimum, take into account pay, health benefits, retirement benefits, life insurance benefits, leave, holidays, and continuity and stability of employment." The President's Commission Report explained that amendments to this effect would clarify that the 1970 act's commitment to comparability with the private sector should apply to total compensation packages that are available to Postal Service officers and employees and should take into account the value of federal benefits such as cost of living increases in retirement that may not be widely available to private sector workers. Section 302 of H.R. 2309 , "Limitations under FEGLI and FEHBP," would amend 39 U.S.C. Section 1003 by adding at the end a new subsection (e) to provide that Postal Service employer contributions for government life insurance and health insurance benefit programs shall be the same as those for government departments and agencies. This amendment would take effect for each fiscal year after September 30, 2013, the end of FY2013. For employees covered by collective bargaining agreements, however, this change would not take effect for any fiscal year until after these agreements expire, including any portion that remains of a fiscal year if those agreements expire before the end of a fiscal year. Section 8707(c)(2) of Title 5 of the U.S. Code provides that 66.66% of premium costs shall be withheld for employees who participate in the Federal Employees Group Life Insurance (FEGLI) program. Section 8708(a) states that the government agency contribution is one-half of the share paid by employees. According to the committee report, Postal Service employees currently pay nothing for life insurance premiums compared to over 66% that other federal employees pay. Because employees pay nothing for these premiums, the Postal Service as the employing agency pays 100% of them. Section 8906(b)(1) of Title 5 provides that the biweekly government contribution rate in the Federal Employees Health Benefits Program (FEHBP) for most federal employees can be adjusted to 72% of the Office of Personnel Management-determined weighted average of subscription charges for individual only and for individual and family health insurance coverage. Under current law, bargaining representatives can and have negotiated higher Postal Service employer contributions for employees that have resulted in lower employee contributions. The committee report observes that postal employees currently pay 21% of health care premiums compared to 28% that other federal employees pay. As a consequence of these agreement terms, the Postal Service as the employing agency pays an average of 79% of health insurance premiums for its employees. Section 303 of H.R. 2309 , "Repeal of Provision Relating to Overall Value of Fringe Benefits," would repeal the last sentence of 39 U.S. Section 1005(f), which constrains the ability of the Postal Service to modify fringe benefits. As noted above, this subsection states that compensation, benefits, and other terms and conditions of employment that were in effect before the effective date of the Postal Reorganization Act of 1970, July 1, 1971, shall continue to apply to Postal Service officers and employees unless changed by the Postal Service in accordance with chapters 10 and 12 of Title 39 of the U.S. Code. The final sentence of Section 1005(f) that would be repealed by Section 303 of H.R. 2309 provides that No variation, addition, or substitution with respect to fringe benefits shall result in a program of fringe benefits which on the whole is less favorable to the officers and employees in effect on the effective date of this section, and as to officers and employees for whom there is a collective bargaining representative, no such variation, addition, or substitution shall be made except by agreement between the collective bargaining representative and the Postal Service . (Emphasis supplied.) This section would implement a recommendation of the President's Commission Report. It would appear to permit the Postal Service to vary, add to, or substitute fringe benefits which on the whole could be less favorable to officers and employees than those that were in effect in 1971. Moreover, the Postal Service would appear to be able to modify fringe benefits for officers and employees who have a collective bargaining representative without achieving agreement between that representative and the Postal Service. Section 304, "Applicability of Reduction-in-Force Procedures," would amend 39 U.S.C. Section 1206, which relates to collective bargaining agreements, by adding at the end new subsections (d) through (f). As amended by Section 304, 39 U.S.C. Section 1206(d) would prohibit any provision that would bar reduction-in-force procedures under Title 5 of the United States Code for collective bargaining agreements between the Postal Service and bargaining representatives that are ratified after subsection (d) is enacted. For collective bargaining agreements between the Postal Service and bargaining representatives that were ratified before the enactment date of H.R. 2309 , Section 1206(e), as amended by Section 304, would require renegotiating any provision that restricts applying Title 5 reduction-in-force procedures. The new Section 1206(f) would provide that if a collective bargaining agreement ratified after the enactment date of H.R. 2309 includes reduction-in-force procedures that can be applied in lieu of those in Title 5, the Postal Service may, in its discretion, apply to members of that bargaining unit the alternative procedures or the Title 5 procedures. If procedures for resolving a dispute or impasse are invoked, however, the award of an arbitration board or other resolution reached could not provide for eliminating or substituting any alternative procedures in lieu of Title 5 reduction-in-force procedures. The intent of Section 304 is to prohibit no-layoff clauses in future collective bargaining agreements and require renegotiating any agreements that currently have them. The President's Commission Report observed that protection from layoffs had been included in collective bargaining agreements since around 1978 and that as of February of 2003, when that report was written, these clauses protected from layoffs an average of about 89% of Postal Service union employees with some variation from union to union. Referring to collectively bargained restrictions on the Postal Service's ability to use Title 5 reduction-in-force procedures, the House committee report states that, "... postal employees are virtually the only federal workers who enjoy such protections." Title 5 procedures generally take into account tenure of employment including type of appointment (e.g., career or career-conditional); veterans' preference; length of service; and efficiency or performance ratings. The report adds that, "This is no longer tenable, since the Postal Service is now in a position where it is unable to achieve workforce reductions through attrition alone. The bill specifically allows unions to negotiate alternative reduction-in-force methods that achieve needed rightsizing." The report continues that this alternative authority was granted to permit postal unions to negotiate other forms of reduction-in-force such as retirement conversion as alternatives to the last-in-first-out method prescribed under Title 5. Section 305 of H.R. 2309 , "Modifications Relating to Collective Bargaining," would strike subsections (c) and (d) of 39 U.S.C. Section 1207, which relate to procedures for resolving labor disputes. It would replace them with new subsections (c) and (d) to require neutral arbitrators, impose and/or shorten time limits on mediation and arbitration, and specify factors that arbitration boards must consider. Subsection (c) would be amended to change the manner of selecting members of each three-member arbitration board which is established if parties cannot resolve a dispute within 30 days after a mediator was appointed or if they decide upon arbitration before that 30-day period expires. The board would consist of one member appointed by the Postal Service and one member appointed by the bargaining representative of employees and a third member who had been appointed as a mediator pursuant to 39 U.S.C. Section 1207(b). Section 1207(c)(1) of current law provides that the Postal Service and the collective bargaining representative of employees each shall select one board member and that the two members who were selected by the parties shall choose the third board member. Currently, these parties are not required to select neutral arbitrators. If either of the parties fails to select a member or if the two parties cannot agree on a third member, however, the Director of the Federal Mediation and Conciliation Service selects a party's member or third member from a list of nine neutral arbitrators. While the amendment in Section 305 of H.R. 2309 would retain each party's opportunity to select one arbitration board member, it would require that the parties select an arbitrator from a list of nine neutral arbitrators provided by the Director rather than anyone each party selects as under current law. This amendment would retain current law regarding the Director's selection of a party's board member from that list if a party fails to select a neutral arbitrator from it within seven days after the list is made available. It would change current law by making the mediator who had been selected from that list by the Director pursuant to Section 1207(b) the third arbitration board member. The parties no longer jointly would select the third member. The President's Commission Report indicated that by putting the mediator on an arbitration board, progress that had been made during the negotiation and mediation phases would not be lost, arbitrators would be made aware of earlier concessions that each party had made, and the parties would be less likely to revert to earlier bargaining positions. The report said that the entire process would not have to "start from scratch." Pursuant to 39 U.S.C. Section 1207(c)(3), as amended by Section 305 of H.R. 2309 , an arbitration board would be required to give the parties a full and fair hearing no more than 40 days after it is established. No more than seven days after the hearing is concluded, each party would have to present two offer packages, each of which would specify the terms of a proposed final agreement. No later than three days after submission of final offer packages, the arbitration board would select one of them as its tentative award. The board, however, could not select a final offer package unless the offer complies with each of the following: (1) it has comparability with the private sector in 39 U.S.C. Sections 101(c) and 1003(a); (2) it takes into account the current financial condition of the Postal Service; and (3) it takes into account the long-term financial condition of the Postal Service. If the board unanimously determines, based on clear and convincing evidence presented during the hearing, that neither final offer satisfies these three conditions, the board by majority vote would be required to select a tentative award (i.e., the package that best meets these conditions) and modify it to the minimum extent to satisfy them. The parties could negotiate a substitute award to replace the tentative award selected by the arbitration board from the final offers that had been submitted by the parties or rendered by the board after it selects a final offer package that best meets the three conditions and modifies it. If no agreement on a substitute award is reached by the parties within 10 days after the date on which the tentative award is selected or rendered, the tentative award would become final. If neither party submits a final offer package by the seventh day after a hearing is concluded, the arbitration board would have to develop and issue a final award no later than 20 days after the seventh day. A final award or agreement would be conclusive and binding upon the parties. Costs of the arbitration board and mediation would be shared by the Postal Service and the bargaining representative. Section 1207(d) of Title 39 of the U.S. Code would be amended by Section 305 of H.R. 2309 to require appointing a mediator if a bargaining unit whose recognized collective bargaining representative does not have a collective bargaining agreement with the Postal Service and if the parties fail to reach agreement on such an agreement within 90 days after bargaining commences. A mediator would have to be appointed unless the parties previously have agreed to another procedure for binding resolution of their differences. If parties fail to reach agreement within 180 days after collective bargaining commences, an arbitration board would be established to provide conclusive and binding arbitration in accordance with subsection (c). The committee report explains that Section 305 Reforms the collective bargaining process to contain a mediation-arbitration process with a defined timeline model after recommendations of the 2003 President's Commission on the Postal Service. Creates an arbitration board of three neutral individuals. Any arbitration award is required to take into account both pay comparability with the private sector and the financial condition of the Postal Service. Further, once the arbitration stage has been reached, any agreement reached by the Postal Service and a union independent of the arbitration panel must also satisfy these same requirements. If such an agreement fails to do so, the arbitration panel is required to amend the agreement in a manner that does satisfy the requirement. As this excerpt reveals, this mediation-arbitration process is based on recommendations in the 2003 President's Commission on the Postal Service. The commission asserted that the current process took too long and encouraged parties to revert to entrenched positions rather than seek to resolve their differences. Section 202, "Establishment of the Authority," in Title II of H.R. 2309 would create the Postal Service Financial Responsibility and Management Assistance Authority (the Authority) to assume all authorities and responsibilities of the Postal Service Board of Governors, individual governors, and the Postal Service during a "control period." The Authority would be a receiver-like body of five non-salaried members appointed by the President from recommendations made by congressional leaders. According to the committee report, this proposal "... drew on the highly successful D.C. Control Board, formally known as the District of Columbia Financial Responsibility and Management Assistance Authority, ... a receiver-like body put in place during the 1990s in order to restore D.C.'s solvency during a period of financial mismanagement." A control period would commence whenever the Postal Service has been in default to the United States Treasury for a period of 30 days. For the first control period, the Authority would operate solely in an advisory capacity. At the end of the second full fiscal year or any year thereafter during the length of a control period if the Postal Service's annual deficit is greater than $2 billion, however, the Authority would be fully in force. During an advisory period, the Authority could not employ any staff, and any provision that requires it or the Postal Service to take any action only would take effect in the event that the Authority comes into full force. The date that the Authority comes into full force would be considered the commencement date of the control period. During a control period when fully in force, the Authority would direct the exercise of the Postal Service's powers, including, among other things, "human resource strategies, collective bargaining strategies, negotiation parameters, and collective bargaining agreements, and the compensation structure for nonbargaining employees." Section 224(b) of H.R. 2309 , "Responsibilities of the Authority," would direct the Postmaster General to submit to the Authority any proposal that has a substantial effect on these quoted items. If the Authority determines that a proposal is consistent with a financial plan and budget, it would notify the Postmaster General that the proposal is approved. If it determines that a proposal significantly is inconsistent with that plan and budget, the Authority would be required to notify the Postmaster General of its finding with an explanation of its reason for that finding and, to the extent it considers appropriate, provide the Postmaster General with recommendations for modifying the proposal. The Authority's failure to notify the Postmaster General of approval or disapproval within a prescribed time would be deemed approval. When in full force, the Authority would be empowered to review each contract, including each labor contract entered into through collective bargaining, that the Postal Service proposes to enter into, renew, modify, or extend during a control period. The Postal Service could not enter into such a contract unless the Authority determines that it is consistent with the financial plan and budget for the fiscal year. Other contracts, after execution, including collective bargaining agreements entered into by the Postal Service that are in effect during a control period, would have to be submitted to the Authority when any control period commences and at such other times as it may require. The bill would direct the Authority to review these contracts after execution to determine whether they are consistent with the financial plan and budget for the fiscal year. If the Authority determines that a contract is not consistent, the Authority would have to take such actions that are within its powers to revise it. The Authority and its members would not be liable for any obligation or claim against the Postal Service resulting from actions to carry out Title II of H.R. 2309 , entitled "Postal Service Financial Responsibility and Management Assistance Authority." The bill expresses the sense of Congress that, in making determinations that affect prior collective bargaining agreements and prior agreements on workforce reduction, any rightsizing effort within the Postal Service that results in a decrease in the number of postal employees should ensure that such employees can receive their full pensions, are fully compensated, and that agreements on workforce reduction which were entered into with the Postal Service be fully honored. When fully in force, the Authority could seek judicial enforcement of its Authority to carry out its responsibilities. Any Postal Service officer or employee who, by action or inaction, fails to comply with any Authority directive or other order under Section 226(c) of H.R. 2309 , "Recommendations Regarding Financial Stability," would be subject to appropriate administrative discipline, including suspension from duty without pay or removal from office, by order of either the Postmaster General or the Authority. Whenever a Postal Service officer or employee takes or fails to take any action in a manner which is noncompliant with such a directive or order, the Postmaster General would be required immediately to report to the Authority all pertinent facts, together with a statement of any administrative disciplinary actions that the Postmaster took or proposes to take. Section 226(c) would empower the Authority to implement recommendations regarding financial stability that it has submitted to the Postal Service, but that were rejected by the Postal Service. The Authority's recommendations could include, among others, establishing alternatives to meet obligations to pay for pensions and retirement benefits of current and future Postal Service employees and increasing use of an employee personnel system based upon performance standards. This subsection would apply with respect to Authority recommendations made after the expiration of the six-month period beginning on the date a control period commences. Section 213(a) of H.R. 2309 , "Treatment of Actions Arising Under This Title," would authorize a person, including the Postal Service, adversely affected or aggrieved by an Authority order or decision to institute proceedings within 30 days after a decision or order becomes final by filing a petition with the Court of Appeals for the District of Columbia. It would direct the court to review the order or decision in accordance with 5 U.S.C. Section 706 and 28 U.S.C. chapter 158 and Section 2112. This subsection states that, "Judicial review shall be limited to the question of whether the Authority acted in excess of its statutory authority, and determinations of the Authority shall be upheld if based on a permissible construction of the statutory authority." The bill would permit Supreme Court review of a D.C. Circuit decision only if a petition for review is filed within 10 days after a decision is entered. No order of any court granting declaratory or injunctive relief against the Authority, including relief that permits or requires obligating, borrowing, or expending funds, could take effect while an action is pending in court, during the time an appeal may be taken, or, if an appeal is taken, during the period before the court has entered its final order disposing of the action. The bill states that the U.S. Court of Appeals for the District of Columbia and the Supreme Court have a duty to advance on the docket and expedite to the greatest possible extent the disposition of any matter brought by an affected or aggrieved person. The Senate passed S. 1789 on April 25, 2012, by a vote of 62 to 37. Section 106, "Arbitration: Labor Disputes," would amend 39 U.S.C. Section 1207(c)(2), which relates to arbitration proceedings to resolve labor disputes. It would add a requirement that, "In rendering a decision under this paragraph, the arbitration board shall consider such factors as the financial condition of the Postal Service." It also would add the following language: "Nothing in this section may be construed to limit the relevant factors that the arbitration board may take into consideration in rendering a decision under paragraph (2)." This Senate-passed language is similar but not identical to language in Section 105 of S. 1789 that was reported to the Senate by the Committee on Homeland Security and Governmental Affairs. The committee report observed that two successive Postmasters General requested a statutory amendment requiring arbitration boards to consider the Postal Service's financial condition and that the Government Accountability Office favored such an amendment, but that some postal union presidents opposed it. This report added that The Committee decided that, at this period when the Postal Service faces such dire financial difficulties, arbitrators must consider the financial condition of the Postal Service, and S. 1789 should say so explicitly. However, the Committee was determined to include a balanced provision in S. 1789 , making it clear that Congress does not believe that the financial condition of the Postal Service, or any other objectives put forward by the Postal Service or one of its unions, are the only factors that arbitrators must consider. Another provision of S. 1789 , as passed by the Senate, Section 104, states that consistent with 39 U.S.C. Section 1005(f), which provides that the program of fringe benefits must not be less favorable than the one in effect in 1971, the Postal Service may enter into a joint collective bargaining agreement with bargaining representatives to establish the Postal Service Health Benefits Program as a substitute for the Federal Employees Health Benefits Program. Any dispute in negotiating this program would not be subject to arbitration. Authority for this joint negotiation would extend until September 30, 2012. During floor consideration of S. 1789 , the Senate by a vote of 23 to 76 rejected an amendment offered by Senator Rand Paul to amend Section 1206, "Collective bargaining agreements," of title 39 of the U.S. Code. This amendment would provide that, "The Postal Service may not enter into any collective bargaining agreement with any labor organization." It also made technical and conforming changes to other sections in chapter 12, "Employee-Management Agreements," of Title 39 that relate to collective bargaining. This report has described the scope of Postal Service collective bargaining and authority of Congress to modify employee-management relations by altering the scope of collective bargaining or terms of collective bargaining agreements. It also has summarized changes to collective bargaining proposed in H.R. 2309 , the Postal Reform Act of 2011, as reported to the House by the Committee on Oversight and Government Reform, and in S. 1789 , 112 th Congress, as passed by the Senate Congress created the United States Postal Service as an instrumentality in the executive branch of the federal government in the Postal Reorganization Act of 1970, P.L. 91-375, to permit it to operate more like a business than a government department or agency. Postal Service employee-management relations were made subject to the National Labor Relations Act, which governs private sector relations, rather than the Federal Labor-Management Relations Statute in chapter 71 of the United States Code, which applies to most federal entities. Congress granted the Postal Service broader authority to bargain collectively over compensation, benefits, and other conditions of employment. Most federal departments and agencies may bargain collectively only over conditions of employment, excluding conditions that are subjects of federal statute such as life insurance and health insurance and position classification. The Postal Service Reform Act of 2011, H.R. 2309 , would modify some provisions of Title 39 of the U.S. Code regarding collective bargaining and employee-management relations. These provisions would seek to broaden the measures of pay comparability between Postal Service officers and employees and private sector employees as well as the overall value of fringe benefit packages by taking into account some benefits that are not widely available in the private sector. They also would reduce the employing agency share that the Postal Service now pays for government life insurance and health insurance premiums for its employees. These changes also would prohibit including no-layoff clauses in collective bargaining agreements not yet ratified when H.R. 2309 is enacted and require renegotiating already ratified agreements that have them, and modify procedures for resolving collective bargaining disputes by requiring parties to appoint neutral arbitrators and by including mediators in arbitration boards. H.R. 2309 also would create a receiver-like Postal Service Financial Responsibility and Management Assistance Authority to assume all authorities and responsibilities of the Board of Governors of the Postal Service during a control period (i.e., any period when the Postal Service has been in default to the Treasury of the United States). The Authority would be advisory only during the first two years of a control period, but would become fully in force at the completion of the second full fiscal year or any year thereafter during the length of a control period if the Postal Service's annual deficit is greater than $2 billion. When fully in force, the Authority, among other responsibilities, could approve human resources strategies, collective bargaining strategies, negotiation parameters, and collective bargaining agreements. The Postmaster General could not enter into, renew, modify, or extend a contract, including a labor contract entered into through collective bargaining, unless the Authority determined that doing so is consistent with the financial plan and budget for the fiscal year. The Authority also could take such actions within its responsibilities to revise a contract, including a collective bargaining agreement that is in effect during a control period, which it determines to be inconsistent with the financial plan and budget for the fiscal year. S. 1789 , the 21 st Century Post Office Act of 2012, as passed the Senate, would amend 39 U.S.C. Section 1207(c) to require an arbitration board to consider the financial condition of the Postal Service when it issues a final decision, but this requirement would not preclude a board from considering any other relevant factors. It also would authorize the Postal Service until September 30, 2013, to enter into a joint collective bargaining agreement with bargaining representatives to establish the Postal Service Health Benefits Program. During floor consideration of S. 1789 , the Senate rejected an amendment to eliminate Postal Service collective bargaining by a vote of 23 to 76. | This report describes the scope of the collective bargaining authority that Congress has granted to the Postal Service and authority of Congress to modify employee-management relations by altering that scope or the terms of collective bargaining agreements. It also summarizes some provisions—H.R. 2309, the Postal Reform Act of 2011, and S. 1789, the 21st Century Postal Service Act of 2012, both of the 112th Congress—that relate to collective bargaining. This report will be updated to reflect changes in relevant developments. |
Challenges to Russia's democratic development have long been of concern to Congress as it has considered the course of U.S.-Russia cooperation. The Obama Administration has been critical of the apparently flawed Russian presidential election which took place on March 4, 2012, but has called for continued engagement with Russia and newly elected President Vladimir Putin on issues of mutual strategic concern. Some in Congress also have criticized the conduct of the election, but have endorsed continued engagement, while others have called for stepping back and reevaluating the Administration's engagement policy. Congress may consider the implications of another Putin presidency, lagging democratization, and human rights abuses in Russia as it debates possible future foreign assistance and trade legislation and other aspects of U.S.-Russia relations. Former Russian President Vladimir Putin served two elected terms from 2000 to 2008, after which he was required to step down due to a constitutional limit to two successive terms. He endorsed his then-First Deputy Prime Minister Dmitriy Medvedev as his choice to be the next president. Medvedev was elected by a wide margin in March 2008, and upon taking office nominated Putin to be his prime minister. In September 2011, Prime Minister Putin and President Medvedev announced that they would exchange places so that Putin could re-assume the presidency. The two leaders claimed that they had agreed to consider this switch before Medvedev had been elected in 2008. This announcement created a great deal of resentment among many Russians who felt that a backroom deal had been foisted on them. The resentment was mostly low-key at first, but signs included polls showing growing dissatisfaction with Putin and Medvedev. The trigger for wider open discontent was a December 2011 election to Russia's legislature, the Duma, that was widely viewed by many Russians as not free and fair. Demonstrations against the election began even before the polls closed, and over the next few weeks, several protests of up to 100,000 or more people were held in Moscow and many other cities, the largest since before the collapse of the Soviet Union over 20 years ago. These protesters demanded that a new Duma election be held, but also called for a scheduled March 4, 2012, presidential election to be free and fair. At first, these protests appeared to shock the Putin government, leading to some arrests, but the government soon decided to permit the protest rallies as a means to "let off steam," and President Medvedev introduced some legislation that he claimed would enhance democratization in Russia in the future. Five candidates were able to register for the March 4, 2012, presidential election. Four of the five candidates—Putin, Gennadiy Zyuganov, Vladimir Zhirinovskiy, and Sergey Mironov—were nominated by parties with seats in the Duma. According to the election rules, other prospective candidates from minor parties not represented in the Duma or self-nominated individuals were required to gather 2 million signatures of support, with no more that 50,000 in each of at least 40 regions nationwide, within about one month. Many analysts have viewed these and many other requirements imposed on prospective minor party and independent candidates as too restrictive and as limiting political participation. Of the 17 individuals who initially announced they would run for the presidency, some dropped out and many were disqualified on technical grounds by the Central Electoral Commission (CEC), and only three managed to submit signatures. Two out of the three—regional governor Dmitriy Mezentsev and opposition Yabloko Party head Grigoriy Yavlinskiy—were disqualified by the CEC on the grounds that over 5% of their signatures were invalid. The signatures of the third prospective candidate, businessman Mikhail Prokhorov, were deemed valid and he was placed on the ballot. According to some critics, Mezentsev was a "technical candidate," who was nominated only to ensure that if all other candidates withdrew from the election, Putin would still have an opponent as required under the electoral law. After Prokhorov was registered, however, Mezentsev was no longer needed and he was eliminated as a candidate, these critics claim. Yavlinskiy was deemed ineligible on the grounds that some signatures gathered electronically were not handwritten in ink and therefore were invalid. Many observers argued that he was eliminated because he would have been the only bona fide opposition candidate on the ballot. Of the registered candidates, all but Prokhorov had run in previous presidential elections and lost badly. Zyuganov and Zhirinovskiy had run several times. While he was speaker of the Federation Council (the upper legislative chamber), Mironov ran in the 2004 presidential election, where he praised Putin's policies. Prokhorov announced his candidacy just two days after a large opposition demonstration on December 10, 2011, raising speculation by some critics that he was urged to run by the government as a candidate who might attract the votes of some of the liberal protesters. According to polling, substantial percentages of prospective voters viewed all these candidates in a negative light and would never vote for them. For instance, over one-quarter of those polled stated that they would never vote for an "oligarch" like Prokhorov (he is said to be the third-richest man in Russia). These negative views greatly hampered the effectiveness of these candidates' campaign efforts, and many voters may well have voted for Putin as the "lesser evil," according to some observers. Besides permitting protests "for free elections" as well as opposition presidential candidate meetings, the Medvedev-Putin government launched efforts to appeal to wavering if not disgruntled voters, including by offering opposition figures jobs and by making some changes in government postings. Among the latter, Russia's ambassador to NATO, the nationalist Dmitriy Rogozin, was elevated to deputy prime minister in a seeming effort to attract the nationalist vote, according to some observers. Also, the Putin campaign orchestrated large-scale rallies, the most prominent of which was a pro-Putin demonstration on February 4 in Moscow aimed at rivaling the attendance at a "for free elections" rally, and a campaign rally in the Luzhniki stadium in Moscow on February 26, 2012. At this final campaign rally of the Putin campaign, some individuals reportedly had arrived by bus or train after trips lasting more than 24 hours, even though Putin's attendance at the rally was uncertain. The government claimed that over 130,000 supporters attended the rally, although the stadium's capacity is about 84,000. In addition to these pro-Putin events, a wave of television shows was launched extolling Putin's rule and condemning alleged U.S. and opposition "subversion" against Russia. At the same time, authorities moved to harass and suppress independent vote monitoring groups, the Internet, and certain "old media" newspapers and broadcasters that the opposition relied on. Putin refused to participate in televised debates with the other candidates, but appeared extensively on television in the guise of carrying out his duties as prime minister. Also, from mid-January through late February, he published seven long articles in major newspapers. These "election manifesto" articles covered such policy issues as ethnicity, the economy, democracy, socioeconomic problems, national security, and foreign policy. In the first overview article, Putin boasted that during his rule, he helped "deliver Russia from the blind alley of civil war, break the back of terrorism, restore the country's territorial integrity and constitutional order, and spark economic revival, giving us a decade distinguished by one of the world's fastest economic growth rates." In the democracy article, he argued that there was no democracy in Russia in the 1990s, only "anarchy and oligarchy," but that under his rule in the 2000s, democracy had been established. He defined this democracy in terms of the rights of Russians to employment, free healthcare, and education, although he admitted that civil society recently had demanded more political participation. However, he warned against creating a contentious electoral environment of "buffoons" rather than one where "responsible" people are elected, and called for retaining a strong federal government if gubernatorial elections are reinstated. He also called for greater efforts to combat corruption, which he claimed had strengthened when young greedy people had moved into the civil service. In general, the articles appeared to be a reiteration of existing policies and sentiments, rather than a forum for launching new initiatives, according to many observers. Besides these efforts, Putin boosted or promised large increases in military and government pay, pensions, and student stipends. These benefits may have made many voters very receptive to his argument that they should elect him in order to preserve their benefits. A major aspect of the shift in tactics by the Putin campaign involved blaming the United States and the West for the protests. This anti-Americanism aimed to define the election as a patriotic vote for Putin. After Secretary Clinton voiced criticism of the Duma election in early December 2011, Putin accused her of "giving orders" for the launch of protests. Rogozin even asserted that Secretary Clinton and former Secretary Madeleine Albright wanted to destroy Russia in order to take over Siberia's mineral resources. At the campaign rally at the Luzhniki stadium on February 23, Putin urged voters "not to look abroad ... and not betray their motherland, but to stay with us, to work for [Russia's] benefit and its people. And love it the way we do." This anti-American theme also was prominent in a number of supposedly non-partisan talk shows and "documentaries" aired on state-owned or controlled television. Several major Russian polling organizations are owned by the government or receive government contracts, so their objectivity was of concern, according to some observers. In particular, the prominent All-Russian Center for the Study of Public Opinion (known by its Russian acronym, VTsIOM), is state-owned. Some critics have argued that VTsIOM's polls were an announcement of what results the government planned for on election day. The government pointed to the polls as evidence that the results were valid and not due to ballot-box stuffing, according to these critics. They point to Putin's award of the Order for Services to the Fatherland to VTsIOM after the 2007-2008 election cycle as evidence of this collusion between the government and VTsIOM. On February 27, the last permitted day to release polling results, VTsIOM estimated that Putin would garner nearly 59% of the vote, so that a second round of voting would not be necessary. During the last few days before the election, the Putin government and campaign made several accusations that opposition politicians and other enemies of Putin were involved in criminal conspiracies. The most sensational was an announcement in late February that Ukrainian police had uncovered a plot by Chechen terrorists to assassinate Putin after the election. Other sensational accusations included those by Putin that oppositionist politicians planned to kill one of their own in order to blame the death on him, and another that oppositionists planned to stuff ballots marked with Putin's name into ballot boxes in order to declare that the election was illegitimate. The privately owned REN TV showed a program warning that if Putin was not elected, Russia would descend into civil war and destruction within a few months at the hands of the opposition. In an attempt to convince the public that the election would be free and fair, Prime Minister Putin announced in mid-December 2011 that two webcams would be placed in each of about 94,500 polling places. Most of these were installed. Individuals who pre-registered were permitted to view the voting and vote-counting on-line (the latter after a delay until all polls were closed). Putin declared victory two hours after the polls closed and after about one-third of polling precincts had reported that he had received a sufficient vote for a first-round win. He and Medvedev hosted a large pre-planned outdoor victory rally and concert in Moscow (the pro-Putin crowds had gathered well before the last polling places in Russia had closed, which ostensibly is illegal). Putin proclaimed that the voters had rebuffed attempts to "break up the state and usurp power.... We proved that no one can impose on us.... We have won in open and honest battle." Even before receiving or reviewing most reports of electoral violations, CEC head Vladimir Churov proclaimed just after the polls closed that only a tiny percentage would prove valid. He also declared that the election was the most "open, fair, transparent and decent presidential campaign" in the world. Zhirinovskiy and Mironov immediately congratulated Putin for what they termed an honest win, but Zyuganov and Prokhorov alleged that electoral irregularities meant that the election was not free and fair. All but Zyuganov met with Putin on March 5, where a discussion of each candidate's platform proposals took place. According to the final report of the CEC, Putin won 63.6% of 71.8 million votes cast, somewhat less than the 71.3% he had received in his last presidential election in 2004. Some of Mironov's expected supporters instead may have voted for Prokhorov, reducing his result below that gained by his A Just Russia Party in the Duma election. Moscow was the only major city where Putin failed to get over 50% of the vote, even though there may have been a concerted effort to inflate Putin's vote count in the city, according to some reports. Chechnya continued its tradition of reporting a high turnout (99.6%) and vote (99.8%) for Putin. Thousands of irregularities were reported by independent Russian activists, including video of individuals allegedly admitting that they had been paid to vote repeatedly, and "hundreds" of buses parked in Moscow that allegedly had carried Putin's supporters into the city to inflate the voting results there for Putin. The performance of the webcams was uneven. Many were not focused on the ballot boxes or views were blocked, or they malfunctioned. The independent Golos (Voice) monitoring group reported the heavy use of "carousel voting," in which buses carried groups that voted at several polling places. Golos also reported the use of absentee ballots in government offices, institutions, and businesses that were gathered up and checked by supervisors to make sure that the employees had voted for Putin. Golos concluded in its preliminary report on the election that although there appeared to be somewhat fewer irregularities than during the Duma election, the presidential election was not free and fair. At a press conference, Golos also stated that its ballot count had given Putin just over 50% of the vote, giving him a win in the first round. Russian physicist Sergey Shpilkin estimated that Putin may actually have received about 58% of the vote, with the official result inflated by ballot box stuffing, by inflating the voter turnout and allocating these votes to Putin, and by other means. In their preliminary report, the 262 monitors led by the Organization for Security and Cooperation in Europe (OSCE) concluded that the election was well organized but that there were several problems. Although the report did not state outright that the election was "not free and fair," some of the monitors at a press conference stated that they had not viewed it as free and fair. According to the report, Prime Minister Putin received an advantage in media coverage, and authorities mobilized local officials and resources to garner support for Putin. The report also raised concerns that precinct polling place chairpersons generally appeared to belong to the ruling United Russia Party or were state employees. On the positive side, the OSCE reported that the government did not hinder demonstrators calling for fair elections, permitted many monitors at polling places, and installed webcams in most polling places. On election day, the OSCE monitors assessed voting positively overall in the over 1,000 polling places they visited, but witnessed irregularities in vote-counting in nearly one-third of the 98 polling stations visited and in about 15% of 72 higher-level territorial electoral commissions. Putin (and outgoing President Medvedev) face rising dissatisfaction by many Russians with what are viewed as tainted elections, corruption, and other political and human rights problems. According to some Russian sociologists, about one-quarter of the Russian population belongs to the middle class and this portion could grow to one-third by the end of the decade. By this time, a majority of the working population will be middle class, they estimate. These individuals, including many business owners and private-sector employees, want a government that is not corrupt and follows the rule of law, these sociologists report. Putin and other observers have pointed to this growing middle class as major participants in the protests that began after the Duma election. The fact that a large segment of this growing middle class lives in and around Moscow where Putin reportedly garnered a relatively low 47% of the vote should also raise concern for the long-term effectiveness of a new Putin presidency. To some small degree, Putin and Medvedev have become cognizant that this rising middle class increasingly will demand reforms and have already offered some accommodative gestures since the Duma election protests (see below). A major question is whether a Putin presidency can implement substantial economic and democratic reforms. Some critics have argued that Putin is not attuned to making such reforms, and that he will face rising civil discontent during his third term in office. A few have warned darkly that he could be ousted. Most observers discount such a scenario, however, but argue that Russian political and economic institutions and civil society will face substantial strains to adapt to the long-term demands of a modern global economy. Some observers have speculated that Putin may not follow through on his announced plans to nominate Medvedev as his prime minister. Alternatively, some of Medvedev's supporters have urged him not to become prime minister. Medvedev supporter Igor Yurgens has warned that Medvedev will be "torn apart" by the more conservative Putin appointees in the government, and suggested that the constitution be changed to name Medvedev vice president so that he could maintain more independence from Putin's non-reformist policies. Most observers, however, believe that Medvedev will be confirmed as prime minister. On March 1, Putin stressed that he was running for president on the platform that Medvedev would be nominated as prime minister, and that voters would decide democratically on this "tandem." Some observers suggest that a Prime Minister Medvedev would have substantial authority as a former president, so that the "tandem" would continue to operate much as it has over the past four years. According to this view, Putin would be unlikely to fire Prime Minister Medvedev, at least in the short term. However, prime ministers have been replaced by Putin (and former President Yeltsin) when the economy has declined. Putin has stated that Medvedev as prime minister would continue to carry out initiatives he launched as president. Medvedev had announced several democratization initiatives in his state of the federation speech on December 22 that he stated were partly spurred by the protests (Putin, in contrast, has asserted that the protests had no bearing on these initiatives). These proposals have been submitted to the legislature for debate. One proposal was to restore gubernatorial elections, which Putin had abolished in 2004. Putin voiced qualms about this initiative, requesting that he retain control over who may run in such elections, and the draft bill reportedly contains such a provision. Another vague proposal by Medvedev was to increase the openness of legislative elections, which some observers had hoped would include the restoration of constituency races and the possibility of self-nominated candidates (Putin had abolished these in 2005). The bill submitted to the Duma, however, called for altering electoral procedures so that voters in 225 new districts would select a party list with identifiable local candidates. Golos researchers have termed these two bills disappointing "propaganda" exercises. Another bill may prove more reformist, however, by greatly reducing the registration requirements for new parties, which may permit many currently unrepresented interests in society to participate in political life. On March 5, Medvedev directed the prosecutor general to review businessman/oligarch Mikhail Khodorkovskiy's conviction and that of 30 other prisoners who had been highlighted by opposition politician Boris Nemtsov as "political prisoners" during a meeting with Medvedev on February 20. He also ordered the Prosecutor General to examine the mid-2011 denial of party registration to the Party of People's Freedom. The initial protests after Putin's election by those who view the electoral process as tainted appeared smaller in size and number than after the Duma election. Authorities approved a protest rally in Pushkin Square in central Moscow on March 5, along with Putin victory rallies elsewhere in the city. Some youth activists involved in the victory rallies reportedly stated that they were ready to fight against "provocations" by the protesters. After some of the protesters allegedly did not disperse after the time for the rally had elapsed, police forcibly intervened and reportedly detained up to 250 demonstrators, including activists Alexey Navalny, Sergey Udaltsov, and Ilya Yashin, who later were released. At a protest rally in St. Petersburg, reportedly 300 people were detained. Small protest rallies reportedly numbering up to several hundred people occurred in several other cities of Russia. Putin victory rallies reportedly attended by 1,000-7,000 people also were held in several cities across Russia on March 5. A "for free elections" protest rally was held in Moscow on March 10, attended by 10,000-25,000 people. After the rally some protesters attempted a march and were temporarily detained, including Udaltsov. Some other small protest rallies reportedly numbering 350 or less people took place elsewhere in Russia on the same day. The Communist Party has planned to hold protests against the election in coming weeks. Some observers have discerned a lessening turnout at the protests. Some advocates of "right wing" democratization among the protesters, such as Yavlinskiy, have called for shifting the focus from rallies to organizing new or revitalized opposition political parties. Udaltsov, who represents the "left wing" nationalists among the protesters, has disagreed, however, arguing that unauthorized protests should continue as one means to pressure the authorities. Among other initiatives, Mironov has called for a change in electoral law to again permit party blocs, so that A Just Russia Party could join with the Communist Party to form a new social democratic coalition. Business interests appeared to welcome Prokhorov's third-place showing and his indication that he would continue a role in politics by forming a party, a proposal that also was endorsed by Putin on March 5. It remains to be seen whether the impetus to create and strengthen civil society organizations will be sustained, particularly if a new Putin administration cracks down on such efforts. The day after the election, the State Department issued a statement that the United States "looks forward to working with the President-elect after ... he is sworn in." The statement pointed to the results of the preliminary report of the OSCE in stating that the "election had a clear winner with an absolute majority," but also urged the Russian government to address shortcomings mentioned in the report. The statement hailed the large number of Russian citizens who turned out to monitor the election, held rallies, and otherwise "express[ed] their views peacefully," and also praised the intentions of the government to improve the political system by re-introducing gubernatorial elections, simplifying party registration, and making other reforms. On March 9, 2012, President Obama telephoned President-elect Putin to congratulate him on his electoral victory, and stated that he looked forward to meeting him at Camp David, Maryland, in May 2012 (see below). Other Western governments appeared to take similar viewpoints. The European Union's High Representative Catherine Ashton on March 5 "took note" of Putin's "clear victory," and praised the significant level of civic engagement in the election. At the same time, she urged Russian authorities to address shortcomings mentioned in the OSCE report. She stated that the "EU looks forward to working with the incoming Russian President" to implement pledges of economic and political reforms. The Administration has pointed to successes of the U.S.-Russia "reset" of relations as including approval by Russia in 2009 for the land and air transit of military supplies to support U.S. and NATO forces in Afghanistan, and cooperation in approving a U.N. Security Council (UNSC) resolution in 2010 tightening sanctions on Iran, as well as the signing of the START Treaty and the work to gain Russia's invitation at the end of 2011 to join the World Trade Organization. It is possible that the anti-Americanism exhibited by Putin during the campaign could put a strain on future cooperation under the U.S.-Russia "reset," particularly if the opposition protests continue in Russia into the summer and are met by a government crackdown and continuing anti-American statements. Soon after he arrived in Moscow in December 2011, new U.S. Ambassador Michael McFaul was accused on state-owned television of providing orders and money to some opposition politicians with whom he had met. However, he has reported that he has had fruitful meetings with Russian officials since this criticism. One positive sign is that various meetings of the working groups of the U.S.-Russia Bilateral Presidential Commission have continued in recent weeks. Another positive sign is that Russian officials have stated that cooperation on the transit of supplies to support U.S. and NATO operations in Afghanistan will not be linked to other issues in U.S.-Russia relations. Russia continues to support this transit because U.S. and NATO efforts help stanch terrorist threats aimed at Russia emanating from Afghanistan. On other U.S.-Russia foreign policy issues, differences have remained or emerged in recent months. The United States, for example, continues to call for Russia to withdraw its troops from occupied areas of Georgia, to which Moscow thus far has failed to respond. In early 2011, Russia abstained on a UNSC resolution calling for a "no-fly zone" to protect civilians in Libya. The United States and Russia viewed this abstention as support for the U.S.-Russia reset, but almost immediately Russia denounced NATO actions in Libya as aimed at "regime change," and proclaimed that it would not support another UNSC resolution tightening sanctions on Iran, viewing it as a further "regime change" attempt. Russia has used the same rationale in vetoing UNSC resolutions on Syria. Secretary Clinton termed the February Russian veto "despicable." Russia is a major arms supplier to Syria and has a Mediterranean naval docking facility at Tartus (although it is seldom used). Although the Putin-Medvedev "tandem" defended the veto, it faced Russian domestic as well as international criticism. Members of Congress have criticized Russia's veto of the Syria resolution; and S.Res. 370 , introduced by Senator Robert Casey, condemns Russia for supplying arms to Syria. On February 24, Putin rejected an argument that U.S.-Russia relations were "cooling off," stating that "I don't think we are seeing a cooling.... We have a constant dialogue - we dislike some of the things our colleagues are doing, they don't like some things we are doing. But in general we have built a partnership over the key issues on the international agenda." Similarly, in an interview with Western media on March 1, Putin praised the U.S.-Russia reset as "useful," pointing to the START Treaty and WTO accession, and stated that he had warm relations with President Obama, whom he viewed as desiring good U.S.-Russia relations. During President Obama's March 9, 2012, telephone conversation with President-elect Putin, President Obama "highlighted achievements in U.S.-Russia relations over the past three years," and the two "agreed that the successful reset in relations should be built upon during the coming years." Soon after his inauguration on May 7, Putin is expected to attend the Group of 8 (G-8) industrialized nations meeting at Camp David, Maryland, on May 19-20, just before a NATO summit meeting, scheduled to be held in Chicago. The Administration has suggested that Obama and Putin may hold a summit on the sidelines of the G-8 meeting. Some observers have warned that if European missile defense issues remain contentious at the time of this NATO Summit, Putin may deliver a harsh anti-U.S. speech. On February 24, 2012, one Russian official appeared to urge Putin to indicate readiness before the Camp David and Chicago meetings for "serious talks" on missile defense and nuclear issues with the United States. Deputy Foreign Minister Sergey Ryabkov indicated on February 29 that a decision on attending the NATO Summit awaited the election and movement on missile defense issues. Russian media reported in early March that a lack of progress on missile defense made it unlikely that a NATO-Russia Council meeting would be held in Chicago, and speculated that Putin may not attend the NATO Summit. A mostly positive assessment of near-term U.S.-Russia relations was given by Director of National Intelligence James Clapper in testimony to Congress in late January on worldwide threats. Clapper suggested that there would be "more continuity than change" in Russian domestic and foreign policy over the next year under a Putin presidency. He projected that Putin would not reverse the course of U.S.-Russian relations, but they might be more "challenging" since Putin has an "instinctive distrust of U.S. intentions." Challenges to Russia's democratic development have long been of concern to Congress as it has considered the course of U.S.-Russia cooperation on matters of mutual strategic interest and as it has monitored problematic human rights cases. Among these concerns, many Members have condemned Russia's invasion of Georgia in 2008, the death of lawyer Sergey Magnitskiy after being detained and tortured in a Russian prison in 2009, and the re-sentencing of businessman/oligarch Mikhail Khodorkovskiy in 2010 to several more years in prison. Recent legislation includes the Senate and House versions of the Magnitskiy Rule of Law bills, which would impose a visa ban and an asset freeze on human rights abusers, and a provision in the National Defense Authorization Act of 2012 ( P.L. 112-81 ), signed into law on December 31, 2011, that calls for a plan to provide defensive weaponry to Georgia. The Administration's foreign assistance budget for FY2013 submitted to Congress in February 2012 requests $52 million for Russia, most of it aimed to continue support for democratization, and the Administration additionally has notified Congress of plans to create a $50 million fund to further support these efforts. Some observers have suggested that since Putin has condemned such aid as interference in Russia's internal affairs, he may tighten restrictions on such aid for non-governmental organizations or even ban some aid activities. Ongoing congressional concerns about democratization, human rights, and trade will continue and may have been heightened by the Russian election outcome. During his trip to Russia in late February 2012 to discuss U.S. trade prospects ahead of hearings on Russia's accession to the World Trade Organization (WTO), Senate Finance Committee Chairman Max Baucus stressed that the growth of U.S. trade and investment would be facilitated by further democratization. Russia's legislature will give approval for the ratification of WTO accession by mid-2012. Congress may consider whether to grant Permanent Normal Trade Relations (PNTR) to Russia and to lift the applicability of the so-called Jackson-Vanik provisions of the Trade Act of 1974 to Russia (concerning emigration from the former Soviet Union). Russia's human rights and democratization record may well be part of the debate. On March 5, 2012, Representative David Dreier, chairman of the House Democracy Partnership, congratulated Putin on his election victory, but objected to Putin's election night victory speech which appeared to characterize the United States as interfering in Russia's domestic affairs. Representative Dreier stated that the United States was not seeking to dictate to Russia, but suggested that the United States, "a country that has had a 223-year history of democracy, could provide a little bit of advice to a country that is just now beginning to enter its third decade of democracy and obviously has had more than a few challenges." He endorsed an idea that Putin not run again after his third term in office, call a new Duma election, and hold free and fair gubernatorial elections. Dreier also praised Medvedev's request for an examination of the sentence against Khodorkovskiy and suggested that former Russian Finance Minister Alexey Kudrin might make a good choice as prime minister. He stated that the United States wanted a "strong, vibrant, and growing Russia," and good U.S.-Russia relations. | Challenges to Russia's democratic development have long been of concern to Congress as it has considered the course of U.S.-Russia cooperation. The Obama Administration has been critical of the apparently flawed Russian presidential election which took place on March 4, 2012, but has called for continued engagement with Russia and newly elected President Vladimir Putin on issues of mutual strategic concern. Some in Congress also have criticized the conduct of the election, but have endorsed continued engagement, while others have called for stepping back and reevaluating the Administration's engagement policy. Congress may consider the implications of another Putin presidency, lagging democratization, and human rights abuses in Russia as it debates possible future foreign assistance and trade legislation and other aspects of U.S.-Russia relations. Five candidates were able to register for the March 4, 2012, presidential election. Of these, Prime Minister Putin had announced in September 2011 that he intended to switch positions with current President Dmitriy Medvedev, and return to the presidency for a third term. Three of the other four candidates—Communist Party head Gennadiy Zyuganov, Liberal Democratic Party head Vladimir Zhirinovskiy, and A Just Russia Party head Sergey Mironov—were nominated by parties with seats in the Duma. The remaining candidate, businessman Mikhail Prokhorov, was self-nominated and was required to gather 2 million signatures to register. Other prospective candidates dropped out or were disqualified on technical grounds by the Central Electoral Commission (CEC). Opposition Yabloko Party head Grigoriy Yavlinskiy was disqualified by the CEC on the grounds that over 5% of the signatures he gathered were invalid. Many critics argued that he was eliminated because he would have been the only bona fide opposition candidate on the ballot. Of the registered candidates running against Putin, all but Prokhorov had run in previous presidential elections and lost badly. According to the final report of the CEC, Putin won 63.6% of 71.8 million votes cast, somewhat less than the 71.3% he had received in his last presidential election in 2004. In their preliminary report, monitors led by the Organization for Security and Cooperation in Europe (OSCE) concluded that the election was well organized but that there were several problems. Although the report did not state outright that the election was "not free and fair," some of the monitors at a press conference stated that they had not viewed it as free and fair. According to the report, Prime Minister Putin received an advantage in media coverage, and authorities mobilized local officials and resources to garner support for Putin. The OSCE monitors witnessed irregularities in vote-counting in nearly one-third of the 98 polling stations visited and in about 15% of 72 higher-level territorial electoral commissions. The initial protests after Putin's election by those who view the electoral process as tainted appeared smaller in size and number than after the Duma election. Authorities approved a protest rally in Pushkin Square in central Moscow on March 5, along with Putin victory rallies elsewhere in the city. After some of the protesters allegedly did not disperse after the time for the rally had elapsed, police forcibly intervened and reportedly detained up to 250 demonstrators, including activist Alexey Navalny, who later was released. |
RS21341 -- Credit Scores: Credit-Based Insurance Scores Updated January 19, 2005 An insurance score, a type of credit score, is a number produced by a proprietary computer scoring model that analyzes a person's credit history information,such as payment history, collection, balances, and bankruptcies. While credit scores are used by lenders to helpthem decide whether to offer a person a loan,insurance scores are used by insurers to determine what level of risk a person represents. The information used incredit and insurance score models is obtainedprincipally from credit reports, generated by the three major national credit reporting agencies (CRAs): Equifax,Experian, and Trans Union. (1) CRAs aresubject to the consumer protections set forth in the Fair Credit Reporting Act (FCRA). (2) Credit scores have been used widely for some time in credit-relatedbusinesses such as banks, home mortgage lenders, and credit card issuers, but the use of insurance scores by insurersis relatively new. FCRA allows CRAs tofurnish a credit report without the consumer's permission to an insurer when the report is to be used in connectionwith the underwriting of insurance. However, FCRA also provides that when any users of credit information from CRAs use such information to takeaction that is adverse to the consumer, thennotification of that action must be given to the consumer. Over the past several years, insurers increasingly have included credit information from credit reports as factors in insurance underwriting, especially inpersonal lines of insurance such as automobile and homeowners insurance. There is some indication, however, thatcredit information may also have somerelevance in commercial lines of insurance. (3) It hasbeen estimated that 90% of property insurers now use credit information in some way in their underwritingdecisions. (4) Insurers maintain that there is a clearstatistical connection between a person's insurance score and the likelihood of that person filing claims, aswell as how expensive such claims might be. Thus, even though a good insurance score does not necessarily meana person is a good driver or a moreresponsible homeowner, insurers contend that their research has shown that persons with better insurance scoresgenerally file fewer insurance claims and havelower insurance losses. Insurers maintain that as a result of using insurance scores, they can charge lower premiumsor give discounts to many customers whootherwise would pay more for insurance, and are also able to offer coverage to more consumers. Many insurers havedeveloped their own scoring models,while others contract with third parties to obtain their insurance scores. Either way, insurers say the link betweeninsurance scores and insurance losses is clear,and point to two possible explanations. The first explanation relates to stress -- that people under stress are morelikely to have auto accidents, and financialproblems are a known cause of stress. The second explanation relates to risk-taking behavior -- that people havedifferent aversions to risk, and people withpoor insurance scores are more likely to engage in risky behavior and, therefore, more likely to incur losses. State insurance laws generally provide that insurance rates cannot be unfairly discriminatory. Some state regulators and consumer advocates insist thatinsurance scores do in fact discriminate against low-income and minority consumers and that their use should bebanned or limited. Critics also say thatinsurance scores penalize poor people, immigrants, and seniors who may not have credit records. One consumeradvocate recently asserted that insurancescores are the most controversial new addition to the rate-setting process, that they allow insurers to doubleautomobile premiums even for drivers whoserecords are pristine, and that states should ban insurers from using them to set rates. (5) Another consumer advocate has created a separate website to informinsurance consumers about the use of insurance scores and to urge them to get involved in forcing insurers toabandon the practice. (6) FCRA allows CRAs to furnish a credit report to an insurer without the consumer's permission if the report is to be used in connection with the underwriting ofinsurance. However, if any user of credit information from CRAs uses such information to take any adverse action,the person so affected must be givennotification of that action. The provisions of FCRA fall under the enforcement jurisdiction of the Federal TradeCommission (FTC), which, in its commentaryon FCRA, stated that "An insurer may obtain a consumer report to decide whether or not to issue a policy to theconsumer, the amount and terms of coverage,the duration of the policy, the rates or fees charged, or whether or not to renew or cancel a policy, because these areall 'underwriting' decisions." (7) Subsequently, in an interpretative letter, the FTC opined that the term "underwriting decision" included the casewhere an insurer would be obtaining creditreports on existing policyholders to determine whether they would be entitled to a discount under a Good CreditDiscount Program upon renewal of existingpolicies. (8) The use of credit scores in the mortgage lending industry and its potential impact on mortgage applicants have been addressed by the Federal Reserve System'sMortgage Credit Partnership Credit Scoring Committee. The Federal Reserve Bank of Chicago published an articlein 2000 in which it outlined how creditscores are used in the mortgage application process and also addressed several related issues. (9) One such issue is that while credit scores can servean importantfunction to facilitate access to credit, their nature and usage could result in unlawful discrimination againstminorities and low income applicants. This isgenerally referred to as the "disparate impact" of the use of credit scores. Congress has continued to monitor the effectiveness of FCRA with interest peaking during the first session of the 108th Congress as portions of FCRA were setto expire at the end of 2003. Following a wide-ranging series of hearings and two markups, the House FinancialServices Committee reported H.R. 2622 amending the Fair Credit Reporting Act on July 25, 2003. While the FCRA's primary focus is onthe regulation of credit information,the usage of this information, particularly insurance scores, by insurers drew congressional interest. CongressmanGutierrez previously introduced H.R. 1473 to specifically regulate insurers' use of credit information and he offered an amendment at thesubcommittee markup of H.R. 2622 calling for a study of insurer usage of credit information. This amendment was accepted andincluded in the bill as reported from the fullcommittee. The Senate held hearings and passed a bill amending the FCRA, S. 1753 , after the House. Thisbill also included the requirement for aslightly different study on the usage of credit information in insurance. The conference committee made furtherslight changes to the study requirement and itwas included in the conference report as passed and signed by the President ( P.L. 108-159 ). Unlike banks and other financial institutions that are regulated primarily at the federal level, insurers are regulated primarily at the state level. (10) Most stateinsurance laws prohibit unfair trade practices, and also require that insurance rates not be unfairly discriminatory. Many states require prior approval ofinsurance premium rates, especially those for personal lines such as automobile and homeowners insurance. Statelawmakers are beginning to turn theirattention to the issue of insurers' using credit-based insurance scores in making underwriting, marketing, and ratingdecisions. According to the NationalAssociation of Mutual Insurance Companies (NAMIC), 48 states have taken legislative or regulatory actionaddressing insurer use of credit historyinformation. (11) Many of the state laws arefollowing a model law (12) recommended by theNational Conference of Insurance Legislators (NCOIL) and generallysupported by insurers. The law was described in congressional testimony (13) as requiring "insurers: to notify an applicant for insurance if credit information will be used in underwriting and rating; to notify a consumer in the event of an adverse action based on credit information, includingnotification of factors that were the primaryinfluences on the adverse action; to re-underwrite and re-rate a policyholder whose credit report was corrected; to indemnify insurance agents/brokers who obtained credit information and/or insurance scoresaccording to an insurer's procedures andaccording to applicable laws and regulations; to file its scoring models with the applicable state department of insurance; such filings are deemedtrade secrets." Although described by a prominent consumer group as improving upon the previous market practices, the NCOIL law is seen as far from the prohibition on useof credit scores that some would prefer. (14) State insurance regulators are also increasing their regulatory oversight over credit-based insurance scores. In some states, the regulators have already addressedthe issue, but in an effort to develop a more unified national approach, most regulators are working through theirtrade organization, the National Association ofInsurance Commissioners (NAIC). In March 2002, the NAIC appointed a credit scoring working group to focuson the various regulatory issues related to theuse of credit information in the insurance underwriting and rating process. The working group has drafteddocuments to aid insurance consumers, and to assistthe regulators in clarifying the issues and recommending a set of best practices. Two draft documents were citedin NAIC congressional testimony (15) andapproved by the full NAIC shortly thereafter: Consumer Brochure: Understanding How Insurers Use Credit Information : This is a question/answer brochure, addressing such mattersas the legality of an insurer's obtaining a credit report under FCRA without permission, why and how insurers usecredit information, and how to improve one'sinsurance score. Credit-Based Insurance Scoring: Regulatory Options : This document seeks to set forth thepros and cons of various regulation options,including a ban on the use of credit history for rating purposes. These two documents, however, did not complete the recommendations or policies some hoped would emanate from the working group and the NAIC. A studyon the possible disparate impact of credit scoring was proposed. This proposed study, however, provokedsignificant debate and opposition. The workinggroup cancelled a previously scheduled session at the regular NAIC summer national meeting that was held June21-24, 2003. (16) At the NAIC fall nationalmeeting, held September 13-16, 2003, this study was put off and it was suggested that concerned states should dostudies of their own. (17) Indiana, Louisiana,Maryland, Missouri, Montana, Nevada, Oregon and Washington planned such a study, eventually abandoned theeffort under the threat of litigation from theindustry. (18) More recently, the NAIC workinggroup produced a white paper with a set of "best practices" relating to the usage of credit scoring. A number of lawsuits have been filed alleging violations of either state or federal law relating to the usage of credit information. For example, a lawsuit againstAllstate was filed seeking class action status in U.S. District Court in San Antonio, Texas, by several minorityplaintiffs alleging that the insurer usedinformation from credit reports and improperly factored it into a secretive scoring formula to target non-whites formore expensive policies than similarlysituated whites. Allstate's motion to dismiss was denied, and the case as been allowed to proceed after successiveappeals to the 5th U.S. Circuit Court and theU.S. Supreme Court. Insurers are concerned that the case could lead to a determination of a new discriminationstandard over and above the state lawprohibiting unfair discrimination, and thus usurp the authority of state insurance regulators and state laws. (19) Allstate is not the only insurer who has been to court on such an issue. In Illinois, a suit alleged that State Farm had engaged in the practice of refusing to issueor renew insurance policies solely on the basis of a credit report, in violation of the Illinois Insurance Code. (20) In Texas, the attorney general sued FarmersInsurance Group, alleging, among other charges, that the insurer was "using credit history as a significant factor insetting premiums, without disclosing theadverse impact of doing so...." (21) A settlementwas reached in the Texas case in December 2002, but it was challenged by some Texas policyholders. (22) | An insurance score, a type of credit score, is a number produced by a computer scoringmodel that analyzes aperson's credit information (i.e., payment history, collections, balances, and bankruptcies) obtained principally fromthat person's credit reports. Increasingly,insurers have been using insurance scores as an underwriting factor to evaluate insurance applications, especiallyfor automobile and homeowners insurance, inpredicting possible future insurance claims an applicant might generate. Insurers maintain that there is a clearstatistical connection between a person'sinsurance score and the likelihood of that person filing claims, as well as how expensive such claims might be. Byusing insurance scores, insurers say that theyare able to charge lower premiums to most customers who are better risks. On the other hand, some consumeradvocates dispute the insurers' position andargue that the use of insurance scores has a disparate effect on minorities, and is merely a new method by whichinsurers can increase premium rates. Even though credit scores have been widely used for some time by credit-related businesses such as homemortgage lenders and credit card issuers, the use ofinsurance scores by insurers is relatively new. The growing discontent regarding the use of credit-based scoring hasbeen reflected in proposed legislationamending the Fair Credit Reporting Act to require additional consumer protections, and in increased litigation. Insurance scores, like other credit scores basedon credit reports, are regulated to some degree at the federal level. Unlike other credit scores, however, insurancescores used in the underwriting process arealso subject to state insurance laws and regulations. Most of the states have been active in recently reviewing theirlaws and regulations in this area. Federallegislation in the 108th Congress that would have affected insurance scoring included H.R. 1473,H.R. 2796, H.R. 2622,and S. 1753. The latter two were the House and Senate versions of what would become P.L. 108-159, whichmandated a study on the impact ofinsurance scoring. This report will be updated in the event of significant legislative or regulatory developments. |
The House of Representatives has several different parliamentary procedures through which it can bring legislation to the chamber floor. Which will be used in a given situation depends on many factors, including the type of measure being considered, its cost, the amount of political or policy controversy surrounding it, and the degree to which Members want to debate it and propose amendments. According to the Legislative Information System of the U.S. Congress (LIS), in the 111 th Congress (2009-2010), 1,946 pieces of legislation received action. This report provides a statistical snapshot of the forms, origins, and party sponsorship of these measures, and of the parliamentary procedures used to bring them to the chamber floor during their initial consideration. Legislation is introduced in the House or Senate in one of four forms: the bill (H.R. / S.); the joint resolution (H.J.Res. / S.J.Res.); the concurrent resolution (H.Con.Res. / S.Con.Res.); and the simple resolution (H.Res. / S.Res.). Generally speaking, bills and joint resolutions can become law, but simple and concurrent resolutions cannot; they are used instead for internal organizational or procedural matters, or to express the sentiment of one or both chambers. In the 111 th Congress, 1,946 pieces of legislation received floor action in the House of Representatives. Of these, 885 were bills or joint resolutions and 1,061 were simple or concurrent resolutions, a breakdown between lawmaking and non-lawmaking legislative forms of approximately 45% to 55%, respectively. Of the 1,946 measures receiving House floor action in the 111 th Congress, 1,796 originated in the House and 150 originated in the Senate. It is generally accepted that the House considers more legislation sponsored by majority party Members than measures introduced by minority party Members. This was born out in practice in the 111 th Congress. As is reflected in Table 1 , 76% of all measures receiving initial House floor action in the last Congress were sponsored by Members of the Democratic Party, which had a majority of seats in the House. When only lawmaking forms of legislation are considered, 81% of measures receiving House floor action in the 111 th Congress were sponsored by Democrats, 19% by Republicans, and 1% by political independents. The ratio of majority to minority party sponsorship of measures receiving initial House floor action in the 111 th Congress varied widely based on the parliamentary procedure used to raise the legislation on the House floor. As is noted in Table 2 , 73% of the measures considered under the Suspension of the Rules procedure were sponsored by Democrats, 27% by Republicans, and less than 1% by political independents. That measures introduced by Members of both parties were considered under Suspension is unsurprising in that (as is discussed below) Suspension of the Rules is the parliamentary procedure which the House generally uses to process non-controversial measures for which there is wide bipartisan support. Additionally, passage of a measure under the Suspension of the Rules procedure requires the votes of at least some minority party Members. The ratio of party sponsorship on measures initially brought to the floor under a terms of a special rule reported by the House Committee on Rules and adopted by the House was far wider. Of the 103 measures CRS identified as being initially brought to the floor under the terms of a special rule in the 111 th Congress, all were sponsored by majority party Members. The breakdown in party sponsorship on measures initially raised on the House floor by unanimous consent was uneven, with majority party Members sponsoring three-quarters of the measures brought up in this manner. The following section documents the parliamentary mechanisms that were used by the House to bring legislation to the floor for initial consideration during the 111 th Congress. In doing so, it does not make distinctions about the privileged status such business technically enjoys under House rules. Most appropriations measures, for example, are considered "privileged business" under clause 5 of House Rule XIII (as detailed in the section on " Privileged Business " below). As such, they do not need a special rule from the Rules Committee to be adopted for them to have floor access. In actual practice, however, in the 111 th Congress, the House universally provided for the consideration of these measures by means of a special rule, which, in general, could also provide for debate to be structured, amendments to be regulated, and points of order against the bills to be waived. Thus, appropriations measures considered in the 111 th Congress are counted in this analysis as being raised by special rule, notwithstanding their status as "privileged business." In recent Congresses, most legislation has been brought up on the House floor by Suspension of the Rules, a parliamentary device authorized by clause 1 of House Rule XV, which waives the chamber's standing rules to enable the House to act quickly on legislation that enjoys widespread, even if not necessarily unanimous, support. The main features of the Suspension of the Rules procedure include (1) a 40-minute limit on debate, (2) a prohibition against floor amendments and points of order, and (3) a two-thirds vote of Members present and voting for passage. The suspension procedure is in order in the House on the calendar days of Monday, Tuesday, and Wednesday, during the final six days of a congressional session, and at other times by unanimous consent or special order. In the 112 th Congress (2011-2012), the House Republican leadership has announced additional policies related to their use of the Suspension of the Rules procedure which restrict the use of the procedure for certain "honorific" legislation, generally require measures considered under Suspension to have been available for three days prior to their consideration, and require the sponsor of the measure to be on the floor at the time of a measure's consideration. In the 111 th Congress, 1,525 measures, representing 78% of all legislation receiving House floor action, were initially brought up using the Suspension of the Rules procedure. This includes 760 bills or joint resolutions and 765 simple or concurrent resolutions. When only lawmaking forms of legislation are counted, 86% of bills and joint resolutions receiving floor action in the 111 th Congress came up by Suspension of the Rules. Ninety-two percent of measures brought up by Suspension of the Rules originated in the House. The remaining 8% were Senate measures. House rules and precedents place certain types of legislation in a special "privileged" category, which gives measures of this kind the ability to be called up for consideration when the House is not considering another matter. Bills and resolutions falling into this category that saw floor action in the 111 th Congress include the following: Order of Business Resolutions: Procedural resolutions reported by the House Committee on Rules affecting the "rules, joint rules, and the order of business of the House" are, themselves, privileged for consideration under clause 5 of House Rule XIII. Order of business resolutions are commonly known as "special rules," and are discussed below in more detail. Committee Assignment Resolutions: Under clause 5 of House Rule X and the precedents of the House, a resolution assigning Members to standing committees is privileged if offered by direction of the party caucus or conference involved. Correcting Enrollments: Under clause 5 of House Rule XIII, resolutions reported by the Committee on House Administration correcting errors in the enrollment of a bill are privileged. Providing for Adjournment: Under Article I, section 5, clause 4, of the Constitution, neither house can adjourn for more than three days without the consent of the other. Concurrent resolutions providing for such an adjournment of one or both chambers are called up as privileged. Questions of the Privileges of the House: Under clause 2 of House Rule IX, resolutions raising a question of the privileges of the House, affecting "the rights of the House collectively, its safety, dignity, and the integrity of its proceedings," are privileged under specific parliamentary circumstances described in the rule. Such resolutions would include the constitutional right of the House to originate revenue measures. Bereavement Resolutions: Under House precedents, resolutions expressing the condolences of the House of Representatives over the death of a Representative or of a President or former President, have been treated as privileged. Measures Related to House Organization: Certain organizational business of the House, such as resolutions traditionally adopted at the beginning of a session notifying the President that the House has assembled, as well as concurrent resolutions providing for a joint session of Congress, have been treated as privileged business. In the 111 th Congress, 269 measures, representing 14% of the measures receiving floor action, came before the House on their initial consideration by virtue of their status as "privileged business." All but six of these 269 measures were non-lawmaking forms of legislation, that is, simple or concurrent resolutions. Of the six bills or joint resolutions receiving action, one was a joint disapproval resolution privileged by statute, and five were Senate bills formally rejected by the House as a question of the privileges of the House. The most common type of measure brought up in the House as "privileged business" during the 111 th Congress was special orders of business (special rules) reported by the Rules Committee, followed by resolutions assigning Representatives to committee and questions of the privileges of the House. A special rule is a simple resolution that regulates the House's consideration of legislation identified in the resolution. Such resolutions, as noted above, are sometimes called "order of business resolutions" or "special orders." Special rules enable the House to consider a specified measure and establish the terms for its consideration. For example, how long the legislation will be debated, what, if any amendments may be offered to it, and whether points of order against the measure or any amendments are waived. Under clause 1(m) of House Rule X, the Committee on Rules has jurisdiction over the "order of business" of the House, and it reports such procedural resolutions to the chamber for consideration. In current practice, although a relatively small percentage of legislation comes before the House via special rule, most measures that might be characterized as significant, complicated, or controversial are brought up in this way. In the 111 th Congress, 103 measures, or 5% of all legislation receiving House floor action, were initially brought before the chamber under the terms of a special rule reported by the Rules Committee and agreed to by the House. Of these, 97 (94%) were bills or joint resolutions and 6 (6%) were simple or concurrent resolutions. When only lawmaking forms of legislation are counted, 11% of bills and joint resolutions receiving floor action in the 111 th Congress came up by Special Rule. Ninety-six percent of the measures considered under a special rule during the 111 th Congress originated in the House, 4% being Senate legislation. As is noted above, every measure brought before the House using this mechanism was sponsored by a majority party Member. In current practice, legislation is sometimes brought before the House of Representatives for consideration by the unanimous consent of its Members. Long-standing policies announced by the Speaker regulate unanimous consent requests for this purpose. Among other things, the Speaker will recognize a Member to propound a unanimous consent request to call up an unreported bill or resolution only if that request has been cleared in advance with both party floor leaders and with the bipartisan leadership of the committee of jurisdiction. In the 111 th Congress, 48 measures, or 2% of all legislation identified by LIS as receiving House floor action, were initially considered by unanimous consent. Of these, 21 (44%) were bills or joint resolutions and 27 (56%) were simple or concurrent resolutions. When only lawmaking forms of legislation are counted, 2% of bills and joint resolutions receiving floor action in the 111 th Congress came up by unanimous consent. Of the measures initially considered by unanimous consent during the 111 th Congress, 65% originated in the House. As adopted in the 111 th Congress, House Rule XXVIII provided that, upon the final adoption of a congressional budget resolution necessitating a change in the statutory limit on the public debt, a House joint resolution altering that limit will be deemed to have passed the chamber, and be engrossed and transmitted to the Senate for consideration without separate House action. The rule was commonly referred to as the "Gephardt Rule," after its original sponsor, Representative Richard A. Gephardt (D-MO). The Gephardt Rule was repealed at the beginning of the 112 th Congress. During the 111 th Congress, one House joint resolution was engrossed and deemed to have been passed by virtue of the automatic procedures established by the so-called Gephardt Rule. When only lawmaking forms of legislation are counted, less than 1% (.001%) of bills and joint resolutions receiving floor action in the 111 th Congress came up under the Gephardt Rule. Clause 5 of House Rule XV establishes special parliamentary procedures to be used for the consideration of private legislation. Unlike public legislation, which applies to public matters and deals with individuals only by classes, the provisions of private bills apply to "one or several specified persons, corporations, [or] institutions." When reported from House committee, private bills are placed on a special Private Calendar established by House Rule XIII. The consideration of Private Calendar measures is in order on the first and (if the Speaker of the House so chooses) third Tuesday of a month. On those days, the Private Calendar is "called" and each measure on it is automatically brought before the House in order. Private bills are considered under a set of procedures known as the "House as in Committee of the Whole," which is a hybrid of the procedures used in the full House and those used in the Committee of the Whole. Under these, private bills may be debated and amended under the five-minute rule, although in practice, they are almost always passed without debate or record vote. In the 111 th Congress, no measures were brought to the floor via the call of the Private Calendar. Two private laws were enacted in the Congress, but the House processed these measures by Suspension of the Rules rather than by using the call of the Private Calendar. The House of Representatives has established special parliamentary procedures which might be used to bring legislation to the chamber floor dealing with the business of the District of Columbia, by a discharge petition filed by a numerical majority of the House, and by a procedure known as the Calendar Wednesday procedure. These procedures are rarely used, and no legislation was brought before the House in the 111 th Congress by any of these parliamentary mechanisms. | The House of Representatives has several different parliamentary procedures through which it can bring legislation to the chamber floor. Which of these will be used in a given situation depends on many factors, including the type of measure being considered, its cost, the amount of political or policy controversy surrounding it, and the degree to which Members want to debate it and propose amendments. This report provides a snapshot of the forms and origins of measures which, according to the Legislative Information System of the U.S. Congress (LIS), received action on the House floor in the 111th Congress (2009-2010) and the parliamentary procedures used to bring them up for initial House consideration. In the 111th Congress, 1,946 pieces of legislation received floor action in the House of Representatives. Of these, 885 were bills or joint resolutions and 1,061 were simple or concurrent resolutions, a breakdown between lawmaking and non-lawmaking legislative forms of approximately 45% to 55%. Of these 1,946 measures, 1,796 originated in the House and 150 originated in the Senate. During the same period, 78% of all measures receiving initial House floor action came before the chamber under the Suspension of the Rules procedure; 14% came to the floor as business "privileged" under House rules and precedents; 5% were raised by a special rule reported by the Committee on Rules and adopted by the House; and 2% came up by the unanimous consent of Members. One measure, representing a small fraction (less than 1%) of measures receiving House floor action in the 111th Congress, was processed through the parliamentary mechanism formerly contained in House Rule XXVIII, popularly known as the "Gephardt Rule." When only lawmaking forms of legislation (bills and joint resolutions) are counted, 86% of measures receiving initial House floor action in the 111th Congresses came before the chamber under the Suspension of the Rules procedure; 11% were raised by a special rule reported by the Committee on Rules and adopted by the House; and 2% came up by the unanimous consent of Members. Less than 1% of bills or joint resolutions received House floor action in the 111th Congress by virtue of being business "privileged" under House rules and precedents or through the provisions of the Gephardt Rule. The party sponsorship of legislation receiving initial floor action in the 111th Congress varied based on the procedure used to raise the legislation on the chamber floor. Seventy-three percent of the measures considered under the Suspension of the Rules procedure were sponsored by majority party Members. All measures brought before the House under the terms of a special rule reported by the House Committee on Rules and adopted by the House were sponsored by majority party Members. This report will be periodically updated to reflect legislative action taken in a full Congress. |
Much attention has been focused on the use of water to grow certain agricultural crops in California, given current drought conditions in the state and mandatory cutbacks for non-agricultural water users. This attention has been twofold. First, media reports have highlighted how much water is used overall by California's agricultural sectors. Second, media reports have highlighted how much water is used to grow certain types of crops. Most media attention has focused on certain orchard crops, such as tree nuts and vineyard crops, as well as some grain and pasture crops used to support California's meat and dairy industries. These reports frequently conflict with primary data sources, resulting in confusion over the state of agricultural production and irrigated water use in the California. Regarding overall water use for California's agricultural production, media reports have widely cited estimates claiming that 80% of the state's available water supplies are used annually for agricultural use. Federal and state sources indicate that the state's agricultural sector uses less available water than many media reports claim. The U.S. Geological Survey (USGS) indicates that roughly 60% is used for the state's agricultural sectors; the California Department of Water Resources (DWR) indicates roughly 40%. The difference between these two estimates is largely based on different survey methods and assumptions, including the baseline amount of water estimated for use, including what constitutes "available" supplies. Some reports, including information posted by the California Department of Food and Agriculture (CDFA), have tried to clarify and highlight differences between various water use estimates. Regarding water used to produce specific crops, news outlets across the country have, on numerous occasions, reported estimates of the amount of water California farmers use to produce a single serving of certain foods. For example, according to these reports, it takes nearly one gallon of water to produce one almond and 450 gallons of water to produce a quarter-pound hamburger patty. Such statistics can be misleading and further raise questions about the usefulness of quantifying the inputs and resources required to produce a single serving of a specific crop or a single serving of meat or dairy products. Most fruit and nut trees require water year-round and often take several years before the plant reaches fruiting maturity. At maturity, a fruit orchard can produce food capable of feeding many people. Other crops—such as feed grains and pasture crops—are grown, in some cases, mainly to feed livestock, poultry, and dairy cows. The cumulative amount of resources and inputs needed to raise a single farm animal to maturity adds up quickly. Growing consumer and market demand for these food commodities is also a major factor in their production. Moreover, some agricultural products are grown in areas where water is more accessible. Also, not all of the water used by the agriculture sector is captured by the plant; some is returned to the soil or atmosphere. Congressional interest in California agricultural water use centers largely on the operation of the Bureau of Reclamation's Central Valley Project, which supplies water to numerous agricultural and municipal contractors, some or much of it at a low cost, as well as on U.S. Department of Agriculture (USDA) support for individual crops and farmers. Congress may also be interested in broader implications of decreased agricultural production and/or lack of water availability throughout the state under certain water supply scenarios. ( Figure 1 provides a map of California's counties and agricultural districts.) Agriculture and related industries are important to California's economy. The total value of the agricultural production and processing sector was estimated at more than $100 billion in 2012-2013, including the farm, wholesale, and retail levels for agriculture and agriculture-related industries ( Table 1 ). As a share of the total California economy, direct agricultural production and processing output (sales) accounted for nearly 3% of total state output. Considering the broader economic contribution of the state's food and beverage sectors, the industry's share of the California economy was estimated at nearly 5% ( Table 1 ). Several studies have been conducted by researchers at the University of California estimating the contribution of some of the state's major farming sectors to the overall state economy. For example, California's dairy industry, including dairy farming and milk processing, contributed an estimated $20.8 billion in 2014 to the state in terms of economic value added (direct plus so-called indirect and induced effects). California's almond industry generated an estimated $21.5 billion in 2014 in total economic impacts for the state. Overall, these researchers estimate that a "$1 billion increase of the value added from agricultural production and processing results in a total of $2.63 billion of [gross state product] GSP," or the value added by all industries in the state. Other estimates are even greater. Employment within California's agricultural sector averaged more than 412,000 jobs during 2014, accounting for more than 2% of overall employment. Including other closely related processing industries, researchers at the University of California estimate that the state's agricultural sectors accounts for as much as 6.7% of California's private sector labor force (including part-time workers). Other estimates place this estimate even higher. These researchers further estimate that "each job in agricultural production and processing accounts for 2.2 jobs in the California economy as a whole." Agricultural production and processing employment in some parts of California, such as the Central Valley, are estimated to be greater in percentage terms. The U.S. Department of Agriculture (USDA) reports that based on the value of agricultural sales, California ranks as the leading state nationwide. In 2012, California's farm-level sales totaled nearly $45 billion and accounted for nearly 11% of total U.S. farm-level sales ( Figure 2 ). USDA ranks five counties—Tulare, Kern, Fresno, Monterey, and Merced—as among the leading agricultural counties in the United States, with a reported $28.7 billion in farm sales. Four of these counties receive water from the federal Central Valley Project (CVP), which has reduced deliveries in recent years due to drought and environmental factors. Whereas most farm states specialize in producing a few agriculture commodities, California's farm sector is diverse and produces more than 400 commodities. Still, the leading 20 agricultural commodities comprise about 80% of total farm cash receipts, and the leading 50 commodities account for more than 90% of all farm receipts. In 2013, California's top-10 valued commodities (ranked by total farm-level sales) included milk ($7.6 billion), almonds ($5.8 billion), grapes ($5.6 billion), cattle and calves ($3.05 billion), strawberries ($2.2 billion), walnuts ($1.8 billion), lettuce ($1.7 billion), hay ($1.6 billion), tomatoes ($1.2 billion), and nursery plants ($1.2 billion). Alfalfa production and other forage crops, while not high in overall market value, provide an important input to the state's dairy and other animal agriculture production. More than 60% of California's farm-level sales are attributed to specialty crops, defined as "fruits and vegetables, tree nuts, dried fruits, and horticulture and nursery crops (including floriculture)." California's agricultural sectors are an important leader in agricultural production nationwide. Nationally, California accounts for more than one-third of the value of all specialty crops sold; also, nearly one-half of all irrigated acres growing specialty crops are located in California. For some crops, such as raisins, almonds, walnuts, nectarines, and pistachios, California supplies the majority of U.S. production each year. Many of these crops—including almonds and other nuts, wine and table grapes, processed tomatoes, and other fruits and vegetables—are also important U.S. agricultural exports. Exports of all U.S. fresh and processed fruits, vegetables, and tree nuts totaled $21.7 billion in 2014 ( Figure 3 ). Given California's predominance in growing specialty crops, the share of California farms receiving federal farm support payments is low compared to the national average, as specialty crop producers generally do not directly benefit from a commodity-specific farm program. About 10% of California farms receive federal support, compared to 40% of all farms in the United States. Historical acreage trends in California show a shift toward high-value crops, such as fruits, vegetables, tree nuts, and other specialty crops, and away from traditional, lower-value field crops (e.g., corn, soybeans, wheat, cotton, rice, and other oilseeds and feed grains). For example, harvested acres of field crops declined from 6.5 million to 4.0 million acres from 1960 to 2009 ( Table 2 ). (See text box for definitions of crop acreage and land use categories.) During this same time period, acres in fruits, nuts, and vegetables almost doubled, from a combined total of 1.9 million acres to 3.7 million acres. Total harvested and bearing acres rose from 8.5 million acres in 1960 to 9.5 million acres in the 1970s and declined to 7.7 million acres in 2009. More recent data disaggregated by these crop categories—"Field Crops," "Fruits and Nuts," and Vegetables and Melons"—are not readily available. Other data from California's County Agricultural Commissioners' Reports and USDA's Farm and Ranch Irrigation Survey indicate that, in 2013, total harvested acres were 7.9 million acres. Both 2009 and 2013 were drought years in California, which may in part explain why harvested acres during those years were lower. In other years of drought and low rainfall, such as in 1987-1992 and 2000-2001, overall acreage declined, with total acres dropping in recent years. The 1987-1992 drought preceded various environmental restrictions that resulted in less water made available to some farming operations, particularly operations in some parts of California. Among individual crops, there has been a continued shift toward growing more permanent orchard crops in some parts of California. Among specialty crops, orchard crops refer to crops, such as fruit trees, that are sown or planted once and are not replanted after each annual harvest. Orchard crops, such as fruit and nut trees and vineyard, berry, and nursery crops, often require long periods of maturation before the crop bears fruit or can be harvested and thereby generate returns for the agricultural producer. Orchard crops cannot be fallowed in dry years without loss of investment. In contrast, most vegetables and other row crops are annual crops that are both sown and harvested during the same production year, sometimes more than once. Annual crops can be fallowed in dry years. From 2004 to 2013, overall harvested acres increased for almonds, walnuts, pistachios, raisins, grapes, berries, cherries, pomegranates, and olives, but also for certain grain and feed crops ( Table 3 ). During the same period, overall harvested acreage decreased for some field crops (cotton, alfalfa, rice, wheat) but also for certain orchard crops (wine grapes and some citrus and tree fruits). In some cases, by 2013, the number of harvested acres for some orchard crops had risen to nearly twice that of harvested acres in 2004 (e.g., almonds, pistachios, olives, cherries, grapes, and berries) ( Table 3 ). Approximate shares of harvested acres for selected crops in 2013 based on annual California County Agricultural Commissioners' Reports are shown in Figure 4 . Actual acreage levels shown in Table 3 often differ widely from projections by DWR reported in the 1990s. For example, DWR projected in 1994 that almond and pistachio acres would grow to reach 600,000 acres by 2020, but the number of acres has instead greatly exceeded predictions, with actual levels reaching more than 900,000 acres in 2013. DWR also projected cotton would cover 1.2 million acres by 2020, whereas actual levels have dropped to under 300,000 acres in 2013; corn acreage was expected to reach more than 400,000 acres in 2020 but has also dropped to about 200,000 acres. The shift to growing more permanent orchard crops appears to be largely market-driven. In recent years, farmers have responded to higher prices for relatively higher-value fruits and vegetables (compared to commodity crops or other row crops) as well as rising demand for these crops or for specific varieties in response to changes in consumer tastes and preferences. This trend has persisted since the 1960s despite the continued availability of federal farm support for commodity crops. Other reasons for this shift might be in response to rising input costs or reliability of water deliveries. Some producers may switch to relatively less water-intensive crops, particularly when water supplies are more scarce (such as growing forage and oilseed crops, which tend to have relatively lower per-unit water costs and usage requirements). Where crop water demands are similar, and all other factors being equal, producers may invest in higher-value crops, such as fruits, nuts, and vegetables. Overall, while total crop acreage throughout California remained more or less constant at roughly 8 million acres in production, the volume of total crop production rose from nearly 33 million in 1960 to more than 73 million tons of product in 2009 ( Table 2 ). Such gains are attributable to improved productivity and efficiency gains at the farm level and are consistent with general national trends in agricultural production. Despite overall declines in field crop acres, total volume production increased significantly, rising from an estimated 19 million tons in 1960 to 32 million tons in 2009. Increases in fruit and vegetable acreage, however, corresponded with even greater increases in volume production of these crops: total volume production of fruits and nuts more than doubled, while vegetables and melons increased fourfold. In addition to growing market demand, the availability of irrigation water has been a factor in the development of California's agricultural production, particularly in areas where annual rainfall is inadequate to produce desired crop yields. Estimates of total water use in California and the amount and share of water used for irrigation agriculture vary depending on the data source and methodology used. Estimates of water use in California vary widely. Two primary sources of information on California water supplies include: U.S. Geological Survey data on water withdrawals and use, and California Department of Water Resources data on "dedicated and developed" water supplies and use. Federal and state sources indicate that the state's agricultural sector uses less available water than many media reports claim. USGS indicates that roughly 60% of water withdrawals and use is used for the state's agricultural sectors, whereas DWR indicates roughly 40% of water supplies and use is used for irrigated agriculture. USGS estimates of water use in California totaled 42.6 million acre-feet (MAF) or 38 billion gallons per day in 2010. These estimates reflect water withdrawn from surface and groundwater sources, thus excluding water left in rivers, lakes, and streams or dedicated to environmental, aesthetic, or recreational purposes. USGS's estimate represents the amount of water withdrawn from natural and developed sources and applied to different uses and thus includes water that might be returned to other surface and groundwater sources. It does not include an estimate of the amount of water consumed by agricultural uses. An estimated 61% (25.8 MAF) of total water withdrawn for use in California (i.e., from surface and groundwater) in an average water year is used for agricultural irrigation, according to USGS ( Figure 5 ). This estimate is based on available data for 2010. DWR's 2013 California Water Plan reported 80 MAF in total estimated water use in California in an average water year. DWR's estimate reflects water applied to particular uses from surface and groundwater sources, similar to USGS estimates of water withdrawals ; however, DWR's total is the total amount estimated as "dedicated and developed water supply" and includes water in streams, including those dedicated as wild and scenic rivers. It also includes water returned to groundwater and surface (using total water available under this definition) but does not include water consumed for a particular use. Water use for agricultural irrigation is estimated at 33 MAF, or about 41% of total use in a normal water year ( Figure 6 ). This estimate is also based on available data for 2010. These estimates differ from other widely cited estimates that 80% of California's available water supplies are for agricultural use as reported in media and news reports. The origin of 80% agricultural water use is unclear, but it may derive from other DWR or USGS publications. Differences among the various estimates of water supply and use are largely based on different survey methods and assumptions, including the baseline amount of water estimated for use (e.g., what constitutes "available" supplies). In general, some agencies calculate water use by estimating the amount of water that is withdrawn from natural sources and put to particular uses—these typically include developed or readily available supplies—while other agencies estimate water use using total water supplies in the state as a baseline, whether immediately available for use or not. Additionally, water uses can be defined in many ways. While some agencies estimate water withdrawn for use, others might estimate water consumed or total water withdrawn and used, minus evaporation and other factors resulting in water not being available for use or reuse. When reviewing information about total water use and percentages used for different purposes, it is important to consider whether the source is reporting gross water use or application (including water that may eventually be used and reused) or water consumed in different uses. Because of the manner in which agencies estimate water supply and use—namely, some use models while others use surveys—many different numbers are reported for California water supply and water uses. Historically, water remaining in rivers and streams was not counted as a "use." In recent years, however, DWR has begun to account for such natural flows, as well as for increased environmental allocations (e.g., for fish and wildlife and for water quality purposes) from developed supplies. DWR reports total state water supply as "dedicated and developed water supply" and reports uses as a percentage of this total supply. In contrast, USGS estimates the total amount of water withdrawn from natural and developed supplies and put to use and reports specific uses as a percentage of total water "withdrawals." Some stakeholders in California's agricultural sectors have complained that the 80% water use estimate cited in many media accounts is inaccurate, and they further contend DWR's estimate of 41% is more appropriate. Others have observed that much of the water deemed as dedicated and developed according to DWR is from North Coast rivers and streams, which are hydrologically distinct from the developed infrastructure of the Central Valley of California and thus not readily available for use other than for environmental purposes. Figure 7 provides an overview of water uses in various regions. As shown in the figure, most of the "environmental" water use occurs in the North Coast area. USDA's 2013 Farm and Ranch Irrigation Survey reports that, nationally, California has the largest number of irrigated farmed acres compared to other states and accounts for about one-fourth of total applied acre-feet of irrigated water in the United States. Of the reported 7.9 million irrigated acres in California, nearly 4 million acres were irrigated with groundwater from wells and about 1.0 million acres were irrigated with on-farm surface water supplies. Another roughly 4.0 million acres in California were irrigated with off-farm surface water from all suppliers. Overall, some reports indicate that the total amount of agricultural water use in California ("total crop applied water") has "held steady since 2000 and actually declined over a longer period." Figure 8 shows California water use as it compares to other states (arranged west to east), as reported by USGS. Relatively arid western states, for the most part, are the largest irrigators, with California and Texas being the largest water users. California and Texas are also the largest states in terms of land mass and population and have relatively arid areas compared with eastern states. Irrigation has been a major factor in the development of California's agricultural production, particularly in the San Joaquin Valley, where annual rainfall is inadequate to produce desired crop yields. California's water use per acre is also among the highest compared to other states, averaging 3.1 acre-feet per acre, nearly twice the national average (1.6 acre-feet per acre) in 2013. Irrigated agriculture in the San Joaquin Valley—an area served by the federal Central Valley Project —accounts for the majority (about 90%) of the region's applied water uses. Irrigation water demand is greatest in the spring and summer months. Table 4 shows available data for selected categories of California crops in terms of the quantity of water applied on irrigated acres harvested from all sources (including groundwater from wells, on-farm surface water, and off-farm water from all suppliers). Across categories of selected crops (as categorized and named by USDA), irrigation water application rates range from an average of 0.6 acre-feet applied per acre (berries) to an average of 4.5 acre-feet applied per acre (rice). With few exceptions (e.g., tomatoes, lettuces, and berries), only aggregated data are available for total "land in orchards" and "land in vegetables." Irrigation water application rates are not available from USDA's survey data for some individual orchard crops, such as almonds and other tree nuts, or vineyard crops and stone fruit. Estimates are available for most commodity crops (e.g., corn, rice, cotton, alfalfa, pastureland, and other grains). These data indicate that of total irrigated acres harvested in California about 31% of irrigated acres were land in orchards and 18% were land in vegetables. Another 46% of irrigated acres harvested were land in alfalfa, hay, pastureland, and grain crops (including rice, corn, and cotton). Figure 9 shows the allocation of California's irrigated acres harvested across selected crops from USDA's 2013 survey. Researchers at the University of California have reported data indicating water application rates across a wider range of California crops. According to these estimates, some crops require more than 5 AF of irrigation water per acre (alfalfa, sugar beets), others between 4 and 5 AF per acre (rice, pasture), and some crops between 3 and 4 AF per acre (tree nuts, tree fruit, cotton). Most vegetables are estimated to apply under 2 AF per acre ( Table 5 ). Adjusting irrigation water rates and acreage for individual crops, Figure 10 shows estimated shares of net water use in the state across a range of crops. The analysis estimates a total estimated net water use of about 20 MAF. Leading California crops account for about three-fourths of all agricultural water use. Use varies by crop category: irrigated pasture, alfalfa, and hay (19%); commodity crops such as corn, wheat, rice, and cotton (19%); tree nuts such as almonds, pistachios, and walnuts (19%); vine crops (11%); and citrus or other tree fruit (8%). In addition, according to these researchers, "crops with the highest economic ... revenue per net unit of water—also usually have the highest employment per land area and water use" ( Figure 11 ). Compared to the national average, California's relatively high per-acre irrigation water use may, in part, be explained by lower annual rainfall, few unused sources of freshwater, longer growing seasons, and generally drier conditions. However, California's high per-acre use of water might also stem from irrigation inefficiencies, given current market signals (namely, artificially low water costs given existing irrigation water policies) that might not encourage farmers to conserve water or improve irrigation. The arid climate in some producing regions might also contribute to overall irrigation water losses from evaporation. Despite ongoing investment in more efficient on-farm irrigation systems, flood and furrow irrigation still accounted for 43% of all irrigated acres in 2010 and continues to be the predominant irrigation method ( Table 5 ). However, between 1991 and 2010, adoption of drip and microsprinkler irrigation systems more than doubled and accounted for 39% of all irrigated acres in 2010. This shift to more efficient irrigation methods may in part be attributable to a reduction in irrigation water supplies in response to periodic drought conditions and other water supply constraints, as well as reduced costs and available federal assistance for adopting improved technologies. The text box below describes the different types of irrigation systems in use. Drip and microsprinkler irrigation systems are reported to have the highest irrigation efficiency rating of 87.5%-90.0%, compared to traditional sprinkler systems of 70.0%-82.5%, depending on the type of system. Irrigation efficiency for most surface irrigation systems can range widely, with furrow and gravity systems having a reported 67.5%-75.0% efficiency rating. The type of irrigation system adopted can depend on financing available to update a farm's irrigation system but may also depend on site-specific conditions at the farm, including soil type and topography, as well as the type of crop grown. Sprinkler systems may be suitable for sandy light soils where there is rapid percolation; some systems are not suitable if the slope of the land exceeds 5%-10% or in areas with high saline soils, such as in some areas on the westside of the San Joaquin Valley. Economic factors such as market demand for high-value crops or the ability to sell or lease surplus water may also influence investment in more efficient irrigation technology. Figure 12 shows differences among hydrologic regions in terms of irrigation methods used and trends in methods used from 1991 to 2011. Cost is often the main limiting factor for more widespread adoption of drip irrigation systems. Media reports cite estimates that a permanent drip irrigation system can cost $1,000 to $3,000 per acre, not including installation; maintenance and/or repair costs can add another $100 to $300 an acre per year. Actual costs will depend on the type of crop grown. In 2013, USDA reported that California farmers with irrigated land invested an estimated $600 million in irrigation equipment, covering investments in facilities, land improvement, and computer technology. The California Farm Water Coalition reports that between 2003 and 2008, California farmers invested more than $1.5 billion on drip and microsprinkler irrigation technology, with about 1.3 million acres installed with high-technology irrigation systems. Some have suggested that, because of steady advances in technology and efficiency gains made in response to previous water shortages and drought conditions, additional gains in irrigation efficiency will be difficult to obtain. However, others have noted that, in response to the current and ongoing situation, there continues to be ongoing efforts and increasing investment in irrigation technology. The California Farm Bureau Federation (CFBF) claims, "Experts suggest California farmers and ranchers have invested hundreds of millions of dollars in irrigation technology in recent years, and there's general agreement that the pace of investment and technological advancement is increasing." CFBF notes that farmers are continuing to invest in new and also improved technologies, including subsurface drip irrigation, as well as better emitters, valves, gauges, and management. Many farmers also engage in certain water and resource conservation practices, such as use of cover crops, minimum tillage, water recycling, and mulching. CFBF claims this investment and management has allowed California producers to grow more on increasing acreage using roughly the same amount of water. Studies claim there is the potential to reduce agricultural water use from improved technology and water management, and changes in cropping patterns. A 2009 study by the Pacific Institute reported potential water savings of 4.5 million acre-feet in a wet year and 6.0 million acre-feet in a dry year, or reductions of 17% from improved technology and water management. A 2014 follow-up analysis by the Natural Resources Defense Council (NRDC) reported potential savings of between 5.6 million and 6.6 million acre-feet per year, or about 17% to 22% water savings from current levels "while maintaining productivity and total irrigated acreage." Many groups have criticized the findings of these studies. Some point out that previous studies conducted by university researchers indicate that on-farm changes by California farmers would result in water savings that are significantly lower than those reported by the Pacific Institute and NRDC. Some claim these estimated water savings far exceed recent water delivery reductions. Others object to the study's assumptions that producers will shift away from growing certain crops, claiming they ignores market demand, which influences what farmers grow, among other types of methodological concerns. Others also object to claims that agricultural productivity will not be affected by irrigation reductions, pointing out numerous studies over the years estimating significant economic losses to the state's agricultural sectors as a result of ongoing drought conditions. The most recent estimates by researchers at UC-Davis project the total direct economic costs of the drought to the agricultural sectors will total $1.8 billion in 2015, or about 4% of the state's 2012 agricultural gross cash receipts, covering estimated revenue losses to crop, dairy, and livestock producers, as well as additional water pumping costs. The debate about water savings from improved irrigation efficiency further raises the question about what is the net outcome of such efficiency gains in the farming sectors: namely, will water use reductions through the adoption of more efficient irrigation systems result in overall water savings, or will these reductions be used to support additional expansion in agricultural production? California's agricultural industry is an important part of the state's economy and a significant contributor to the nation's food supply for certain crops such as fruits, vegetables and tree nuts. Agricultural production has shifted from traditional field crops in recent decades to higher value fruit, vegetable, tree nuts and other specialty crops. This shift appears to be largely market driven. Confusion over how much water is used to grow crops in California stems largely from baseline differences in water use and supply definitions used by different agencies reporting such data. | California ranks as the leading agricultural state in the United States in terms of farm-level sales. In 2012, California's farm-level sales totaled nearly $45 billion and accounted for 11% of total U.S. agricultural sales. Five counties—Tulare, Kern, Fresno, Monterey, and Merced—rank among the leading agricultural counties in the nation. Given current drought conditions in California, however, there has been much attention on the use of water to grow agricultural crops in the state. Depending on the data source, irrigated agriculture accounts for roughly 40% to 80% of total water supplies. Such discrepancies are largely based on different survey methods and assumptions, including the baseline amount of water estimated for use (e.g., what constitutes "available" supplies). Two primary data sources are the U.S. Geological Survey (USGS) and the California Department of Water Resources (DWR). USGS estimates water use for agricultural irrigation in California at 25.8 million acre-feet (MAF), accounting for 61% of USGS's estimates of total withdrawals. DWR estimates water use withdrawals for agricultural irrigation at 33 MAF, or about 41% of total use. Both of these estimates are based on available data for 2010. These estimates differ from other widely cited estimates indicating that agricultural use accounts for 80% of California's available water supplies, as reported in media and news reports. Attention has also focused on trends in California toward growing more permanent orchard crops, such as fruit and nut trees and vineyard crops, as well as production of grain and pasture crops, much of which is used to support the state's meat and dairy industries. Orchard crops refer to tree or vineyard crops that are planted once, require continuous watering to reach maturation, and cannot be fallowed during dry years without loss of investment. In contrast, most vegetables and other row crops (including grain and pasture crops) are annual crops that are sown and harvested during the same production year, sometimes more than once, and may be fallowed in dry years. Between 2004 and 2013, overall harvested acres in California increased for almonds, walnuts, pistachios, raisins, grapes, berries, cherries, pomegranates, and olives, but also for corn. During the same period, overall harvested acreage decreased for some field crops (cotton, alfalfa, rice, wheat), but also for certain orchard crops (wine grapes and some citrus and tree fruits). This shift to growing more permanent crops, especially tree nuts, appears to be largely market-driven. The availability of irrigation water has been a major factor in the development of California's agricultural production. California has the largest number of irrigated farmed acres compared to other states and accounts for about one-fourth of total applied acre-feet of irrigated water in the United States. Water use per acre in California is also high compared to other states. Available data for 2013 indicate that, of total irrigated acres harvested in California, about 31% of irrigated acres were land in orchards and 18% were land in vegetables. Another 46% of irrigated acres harvested were land in alfalfa, hay, pastureland, rice, corn, and cotton. Congressional interest in California agriculture and water use centers largely on the Bureau of Reclamation's Central Valley Project (CVP), which supplies water to numerous agricultural and municipal contractors. In recent years, the CVP has cut back water deliveries due to drought and environmental factors. Congress also authorizes and oversees U.S. Department of Agriculture support for individual crops and farmers, and some Members have expressed concern over the broader implications of decreased agricultural production and/or lack of water availability throughout the state. |
Is the death penalty consistent with the Eighth Amendment's prohibition against theimposition of cruel and unusual punishments? The Supreme Court considered various applicationsof the death penalty in the 1930s, 40s and 50s. (1) In each case, it upheld the state's action without addressing thebroader issue of the constitutionality of the death penalty. In a 5-4 decision in 1972, Furman v. Georgia , (2) the Supreme Court invalidated federal and state capital punishmentlaws which permitted wide discretion in the application of the death penalty. With one Justicecharacterizing the death penalty laws as "capricious," (3) the majority ruled that they constituted cruel and unusualpunishment in violation of the Eighth Amendment and the due process guarantees of the FourteenthAmendment based upon the inherent arbitrariness of their application particularly in the case ofracial minorities and the poor. (4) The hundreds of inmates on death row who had been sentenced to die between 1967 and1972 had their death sentences commuted as a result of Furman , (5) but those numbers began tochange again as states enacted revised legislation tailored to satisfy the Supreme Court's objectionsto arbitrary and capricious decisions which permitted the application of the death sentence. On July2, 1976, the Supreme Court reviewed the post- Furman capital punishment statutes of five states (6) in a series of five cases. Therevised laws were of two major types: The first type provided for guided discretion which wasupheld by the Supreme Court in three cases. (7) The second type consisted of those statutes which provided for amandatory death sentence for specific crimes, and allowed no judicial or jury discretion beyond thedetermination of guilt. These statutes were held to be unconstitutional. (8) In sum, what may be gleanedfrom these five cases suggest that while the sentencing authority may possess some discretion, itcannot be the unbridled discretion which was found impermissible in Furman . The discretion mustbe limited and directed in order to minimize the potential for arbitrary and capricious actions. Capital punishment may only be imposed under procedures that provide sentencers withthose aggravating factors which will support imposition of the penalty and that require sentencersto take into account any evidence offered in mitigation for the defendant. Aggravating factors, established either as elements of the capital offense or as statutoryfactors to be found by the sentencing judge or jury, must be sufficiently clear and restricting. According to the Supreme Court's decision in Zant v. Stephens , "To avoid capricious and arbitrarydecisions, states that use aggravating circumstances to impose the death penalty. . . must reasonablyjustify the imposition of a more severe sentence for the defendant compared to others found guiltyof murder." (9) The aggravating factors may not be so vague as to invite a return to the arbitrary inflictionof the penalty that the Court saw in Furman . In Maynard v. Carwright , (10) the Court made clear thatnot every murder could fall under the "specially heinous, atrocious or cruel" aggravatingcircumstance and that the state must construe such an aggravating circumstance so that there wouldbe some principled way to distinguish the few cases in which the aggravating circumstance appliesfrom the many cases in which it does not. The test for whether a particular aggravating factor passesconstitutional muster is whether "the statutory language is itself too vague to provide any guidanceto the sentencer. If so [the question becomes] whether the . . . courts have further defined the vagueterms. . . [so as] to provide some guidance to the sentencer." (11) In Lockett v. Ohio , (12) the Supreme Court required many states to revise their deathpenalty statutes by ruling that the sentencing authority in capital cases must consider every possiblemitigating factor to the crime rather than limiting the mitigating factors that could be considered toa specific list. (13) In Smith v. Texas , (14) theCourt recently confirmed the principle when it overturned Smith's death sentence based uponprevious Court precedents requiring judges to include in their jury instructions that proper andmeaningful consideration be given to all mitigating evidence. Smith argued that jurors weren'tallowed to consider evidence including that he was 19 at the time of the robbery during which themurder occurred, that he had a troubled home life, and that he had a low IQ and learning disability;the Texas court erroneously rejected the claim, saying that it wasn't relevant because there was nolink between murder and his diminished capacity. In 1982, the Supreme Court was asked to decide whether the execution of a juvenile offenderwas permissible under the Constitution. Eddings v. Oklahoma (15) was the first case the Courtagreed to hear based on the age of the offender who was 16 at the time he murdered a police officer. Without deciding on the constitutionality of the juvenile death penalty, the Court vacated thejuvenile's death sentence on the basis that the trial had failed to consider additional mitigatingcircumstances. (16) However, the case was significant because the Court decided that the chronological age of a minoris a relevant mitigating factor that must be considered at sentencing. (17) Writing for the majority, Justice Powell stated: "... youth is more than a chronological fact. It is atime and condition of life when a person may be most susceptible to influence and to psychologicaldamage. Our history is replete with laws and judicial recognition that minors, especially in theirearlier years, generally are less mature and responsible than adults." (18) In 1988, the Supreme Court did consider this particular issue in Thompson v.Oklahoma . (19) In a 5-3 decision, the Court vacated the death sentence of the defendant who at age 15participated in the brutal murder of his former brother-in-law. Four justices agreed that theexecution of a 15-year-old would be cruel and unusual punishment per se (in, or byitself). (20) Applying the test of Eighth Amendment analysis, Justices Stevens, Brennan, Marshall, andBlackmun were of the opinion that the execution would constitute cruel and unusualpunishment because it was "inconsistent with our respect for the dignity of men" and it failedto contribute to the two principal social purposes of the death penalty: retribution anddeterrence. (21) Justice O'Connor concurred, but noted that Oklahoma's death penalty statute set no minimumage at which the death penalty could be imposed. (22) Sentencing a 15-year-old under the Oklahoma statute wasinconsistent with the standard for special care and deliberation required in death penaltycases. (23) In 1989, in Stanford v. Kentucky (24) and Wilkins v. Missouri (25) the SupremeCourt held in a 5-4 decision that the Eighth Amendment does not prohibit the death penalty forcrimes committed at age 16 (Wilkins) or 17 (Stanford). While the Thompson plurality usedthe three-part analysis to determine if sentencing a juvenile to death constituted cruel andunusual punishment, the Stanford plurality did not. The Thompson v. Oklahoma's standardEighth Amendment analysis consisted of an evaluation of: (a) evolving standards of decency;(b) the behavior of juries and legislators to determine what is abhorrent to the conscience ofthe community; and (c) because of the juvenile's reduced culpability, the punishment isdisproportionate to the severity of the crime and the application of the death penalty to thisclass of offenders does not measurably contribute to the purposes underlying the penalty. The Stanford plurality decision rejected the third element of the three part analysis, to wit, that thepunishment is disproportionate to the severity of the crime and makes no measurablecontribution to its deterrence. (26) In Stanford v. Kentucky, the Supreme Court considered the evolving standards ofdecency in society as reflected in historical, judicial, and legislative precedents; currentlegislation; juries' and prosecutors' views; and public, and professional opinions. (27) However, the Courtbased its determination of evolving standards of decency on legislative authorization of capitalpunishment for an individual who murders at 16 or 17 years of age and it does not, said theCourt, offend the Eighth Amendment's prohibition against cruel and unusualpunishment. (28) The Court referred to contemporary standards of decency in this country and concluded thatthe Eighth and Fourteenth Amendments did not proscribe the execution of a juvenile over 15but under 18. (29) The Court noted that those states that permitted the death penalty for 16 and 17-year-oldoffenders indicate that there was no national consensus which was "sufficient to label aparticular punishment cruel and unusual." (30) A plurality of the Court rejected the suggestion that it (theCourt) should bring its own judgment to bear on the desirability of permitting the deathpenalty for juveniles. (31) The Court also found that public opinion polls andprofessional associations were "uncertain foundations" on which to base constitutionallaw. (32) The dissenting judges argued that the record of state and federal legislation protectingjuveniles because of their inherent immaturity was not relevant in formulating a nationalconsensus. (33) In 1997, Christopher Simmons was tried, convicted, and sentenced to death for firstdegree murder for a crime that he committed at age 17. He appealed to the Missouri SupremeCourt, which affirmed the conviction and the sentence. (34) On his initialappeal, Simmons could not argue that his youth prohibited his execution because the U.S.Supreme Court held in 1989 in Stanford v. Kentucky that there was no national consensusagainst the execution of young adults who were 16 or 17-years-of-age at the time of theircrimes and, as a result, executing juveniles was not considered "cruel and unusual"punishment under the Eighth Amendment. (35) Hence, the Missouri Supreme Court affirmed the CircuitCourt of Jefferson County Missouri on the death sentence. (36) In 2002, the U.S. Supreme Court in Atkins v. Virginia reversed Penry v. Lynaugh (37) , which held that anational consensus did not exist against the execution of the mentally retarded. (38) In Atkins v.Virginia , the Supreme Court decided that a consensus had developed in the thirteen yearssince Penry was decided and that executing the mentally retarded violates the EighthAmendment. (39) Assuming that the U.S. Supreme Court's ruling in Atkins may correspondingly cause a shiftin the Court's view toward the execution of juvenile offenders, Simmons, in 2003, filed a writof habeas corpus , arguing that a national consensus opposing the execution of 16 and17-year-old offenders had developed since the Court's decision in Stanford v. Kentucky. (40) The MissouriSupreme Court agreed, reasoning that the Supreme Court would today hold that suchexecutions are prohibited by the Eighth Amendment as applied to the States through theFourteenth Amendment. (41) The U.S. Supreme Court accepted the Roper v. Simmons (42) case for review inorder to decide two issues: (a) whether a lower court may contradict a previous ruling by theU.S. Supreme Court. Particularly, whether it was permissible for the Missouri Supreme Courtto conclude that the penalty of death for juvenile offenders is a "cruel and unusualpunishment" which violates the Eighth Amendment, and in contradiction of the Court'sdecision in Stanford v. Kentucky and (b) whether a national consensus now opposes theexecution of juvenile offenders younger than 18-years-of-age and therefore, whether thepunishment now violates the Eighth Amendment's prohibition against cruel and unusualpunishment. In a 5-4 opinion written by Justice Kennedy, the Court affirmed the holding of theMissouri Supreme Court that imposition of the juvenile death penalty had "become trulyunusual over the last decade" (43) and therefore violates the Constitution. Similarly to reconsidering the permissibility of executing the retarded in Atkins, it alsoreconsidered the permissibility of executing juvenile offenders under the age of 18 in Roper ,looking for guidance to the enactments of the legislatures that had considered the issue sinceits holding in Stanford. Up to the time of the decision in Roper , 20 states did not specificallyprohibit the execution of a juvenile offender; (44) 12 states had rejected the death penalty altogether; (45) and 18, bylegislation had set the minimum age at 18. (46) In the 15 years between the Stanford v. Kentucky and Roper v. Simmons decisions, 5 states either by legislation or case law raised or established theminimum age at 18. (47) As a starting point in its decision, the Court consideredthese changes in the law, as well as the limited use of the death penalty in those states wherethe death penalty still was available for juveniles. (48) The Court observed that the trend toward abolishing the death penalty for juvenileswas evidence that society's current views regarding juveniles as "categorically less culpablethan the average criminal." (49) The Court found three differences between juveniles andadults that prohibit the classification of juveniles among the worst offenders: (a) juvenilesshow a lack of maturity and an undeveloped sense of responsibility as compared toadults; (50) (b)juveniles are more vulnerable or susceptible to negative influences and outside pressures,including peer pressure; (51) and (c) the character of juveniles is not as well formed asthat of adults, and the personality traits of juveniles are more transitory. (52) Stating in Gregg v. Georgia (53) that the two distinct purposes served by the death penaltyare "...retribution and deterrence of capital crimes by prospective offenders," the Court notedthat neither of these justifications have proven to be adequate for imposing the penalty onjuveniles. (54) The Court included another reason for its elimination of the death penalty for juvenileoffenders: "Our determination that the death penalty is disproportionate punishment foroffenders under 18 finds confirmation in the stark reality that the United States is the onlycountry in the world that continues to give official sanction to the juvenile deathpenalty." (55) TheSupreme Court acknowledged that the interpretation of the Eighth Amendment was itsresponsibility, but it could also look to the laws of other countries and international authoritiesfor direction and instruction for that interpretation. (56) The Court did look to the laws of other countries andfound "overwhelming weight of international opinion against the juvenile deathpenalty...." (57) In 1986, the Supreme Court in Ford v. Wainwright (58) held that it wasunlawful to execute the mentally insane. However, the Court did not set out or propose anyguidelines or standards for the state legislative bodies to adopt or follow for the determinationof whether one should be adjudged insane. As a result, problems developed because therewas no implementation of a uniform measure to protect the insane from the death penalty. On the same day the Court decided Stanford v. Kentucky (59) it also decided Penry v. Lynaugh, (60) a case in which the petitioner, Johnny Penry, had soughtto exclude the mentally insane from the death penalty. The Court decided in Penry that theEighth Amendment's ban on cruel and unusual punishment did not categorically prohibit theexecution of mentally retarded individuals who committed capital offenses. (61) However, writingfor the majority, Justice O'Connor stated that the Eighth Amendment does more than just barthe practices that were condemned by the common law at the time the Bill of Rights wasadopted. (62) Italso bars punishment that would offend our society's "evolving standards of decency that markthe progress of a maturing society" as expressed by "the legislation enacted by the country'slegislatures" and "the actions of sentencing juries." (63) When Stanford and Penry were decided in 1989, there was only one state, Georgia,that banned the execution of mentally retarded individuals, one state, Maryland, that hadenacted similar legislation but it was scheduled to take effect on a later date, and a federalstatute (64) thatcontained a similar prohibition. (65) Therefore, said Justice O'Connor, "[w]hile a nationalconsensus against execution of the mentally retarded may someday emerge...there isinsufficient evidence of such a consensus today." (66) In the meantime, the Court noted that counsel for thedefendant should be able to present, for the court's consideration, the mental state of thedefendant as mitigating evidence at sentencing for the court to determine whether death is theappropriate punishment. (67) In 2002, the Supreme Court decided the case of Atkins v. Virginia (68) and overturned Penry by ruling that the application of the death penalty to defendants with mental retardationviolated the Eighth Amendment's prohibition against "cruel and unusual" punishment. (69) The evidence foundto be sufficient for the purpose of identifying the "evolving standards" became a key issue inthe case. The evidence before the Supreme Court in Atkins, thirteen years later, revealed that16 of the 38 states with capital punishment had joined Georgia and Maryland in enacting lawsto exempt the mentally retarded. (70) Examining state statutes, the opinions of professionalorganizations, and a proportionality analysis, the Court concluded that the evolving standardsof decency, as well as their own considered judgments, forced the conclusion that theexecution of mentally retarded defendants was unconstitutional. (71) The Court also decided against executing the mentally retarded based on the theorythat they are disadvantaged at trial because of their mental impairments. (72) Calling attentionto false confessions, a lowered ability to make a persuasive showing of mitigating factors, thepossibility that they may be less able to assist their counsel at trial, the fact that they aregenerally poor witnesses, and a demeanor that may create the impression of lack of remorse,the Court's majority concluded that mentally retarded defendants face a special risk ofwrongful execution--particularly when there is a likelihood for the jury to decide that theirretardation enhances the risk of "future dangerousness". (73) Recognizing that there was no consensus on which offenders are in fact consideredretarded, the majority felt that the task for deciding or making this determination should beleft to the States. (74) The minority disagreed with any conclusion that sources other than state legislaturesshould be relevant to the consideration of the issue. Chief Justice Rehnquist wrote a separatedissent "...to call attention to the defects in the Court's decision to place weight on foreignlaws, the views of professional and religious organizations, and opinion polls in reaching itsconclusion." (75) Believing that the legislatures are more suited than the courts at deciding the moralconsideration of the people, he also questioned the use of opinion polls, and religiousorganizations as things that "...elected representatives of a State's populace have notdeemed...persuasive enough to prompt legislative action." (76) Justice Scaliasupported the Chief Justice's conclusion by stating that "...the Prize for the Court's MostFeeble Effort to fabricate [a] `national consensus' must go to its appeal (deservedly relegatedto a footnote) to the views of assorted professional, ... religious organizations, members of theso-called `world community,' and ... opinion polls." (77) Prior to Furman v. Georgia (78) and Gregg v. Georgia (79) , there does notappear to be any cases regarding the Supreme Court review of the constitutionality of theimposition of capital punishment for the crime of rape. In 1953, in Rudolph v. Alabama (80) the Court denied awrit of certiorari involving the appeal of a sentence of death for the rape of theprosecutrix. (81) Justices Goldberg, Douglas, and Brennan dissented on the theory that there was an issue asto whether the Eighth and Fourteenth Amendments to the Constitution permitted "theimposition of the death penalty on a convicted rapist who has neither taken nor endangeredhuman life." (82) The dissent noted the trend in this country and throughout the world against punishing rapeby death. (83) Thedissent noted the "evolving standards of decency that mark the progress of our maturingsociety" and questioned whether a less severe penalty for the crime of rape would more likelyachieve the goals of punishment. (84) The dissent also questioned whether the constitutionalproscription against disproportionate punishment permitted "... the taking of human life toprotect a value other than human life ...." (85) It was not until 1977, that the Supreme Court in Coker v. Georgia (86) decided the issueof whether it was constitutional to impose the death penalty for the offense of rape. Applyingthe proportionality test, the Court decided that the death penalty is a grossly disproportionateand excessive punishment for the crime of rape of an adult woman and, therefore, is forbiddenby the Eighth Amendment as cruel and unusual punishment. (87) In order to ascertainwhether the capital rape statute met this test, the Court looked to objective evidence whichwas based upon public sentiment. (88) This evidence was based upon the history of legislativeattitudes and jury responses as an objective approach in the process of determining the"country's present judgment regarding the acceptability of death as a penalty for rape of anadult woman." (89) While considering the history, the Court noted that "At no time in the last 50 years[has] a majority of the States authorized death as a punishment for rape." (90) Although the Courtnoted that after its decision in Furman, "thirty-five States reinstituted the death penalty for atleast limited kinds of crimes" (91) , these actions were an indication of the acceptance of thedeath penalty for murder; however, when you view the legislative responses to Furman inregard to capital rape statutes, a different view is presented. (92) The Court held thatthese actions by the state legislatures reflect a rejection of capital punishment for rape whichconfirmed their finding that death is a disproportionate penalty for the rape of an adultwoman. (93) The Court did not just consider public sentiment based upon state legislatures andsentencing juries but concluded that it must also analyze for itself the question of theacceptability of the death penalty for the crime of rape under the Eighth Amendment becauseits judgment is contemplated by the Constitution. (94) Neither did the Court deny that rape was a serious crime,acknowledging that "[s]hort of homicide" rape "is the ultimate violation of self." (95) Nonetheless, theCourt found that "in terms of moral depravity and the injury to the person and to the public[rape] does not compare with murder" because it "by definition does not include the death ofor even the serious injury to another person." (96) "The murderer kills; the rapist, if no more than that, doesnot." (97) Notwithstanding the fact that Coker was found to have committed rape under two aggravatingcircumstances, the Court said it did not change its holding that the death sentence is adisproportionate punishment for rape and, consequently, a violation of the EighthAmendment. (98) Since 1982, the Supreme Court has addressed the "law of parties" (99) and its applicabilityin capital cases on four occasions. In Enmund v. Florida (100) , the Courtdecided in 1982 that Enmund's agreement to act as a getaway driver in a robbery that endedin murder was insufficient to warrant death. Enmund did not kill or intend to kill and thus hisculpability is plainly different from that of the robbers who killed. The Court wrote, " Wehave concluded that imposition of the death penalty in these circumstances is inconsistentwith the Eighth and Fourteenth Amendments." (101) The Court ruled that in order to be eligible for the deathpenalty, a defendant either had to kill, attempt to kill, or intend to kill. (102) In 1987, the Supreme Court reconsidered Enmund when it accepted Tison v.Arizona (103) for review. In Tison , two brothers were sentenced to death for a quadruple homicide theirfather committed after the brothers helped him escape from prison. Although the brothers didnot intend to kill, the Court was of the opinion that their involvement in the prison break wassubstantial, and the supply of weapons they took along suggested that they were ready to killif necessary. "[T]he reckless disregard for human life implicit in knowingly engaging incriminal activities known to carry a grave risk of death represents a highly culpable mentalstate that may be taken into account in making a capital sentencing judgment when thatconduct causes its natural...lethal result" (104) the Court concluded. "We will not attempt to preciselydelineate the particular types of conduct and states of mind warranting imposition of the deathpenalty....Rather, we simply hold that major participation in the felony...combined withreckless indifference to human life, is sufficient to satisfy the Enmund culpabilityrequirement. (105) Eluding the Court in Bradshaw v. Stumpf , (106) was the issue of whether the death penalty may beimposed when the prosecution argues in successive trials that each of two accomplicespersonally killed the victim who had been murdered with a single shot. Stumpf, among otherthings, pled guilty, and was sentenced to death for a crime for which the state later sought thedeath penalty for his accomplice. (107) The state knew one of the two juries would have to bein error if in separate trials they found first Stumpf and then his accomplice subject to thedeath penalty as the lone shooter. The Sixth Circuit reversed Stumpf's conviction, finding that the state securedconvictions of both Stumpf and his accomplice for the same crime, using inconsistent theoriesand also because his guilty plea was not knowing and voluntary because he was not aware thatspecific intent was an element of the crime to which he plead guilty. While Stumpf admittedto wounding the husband, he denied ever having shot the man's wife. Despite this, the juryfound Stumpf to be the principal shooter and sentenced him to death. The U.S. Supreme Courtgranted certiorari on two issues--one of which was: does the Due Process Clause requirevacating a defendant's guilty plea when the state subsequently prosecutes another person inconnection with the crime and allegedly presents evidence at the second defendant's trial thatis inconsistent with the first defendant's guilt? (108) During the penalty phase of his trial (he had previouslyentered a guilty plea), he turned around and argued that a co-defendant was the shooter at theco-defendant's trial which version was supported by the testimony of the third co-defendant. Because this issue was not properly presented to the Court (the defendant instead argued thathis guilty plea was involuntary, which the Court rejected), the case was remanded to the SixthCircuit for it to consider the effect of the prosecutor's inconsistent theories on the deathsentences. (109) However, the Court decided that Stumpf was informed of the specific intent element of theaggravated murder charge and the prosecutorial inconsistencies between the two trials did notwarrant voiding his guilty plea. (110) Although it has been established that criminal defendants have the right to assistanceof counsel, it was not until 1970 that the Supreme Court defined this right as "...the right tothe effective assistance of counsel." (111) Except for the Court's decision regarding the issue ofcounsel having a conflict of interest (112) the Court did not define "effective" until it decided thecase of Strickland v. Washington , (113) whereby the Court articulated a general test forineffective assistance of counsel in criminal trials and in capital sentencing proceedings. (114) In Burger v.Kemp, 483 U.S. 776, 794-795 (1987), the Court held that because the defense counsel'sdecision not to develop and present any mitigating evidence at a capital sentencing proceedingwas supported by his "reasonable professional judgment", the defendant was not deniedeffective assistance of counsel. Relying on the guidelines contained in Strickland , the Courtfound no deficiency leading to a breakdown in the adversarial process. In Darden v.Wainwright, 477 U.S. 168 (1986), the Court said there was no merit to the petitioner's claimof ineffective assistance of counsel at the sentencing phase of the trial because the petitionerfailed to satisfy the first part of the two-part Strickland test; the record shows several reasonswhy counsel reasonably could have chosen to rely on a simple plea for mercy from petitionerhimself, rather than to attempt to introduce mitigating evidence; a defendant must overcomethe presumption that, under the circumstances, the challenged action of counsel might beconsidered sound trial strategy. Id. at 184-187. In Lockhart v. Fretwell (115) the Court refined the Strickland test to require that notonly would a different trial result be probable because of attorney performance, but that thetrial result which did occur was fundamentally unfair or unreliable. (116) In 1999, the Court granted certiorari in Williams v. Taylor (117) on the questionof the standard to be applied by federal courts in granting a habeas petition following thepassage of the Anti-Terrorism and Effective Death Penalty Act of 1996 (AEDPA) (118) , and on theFourth Circuit's application of the Strickland standard in a capital case. (119) Finding that theVirginia Supreme Court's decision rejecting Williams' ineffective assistance claim was both"contrary to" and an "unreasonable application of" doctrine well-established in Strickland ,the Court believed that Williams was eligible for habeas relief. Generally, when "...a defendant alleg[es] a Sixth Amendment violation, [he/she] mustdemonstrate `a reasonable probability that, but for counsel's unprofessional errors, the resultsof the proceeding would have been different.'" (120) It reaffirmed the two-pronged Strickland test, holdingthat the Virginia Supreme Court's "...decision turned on its erroneous view that a 'mere'difference in outcome is not sufficient to establish constitutionally ineffective assistance ofcounsel." (121) The Court explained in Strickland the two components on which the petitioner, Williams,relies: "First, the defendant must show that counsel's performance was deficient. Thisrequires showing that counsel made errors so serious that counsel was not functioning as the'counsel' guaranteed the defendant by the Sixth Amendment. Second, the defendant mustshow that the deficient performance prejudiced the defense. This requires showing thatcounsel's errors were so serious as to deprive the defendant of a fair trial, a trial whose resultis reliable." (122) There is an exception to this general rule that the defendant must show probable effectupon the outcome where the assistance of counsel has been denied entirely or during a criticalstage of the proceeding; such effect will simply be presumed. (123) But only in"circumstances of that magnitude" will the defendant be relieved of the burden to show thatcounsel's inadequate performance undermined the reliability of the verdict. (124) The Court hasalso held in several cases that "'circumstances of that magnitude' may also arise when thedefendant's attorney actively represented conflicting interests." (125) However,according to the decision in Mickens v. Taylor, (126) an analysis of a conflict of interest will require the sameanalysis and demonstration of prejudice that is required under Strickland as opposed to thepresumption of prejudice and the resulting automatic reversal. (127) In Florida v. Nixon , (128) the Supreme Court through Justice Ginsburg, providedan analysis of strategies for capital counsel including concession of guilt. The Court in Nixon held that Counsel's concession that his client committed murder, made without the defendant'sexpress consent, does not automatically rank as prejudicial ineffective assistance of counselunder United States v. Cronic (129) ; the counsel's performance must be evaluated under the Strickland (130) test rather than under the Cronic test. The Court recognized that some decisions concerning"basic trial rights" must be made by the defendant and require that "...an attorney must bothconsult with the defendant and obtain consent to the recommended course of action." (131) These basic trialrights include the "'ultimate authority' to determine 'whether to plead guilty, waive a jury,testify in his or her own behalf, or take an appeal'". (132) For othermatters, "[a]n attorney undoubtedly has a duty to consult with the client regarding 'importantdecisions', including questions of overarching defense strategy [but this] obligation, however,does not require counsel to obtain the defendant's consent to 'every tactical decision'...(anattorney has authority to manage most aspects of the defense without obtaining his client'sapproval)." (133) Regarding capital cases, the Court recognized that: ...the gravity of the potential sentence in a capitaltrial and the proceeding's two-phase structure vitally affect counsel's strategic calculus. Attorneys representing capital defendants face daunting challenges in developing trialstrategies, not least because the defendant's guilt is oftenclear. Prosecutors are more likely to seek the deathpenalty, and to refuse to accept a plea to a life sentence, when the evidence is overwhelmingand the crime heinous (134) ....In such cases, 'avoiding execution [may be] the bestand only realistic result possible'" ABA Guidelines for the Appointment and Performance ofDefense Counsel in Death Penalty Cases § 10.9.1, Commentary (rev. ed. 2003), reprinted in31 Hofstra L. Rev. 913, 1040 (2003). (135) In circumstances where guilt is clear "...counsel must strive at the guilt phase to avoida counterproductive course" such as presenting "logically inconsistent" strategies in theguilt-phase defense and sentencing phase. (136) To summarize, in capital cases: [C]ounsel must consider in conjunction both theguilt and penalty phases in determining how best to proceed. When counsel informs thedefendant of the strategy counsel believes to be in the defendant's best interest and thedefendant is unresponsive, counsel's strategic choice is not impeded by any blanket ruledemanding the defendant's explicit consent. Instead, if counsel's strategy, given the evidencebearing on the defendant's guilt, satisfies the Strickland standard, that is the end of the matter;no tenable claim of ineffective assistance would remain. (137) In the most recent Supreme Court decision on the issue of "ineffective assistance ofcounsel", the Court in Rompilla v. Beard , (138) followed a series of rulings, including Wiggins v.Smith (139) which faulted lawyers for failing to investigate defendants' records for mitigating evidencewhich "was the result of inattention, not reasoned strategic judgment," and may have madethe difference between a life or death sentence. (140) In Wiggins v. Smith the Court ruled that attorneys incapital cases must diligently investigate the background of their clients in order to findpossible mitigating evidence that could sway a jury's or a judge's sentencing decisions. Thecase became significant when the Court concluded that Wiggins' trial lawyers had failed todo the work necessary to represent their client effectively. The Court's decision made it clearthat defense counsel representing a client facing a death sentence must thoroughly investigateall reasonable avenues of defense, and cannot excuse inadequate performance merely byclaiming they made a "tactical" decision not to pursue an uninvestigated line of defense. (141) In 1972, the death penalty was held in Furman v. Georgia (142) to beunconstitutional due to the arbitrariness and discriminatory impact it had on racial minoritiesand the poor. Four years later, new capital punishment laws, which were suppose to preventarbitrariness and discrimination, were upheld by the Supreme Court in 1976. (143) Nonetheless, the Supreme Court continued to face questions concerning theapplication of the death penalty to racial minorities. In McClesky v. Kemp , (144) a challenge wasbased on a study that showed Black murderers of White victims were far more likely to besentenced to death than Black murderers of Black victims, which the Court concluded wasinsufficient to establish evidence of discrimination either in general or in McClesky's case. In Batson v. Kentucky , (145) the Supreme Court required courts to give genuineattention to cleansing the criminal justice process of the taint of racial discrimination in juryselection. Batson requires trial judges to assess the district attorney's reasons for excludingAfrican-Americans from jury service in order to determine whether the prosecutors intendedto discriminate. (146) In 2002, Thomas Miller-El asked the Supreme Court to enforce the rule of Batson prohibiting racial discrimination in the exercise of peremptory challenges in jury selection. In 2003, the Court held that reasonable jurists could differ on whether Miller-El hadappealable issues and ordered the U.S. Court of Appeals for the Fifth Circuit to grant acertificate of appealability to further review the case. (147) The Court, inan 8-1 opinion, criticized the Fifth Circuit's "dismissive and strained interpretation" of criticalfacts, ruled that the lower court's refusal to consider Miller-El's Batson claim was based upona standard of review that was too demanding, and remanded the case for furtherconsideration. (148) On remand, the Fifth Circuit again found thatprosecutors had not intentionally excluded African Americans from Miller-El's capitaljury. (149) OnJune 28, 2004, the Supreme Court granted certiorari a second time, in order to addresswhether the Fifth Circuit again erred in reviewing Miller-El's claim that the prosecutionpurposefully excluded African-Americans from his capital jury in violation of Batson v.Kentucky. On June 13, 2005, the Supreme Court in Miller-El v. Dretke (150) overturnedMiller-El's death conviction because of the racial bias that tainted the selection of the jury inthe use of peremptory challenges in his murder trial. In both Miller-El and Johnson v.California (151) the Court cited its 1986 ruling in Batson v. Kentucky which barred the practice of the racialdiscriminatory use of peremptories. Justice Souter reviewed the tactics used by the Dallas County prosecutors to ensurethat no African-Americans were on the jury that determined Miller-El's fate, who isAfrican-American. (152) Prosecutors "shuffled" the jury pool members when toomany African-Americans appeared in the front of the panel and they asked different questionsof White and Black potential jurors, Justice Souter said. (153) When askingthe Black jurors about their views on the death penalty, the prosecutors used a far moregraphic description of executions, apparently to make it more likely they would expressdisapproval and disqualify themselves. (154) In the Johnson case, Justice Stevens wrote for the majority in deciding that theCalifornia Supreme Court had made it too difficult for defendants to make out a prima facieclaim of bias in jury selection. (155) Johnson, who is African-American, was accused ofmurdering a White child. The prosecutor used three of his 12 peremptory challenges to strikeAfrican-Americans from the jury pool thus causing Johnson's jury to be all White. (156) On appeal,Johnson raised the Batson claims and his conviction was set aside. The conviction was laterreinstated by the California Supreme Court, which said Johnson was required to provide"strong evidence" that racial factors were "more likely than not" the reasons for thechallenges in order to begin a Batson inquiry. (157) The California Supreme Court also said that Batson gave states the right to set their own standards for evaluating claims of jury selectionbias. (158) Justice Stevens said the "overriding interest in eradicating discrimination" requires state courtsto adopt standards that make it easier for Batson claims to be tested--rather than beingexcluded at the outset. (159) The Supreme Court has considered cases addressing the issue of juror bias in capitalcases and the defendant's right to a fair trial guaranteed by the Sixth and FourteenthAmendments. These cases have focused on either the juror's attitude regarding the deathpenalty, i.e. whether they are strongly opposed or in favor of the death penalty, or raciallybiased. In Witherspoon v. Illinois , (160) the Court held "...that a sentence of death cannot beimposed or recommended if the jury that imposed or recommended it was chosen byexcluding veniremen for cause simply because they voiced general objections to the deathpenalty or expressed conscientious or religious scruples against its infliction." (161) The Court notedthat even someone opposed to the death penalty "...can make the discretionary judgmententrusted to him by the state and can thus obey the oath...." (162) However, astate may exclude those jurors whose attitudes about the death penalty would affect theirdecision regarding the defendant's guilt. (163) Later, the Court qualified Witherspoon by stating that it did not hold that the statecould exclude only those jurors who would automatically vote against capitalpunishment. (164) In Wainwright , the Court held that the standard forexcluding a juror because of his/her in opposition to the death penalty "...is whether the juror'sviews would `prevent or substantially impair the performance of his duties as a juror inaccordance with his instructions and his oath.'" (165) The Court viewed the question of jurors' beliefs withregard to the death penalty as simply a routine inquiry into juror bias governed by SixthAmendment standards applicable to all cases rather than the Eighth Amendment's prohibitionagainst cruel and unusual punishment. (166) Here as well as elsewhere, the Court said "the quest isfor jurors who will conscientiously apply the law and find the facts." (167) The Court also indicated that trial judges have historically been charged withdetermining whether a prospective juror harbors any bias. (168) If the trialjudge, who is in a position to evaluate a juror's credibility, receives a definite impression thatthe juror would be unable to faithfully and impartially apply the law, the judge can removethe juror for cause. (169) While it appears that jurors are selected or rejected based on their views of the deathpenalty, the Court recognized that jurors who vote to convict may nevertheless entertain"residual doubts" about the defendant's guilt that would "bend them to decide against thedeath penalty." (170) Nonetheless, if a prospective juror could reasonablydetermine guilt or innocence but could not impose the death penalty, that person may beexcluded from the jury. (171) Whereas, if the prospective juror could reasonablydetermine guilt or innocence and impose the death sentence, according to Lockhart v.McCree , they could meet the qualifications for the jury. (172) The Supreme Court has held that juries should be informed about the alternatives toa death sentence. In Simmons v. South Carolina , (173) the Court held that when a defendant's "futuredangerousness" is at issue, the jury must be accurately informed whether there is anypossibility of parole under the alternative lifetime sentence. (174) In Shafer v.South Carolina , (175) the Court reaffirmed its Simmons due process rule butindicated that it is limited. (176) If the prosecution does not present evidence about thedefendant's future dangerousness, the trial court may bar the jury from considering whetherthere would be any chance of parole while serving a life sentence. (177) The Constitution bars prosecutors and trial judges from misleading juries (178) or from unfairlyinfluencing their decision on capital punishment. Thus in Dawson v. Delaware , (179) the Courtvacated Dawson's death sentence because the state introduced evidence of his association withthe Aryan Brotherhood against him during the punishment phase of his capital murder trial. Whether such evidence is relevant must be determined by a context sensitive balancing test. The Court said that the evidence in Dawson left the belief that the state had introduced theevidence not because of its relevance to the proceedings, but rather simply "because the jurywould find these beliefs morally reprehensible." (180) For the same reason, it initially concluded that victimimpact statements were unconstitutional and in violation of the Eighth Amendment, (181) a view itadjusted shortly thereafter when it held that victim impact evidence violates the Constitutiononly if it is so unduly prejudicial that it renders the proceedings fundamentally unfair. (182) And the samesentiment prevailed when the Court reversed the death sentence of a convicted murderer whowas shackled in leg irons and handcuffed to a chain around his waist when he faced aMissouri jury during his sentencing hearing. (183) Justice Breyer, writing for the majority, stated thatshackling almost always implies that authorities consider the offender a danger to thecommunity, a factor juries weigh in considering whether to impose the death penalty. (184) In addition the Court has made clear that a defendant has a constitutional right to a jurydetermination of any facts critical to a finding of guilt or to imposition of the death penalty. In Walton v. Arizona , (185) Walton challenged Arizona's death penalty statuteclaiming that Arizona's sentencing scheme violated the Sixth Amendment right to a jury trial. Under Arizona law, the judge was allowed without a jury, to find aggravating factorsnecessary to sentence the defendant to death instead of life imprisonment. The SupremeCourt held that Arizona's sentencing scheme was compatible with the Sixth Amendment rightto a jury trial in capital cases because aggravating factors were sentencing considerations andnot elements of the crime. (186) However, in a non-death penalty case in Apprendi v. New Jersey , (187) Apprendichallenged his enhanced sentence for possession of a firearm because the sentencing judge,and not a jury, found that his crime had been motivated by racial hatred--an element of thecrime. The Supreme Court held that if a defendant's sentence can be increased based on afinding of fact (including an aggravating factor), that fact must be found by a jury, beyond areasonable doubt, in order to be consistent with the Sixth Amendment. (188) In Ring v. Arizona , (189) the Court addressed the conflict between the Walton and Apprendi decisions. In Ring, the Court decided that it was unconstitutional for a judge to findadditional facts that would increase a defendant's sentence when those facts include elementsof the crime. (190) The Court said that a defendant is entitled to a jurydetermination of any fact on which the law conditions an increase in his/her maximumpunishment, overruling Walton in relevant part. (191) The writ of habeas corpus is the procedure by which a federal court inquires into theillegal detention and, potentially, issues an order directing state authorities to release thepetitioner. (192) The Supreme Court has described the function of the writ as a process "[T]o provide a promptand efficacious remedy for whatever society deems to be intolerable restraints. Its rootprinciple is that in a civilized society, government must always be accountable to the judiciaryfor a man's imprisonment: if the imprisonment cannot be shown to conform with thefundamental requirements of law, the individual is entitled to his immediate release." (193) On April 24, 1996, President Clinton signed into law the Antiterrorism and EffectiveDeath Penalty Act of 1996 (AEDPA). (194) Title I of the AEDPA makes significant changes in thestatutes governing federal habeas corpus practice for state prisoners and enacts a new set ofstatutes to govern federal habeas corpus practice in capital cases. (195) The Courtsummarized the effect of Title I of the AEDPA as follows: Title I of the act stands more or less independentof the act's other titles in providing for the revision of federal habeas practice and does twomain things. First, in §§ 101-106, it amends § 2244 and §§2253-2255 of chapter 153 of Title28 of the United States Code, governing all habeas corpus proceedings in the federal courts. 110 Stat. 1217-1221. Then, for habeas proceedings against a State in capital cases, § 107creates an entirely new chapter 154 with special rules favorable to the state party, butapplicable only if the State meets certain conditions, including provisions for appointment ofpost-conviction counsel in state proceedings. 110 Stat. 1221-1226. In § 107(c), the actprovides that "Chapter 154...shall apply to cases pending on or after the date of enactment ofthis act." 110 Stat. 1226. (196) Shortly after passage of the AEDPA, it was challenged and upheld in Felker v.Turpin (197) inseveral key provisions. Among the most significant reforms in the act are new tighter filingdeadlines, limitations on successive petitions, restrictions on evidentiary hearings, heightenedexhaustion and deference standards and specific capital case standards. (198) Sinceapparently no state has opted to take advantage of AEDPA's special capital procedures (28U.S.C. ch. 154), (199) the AEDPA general habeas provisions apply to bothcapital and noncapital cases. In a case driven by the AEDPA's statute of limitations, the Court in Bell v.Thompson (200) decided that a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit erred bywithdrawing its decision in a habeas case months after its original ruling was considered finalby the issuance of its original mandate. Initially, a three-judge panel issued a split decisiondenying Thompson's Sixth Amendment ineffective assistance of counsel claim. The samethree judges later unanimously announced their decision to consider whether this prior rulingwas mistaken in view of available evidence that Thompson was suffering from schizophreniaat the time of the offense. After reconsidering the case, the Sixth Circuit corrected its earlierdecision and remanded the case to the district court for further proceedings, concluding thattrial counsel had failed to conduct a reasonable investigation of Thompson's social history,failed to present powerful, readily available mitigating evidence, and failed to pursue knownleads that might have helped in preparing the case for purposes of mitigation. The State ofTennessee challenged the Sixth Circuit's power to withdraw its prior decision, especially sinceThompson's case had progressed to the extent that it had in reliance on the Sixth Circuit's firstopinion. What is at issue is the authority of a federal appeals court, on the basis of newlydiscovered evidence that is favorable to the defense, to change its earlier decision and ordera case reopened as the State is preparing to carry out a death sentence. The Supreme Court, divided (5-4), did not touch Thompson's death sentence butdecided that the Sixth Circuit's decision remanding the case for an ineffective assistance ofcounsel hearing was an abuse of discretion. Writing for the majority, Justice Kennedyconcluded that the scheduling of Thompson's execution was reasonable and the Sixth Circuit'sactions were an extraordinary departure from standard procedure. While it was recognizedthat the Sixth Circuit panel was acting on honest intentions, the State maintained that, legally,the court was not allowed to change its mind. The Court noted that with the policiesembodied in the Antiterrorism and Effective Death Penalty Act of 1996 in cases arising fromfederal habeas corpus review of a state conviction, the court's discretion under Rule 41 mustbe exercised "in a way that is consistent with the 'State's interest in the finality of convictionsthat have survived direct review within the state court system'" (201) The "...threshold question in every habeas case...." is whether the petitioner's claim isdefeated by the nonretroactivity of the rule he/she seeks to apply to his/her petition. (202) For federalcourts, this question is governed by the rule of Teague v. Lane. (203) The Supreme Court addressed the rule of retroactivity in a capital sentencing contextin Beard v. Banks . (204) In Mills v. Maryland , (205) the Court heldinvalid a capital sentencing scheme that required juries to disregard mitigating factors thatthey had not found unanimously. In Beard, the Court held that the Mills rule does not apply retroactively. In its analysis, the Court considered whether the rule was dictated by existingprecedent relative to whether the unlawfulness of Mills' sentence would be apparent to "allreasonable jurist." After tracing the jurisprudential roots of the Mills decision, the Courtconcluded that reasonable jurists could have differed as to whether the prior cases compelledthe results in Mills . As confirmation, the Court noted that the Mills case (and a later releasedcase) had dissents. The Beard Court also provided guidance on the two Teague exceptions. The firstexception is reserved for "primary, individual conduct beyond the power of the criminallaw-making authority to proscribe." (206) This, Beard observes as would Schriro v.Summerlin (207) thereafter, is matter appropriately considered retroactive by its substantive nature rather thanan exception to the procedural Teague rule. (208) Elsewhere, the Court has suggested that this exceptioncovers things like "the execution of mentally retarded...regardless of the procedurefollowed." (209) "In providing guidance as to what might fall within [the watershed] exception," the Court hasrepeatedly referred to the rule of Gideon v. Wainwright , (210) and only to thisrule. (211) Incontrast to Gideon's solitary standing, the Court has identified more than a few decisionsconcerning procedural rights that may not claim "watershed" status for Teague purposes. (212) One of the hallmarks of new Supreme Court decisions is that until their announcementmany of the lower courts are likely to have ruled erroneously on the issue. The questionbecomes when may defendants convicted or sentenced on the basis of these errors claim thebenefit of the new decision and have their convictions or sentences overturned. (213) Generally newdecisions of the Supreme Court will apply "retroactively" (214) to defendantscurrently on trial or on direct appeal. (215) Also, a defendant may take advantage, of a new Courtrule in a few other limited situations, for example, decisions which construe a criminal statuteto exclude certain acts or conduct. (216) New decisions of the Court sometimes apply"retroactively" to those on collateral review, and rarely apply "retroactively" to thosepetitioners on second or successive collateral reviews. (217) The Supreme Court granted certiorari in Medellin v. Dretke to determine what effectU.S. Courts should give to a ruling by the International Court of Justice at the Hague (ICJ). On May 23, 2005, the Court dismissed its writ of certiorari as injudiciously granted primarilybecause President Bush intervened and ordered state courts to abide by the ICJ ruling. (218) The Courtnoted that there was a likelihood that Medellin would be back before the Supreme Court oncethe case runs its course in the Texas court and the losing party appeals. (219) The case issignificant because of its implications for the World Court and U.S. foreign relations and theongoing Supreme Court debate over the relevance and effect of international law on theCourt's decisions. | Executions declined through the 1950s and 1960s and ceased after 1967, pending definitiveSupreme Court decisions. This interval ended only after States altered their laws in response to the1972 Supreme Court decision in Furman v. Georgia , a 5-4 decision deciding that the death penalty,as imposed under existing law, constituted cruel and unusual punishment in violation of the Eighthand Fourteenth Amendments of the U.S. Constitution. In Furman, the Court ruled that the deathpenalty was arbitrarily and capriciously applied under existing law based on the unlimited discretionaccorded to sentencing authorities in capital trials. In response, States began to revise their statutesto modify the discretion given to sentencing authorities. These statutes went untested until the Courtdecided Gregg v. Georgia in 1976 in which it found in a 7-2 decision, that the death penalty did notper se violate the Eighth Amendment. The Gregg decision allowed States to establish the deathpenalty under guidelines that excluded the arbitrariness of sentencing in capital cases. As a result,statutory safeguards were developed to make sentencing more just and fair. Some of the changesincluded (1) in death penalty cases, the determination of guilt or innocence must be decidedseparately from hearings in which sentences of life imprisonment or death are decided; (2) the courtmust consider aggravating and mitigating circumstances in relationship to the crime and thedefendant; and (3) the death sentence must be subject to review by the highest State court of appealsto make sure that the penalty is in proportion to the seriousness or gravity of the offense and isimposed even-handedly under State law. Like the statutory safeguards, the capital cases decided bythe Court in the 2004-5 term also reflect its sentiment that if there is going to be a death penalty, theprocess must be fair. The Supreme Court abolished the practice of executing mentally retarded persons in Atkinsv. Virginia and juveniles who commit a capital crime while under the age of 18 in Roper v. Simmons . The Court ruled that these executions were prohibited on Eighth Amendment "cruel and unusualpunishment" grounds. The Court expanded its doctrine on the "ineffective assistance of counsel"in setting aside the death sentence for the petitioner in Rompilla v. Beard because his lawyers failedto search files on his past convictions for mitigating evidence in spite of their conscientious effortswhich led them to believe that it would be a waste of time. However, the Court determined in Bellv. Thompson that the scheduling of an execution was reasonable and the actions of the Court ofAppeals were an abuse of discretion, although the case was remanded for an ineffective assistanceof counsel hearing by the Court of Appeals while acting upon an honest belief that its previous rulinghad been decided erroneously. Also, the Court's decision in Miller-El v. Dretke reflected anaffirmation of its condemnation of racial discrimination in the use of peremptory challenges. |
In 2008 and 2009, collapsing world credit markets and a slowing global economy combined to create the weakest market in decades for production, financing, and sale of motor vehicles in the United States and many other industrial countries. The production and sales slides were serious business challenges for all automakers, and rippled through the large and interconnected motor vehicle industry supply chain, touching suppliers, auto dealers, and the communities where automaking is a major industry. Old GM and Old Chrysler, in addition to being affected by the downdraft of the recession, were in especially precarious financial positions. As the supply of credit tightened, they lost the ability to finance their operations through private capital markets and sought federal financial assistance in 2008. The separate companies that financed GM and Chrysler vehicles, GMAC and Chrysler Financial, were also experiencing financial difficulties, with GMAC suffering from large losses in the mortgage markets as well. With 91% of U.S. passenger vehicle sales depending upon financial intermediaries to provide loans or leases, the auto financing companies' inability to lend damaged the prospects of Old GM and Old Chrysler pulling out of the slump, particularly because other sources of credit, such as banks and credit unions, were also reluctant to lend due to ongoing financial market disruptions. When Congress did not pass auto industry loan legislation, the George W. Bush Administration turned to the Troubled Asset Relief Program (TARP) to fund assistance for both automakers and for GMAC and Chrysler Financial. TARP had been created by the Emergency Economic Stabilization Act (EESA) in October 2008 to address the financial crisis. This statute specifically authorized the Secretary of the Treasury to purchase troubled assets from "financial firms," the definition of which did not specifically mention manufacturing companies or auto financing companies. The authorities within EESA were very broad, and both the Bush and Obama Administrations used TARP's Automotive Industry Financing Program to provide financial assistance ultimately totaling more than $80 billion to the two manufacturers and two finance companies. This assistance was not without controversy, and questions were raised about the legal basis for the assistance and the manner in which it was carried out. The financial assistance provided to private companies by the government during the financial crisis can broadly be divided into (1) assistance for solvent companies facing temporary difficulties due to the upheaval in financial markets and (2) assistance for more deeply troubled firms whose failure was thought likely to cause additional difficulties throughout the financial system and broader economy. As a large financial institution, GMAC might have been eligible for various programs and loan facilities intended for solvent institutions, particularly after its conversion to a bank holding company. Whether or not GMAC was actually solvent, however, remains unclear. Ultimately, the TARP assistance provided to the company came from the Auto Industry Financing Program, not the programs for assisting banks. GMAC/Ally Financial also received assistance from Federal Reserve (Fed) and Federal Deposit Insurance Corporation (FDIC) programs intended for healthy banks facing temporary funding issues. Table 1 below summarizes the TARP assistance given to the U.S. motor vehicle industry. Of the two auto financing companies, Chrysler Financial received relatively minor amounts of TARP assistance ($1.5 billion) and repaid this loan relatively quickly with interest. GMAC, however, ultimately required much more extensive assistance which resulted in the federal government taking a majority ownership stake in the company. In addition, during the crisis, GMAC converted from an industrial loan company into a bank holding company, an expedited conversion permitted by the Fed due to emergency conditions in the financial markets. This conversion allowed access to Fed lending facilities and also increased regulatory oversight of the company. In March 2011, the company, now renamed Ally Financial, filed with the Securities and Exchange Commission (SEC) for an initial public offering (IPO) of shares. The IPO was a major step in unwinding the government involvement in GMAC/Ally Financial. The price at which the government was able to sell shares during and after an IPO was instrumental in determining whether the government was able to recoup its assistance for GMAC/Ally Financial. In July 2011, Ally put its IPO on hold because of what one news story called the "near shutdown in global equity capital markets." The IPO process was ultimately completed in May 2014. Sales of government shares during the IPO reduced the government ownership to 15.6% of the company. In addition to auto financing, GMAC was a large participant in the mortgage markets, particularly through subsidiaries known as ResCap. The bursting of the housing bubble and the 2008-2009 financial crisis resulted in substantially negative returns from the company's mortgage operations with prospects of future losses. The financial status of ResCap was a factor in Ally not undertaking an IPO in 2011 as the uncertainty surrounding future losses from mortgages had been a drag on the company. Ultimately the ResCap subsidiaries filed for Chapter 11 bankruptcy in May 2012. This bankruptcy was possible because the ResCap operations were legally separate from Ally Financial. Ally Financial took an approximately $1.3 billion charge due to the bankruptcy. The authority to purchase assets under TARP expired during the 111 th Congress, as did the TARP Congressional Oversight Panel, a temporary panel created in the TARP statute. Congress, however, conducted TARP oversight hearings in the House during 113 th Congress. Auto financing companies have a dual role in auto retailing. Because of the high price of motor vehicles, more than 90% of customers finance or lease their vehicle. While outside financial institutions such as credit unions and banks also lend to finance such purchases, the automobile companies themselves have long offered financing and leasing to consumers through related finance companies (such as GMAC, Chrysler Financial, Ford Motor Credit, and Toyota Motor Credit). In addition to the financing of retail auto purchases, dealers have traditionally used the manufacturers' finance arms to purchase the automobile inventory from the manufacturers. These loans are called floor plan financing. As the banking crisis intensified in 2008-2009, floor plan and retail financing were seriously affected as the financing companies were unable to raise the capital to fund the manufacturer-dealer-consumer pipeline. Thus, in order to assist the auto manufacturers, it was deemed important to assist the auto financing companies. General Motors Acceptance Corporation (GMAC) was created by Old GM in 1919 to provide credit for its customers and dealers. Over the decades, GMAC expanded into providing other financial products, including auto insurance (beginning in 1939) and residential mortgages (beginning in 1985), but remained a wholly owned subsidiary of Old GM. GMAC's operations were generally profitable over the years. In 2003, for example, the company contributed $2.8 billion to Old GM's bottom line with total assets of $288 billion. In 2006, Old GM spun off GMAC into an independent company, with Cerberus Capital Management purchasing 51% of GMAC for approximately $14 billion; GM retained a 49% share. At the time the automaker was under financial pressure to locate additional capital. In 2005, Old GM had recorded its largest annual loss since 1992, stemming primarily from its auto business. GM's overall corporate credit rating declined and caused GMAC's credit rating to be lowered to junk status, making it more difficult for the finance unit to raise capital. In turn, the lower credit rating increased GMAC's cost of financing GM vehicle sales. It was reported that GMAC paid interest rates of up to 5.4 percentage points above comparable Treasury securities on its debt, versus 1.7 to 2.7 percentage points above in 2004. It was thought that selling the controlling stake to Cerberus would provide GMAC with lower credit costs through better access to capital markets. After the spinoff, providing financing for Old GM customers and dealers remained a large portion of GMAC's business, and the two companies remained linked through numerous contracts and through Old GM's continued 49% ownership stake in GMAC. As the early 2000s housing boom turned to the late 2000s housing bust, the previously profitable GMAC mortgage operations began generating significant losses. GMAC was exposed to the mortgage markets both as an investor and as a participant. For example, in 2006, GMAC held approximately $135.1 billion in mortgage assets. GMAC's ResCap subsidiary was the country's sixth-largest mortgage originator and fifth-largest mortgage servicer in 2008. GMAC as a whole produced more than $51 billion in mortgage-backed securities in that year. At the same time the housing market was encountering difficulties, automobile sales were dropping, which negatively affected GMAC's core auto financing business. In addition, GMAC, along with nearly all financial firms, faced difficulties in accessing capital markets for funding that previously had been relatively routine. Prior to the crisis, GMAC's banking operations had been operating as an industrial loan corporation (ILC) rather than under a federal bank holding company charter. Much of the federal government support offered in response to the financial crisis at the time, particularly the initial assistance provided under the TARP Capital Purchase Program, was not available to GMAC because it was organized as an ILC. GMAC applied for federal bank holding company status in November 2008, and the Federal Reserve approved the application in an expedited manner in December 2008. As part of the approval, neither Old GM nor Cerberus was allowed to maintain a controlling interest in GMAC and some of the links between Old GM and GMAC were gradually unwound. Since the transformation into a bank holding company, GMAC renamed itself Ally Financial, Inc. and expanded its depository banking operations under the name Ally Bank. In December 2013, the Fed approved Ally Financial's application for financial holding company status, which allows the company to engage in a broader range of businesses, such as insurance, than would have been permissible as a bank holding company. At the time, Ally faced increasing competition. According to a Government Accountability Office report issued in October 2013, Ally Financial faces growing competition in both consumer lending and dealer financing from Chrysler Capital, GM Financial, and other large bank holding companies. This competition may affect the future profitability of Ally Financial, which could influence the share price of Ally Financial once the company becomes publicly traded and thus the timing of Treasury's exit. Following the government assistance and restructuring of the auto industry, GMAC/Ally Financial provided much of the floor plan and retail financing for New GM and New Chrysler. The relationship among the companies, however, has been in flux. In 2010, New GM acquired AmeriCredit Corporation, and renamed it General Motors Financial Company, a subsidiary now competing with GMAC/Ally Financial. GM added to the rebuilding of its own lending business when GM Financial purchased Ally's international auto lending operations in 2013, reportedly doubling the size of GM's in-house lender. According to GM, GM Financial offers financing for about 80% of GM's worldwide sales. Similarly, Chrysler re-established a unit that provides floor plan financing to its dealers, instead of using Ally Financial. In 2013, it established Chrysler Capital for that purpose, in conjunction with Spanish lender Banco Santander. Ally previously had preferred lender agreements with Chrysler and GM, but these expired in April 2013 and February 2014, respectively. It continues to support auto financing with the two Detroit automakers, but without an exclusive agreement to finance their respective vehicle sales incentive programs. As of September 30, 2014, Ally Financial was the 19 th -largest U.S. bank holding company, with approximately $149.2 billion in total assets. In its annual filing with the SEC in early 2014, Ally reported three major lines of business: Dealer Financial Services. These services include automotive finance and insurance, providing loans, leases, and commercial insurance to 16,000 auto dealers and 4 million retail customers. These operations had $116.4 billion of assets and generated $4.7 billion of total net revenue in 2013. Mortgages . GMAC/Ally Financial historically had significant mortgage operations, but Ally Financial exited the large portions of their residential mortgage operations with the ResCap bankruptcy filing and with the divestment of other mortgage financing activities. The bankruptcy court confirmed the bankruptcy plan in December 2013. Ally's mortgage operations had $8.2 billion of assets on December 31, 2013, and generated $76 million of total net revenue in 2013. Depository banking . Ally Bank raises deposits through the Internet, telephone, mobile, and mail channels. Its consumer banking activities include savings and money market accounts, certificates of deposit, interest-bearing checking accounts, and individual retirement accounts. At the end of 2013, it had $52.9 billion of deposits, including $43.2 billion of retail deposits. GMAC/Ally Financial's past role as a mortgage servicer led to further interactions with TARP as the company participated in the TARP Home Affordable Modification Program (HAMP). GMAC/Ally Financial has received approximately $96 million in servicer incentive payments for participating in HAMP. The company faced criticism for documentation issues in its foreclosure proceedings and reported a $230 million charge to the company's 2011 earnings due to foreclosure-related complaints. GMAC/Ally Financial benefited from both general and specific government assistance during the financial crisis. Such assistance included (1) Federal Reserve lending facilities, where an institution could borrow cash from the Fed in return for less liquid securities; (2) the FDIC's Temporary Liquidity Guarantee Program (TLGP), which guarantees debt issued by banks; and (3) the TARP, which primarily provided additional capital to strengthen the company's balance sheet. Historically, the Fed declined to identify individual institutions to which it lent funds. GMAC itself, however, reported that at the end of 2008, it had $7.6 billion outstanding from the Fed's Commercial Paper Funding Facility (CPFF). The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in July 2010, required the Fed to detail its emergency lending through the financial crisis; details of such lending were released in late 2010. This release did not include borrowing from non-emergency facilities, such as the discount window. Table 2 summarizes the information released by the Federal Reserve regarding GMAC/Ally Financial's borrowing from the CPFF and the Term Auction Facility (TAF). As part of its response to the then-ongoing financial crisis, the FDIC created the TLGP to encourage liquidity in the banking system. One component of this program guarantees senior unsecured debt issued by banks before October 31, 2009, with coverage until December 31, 2012. Based on its size, GMAC/Ally Financial was eligible to issue up to $7.4 billion of debt under the program and it did so in three tranches: $2.9 billion in October 2009 and $3.5 billion and $1 billion in December 2009. This debt matured in October and December 2012. In return for the guarantee, the FDIC received approximately $393 million in fees from GMAC/Ally Financial. GMAC applied for the Treasury's TARP Capital Purchase Program in 2008 at the same time as it applied to the Fed for permission to convert to a bank holding company. By the time the application was approved, Treasury had announced the Auto Industry Financing Program (AIFP) and the assistance received by GMAC/Ally Financial came under this program rather than the TARP bank assistance programs. GMAC received three large rounds of assistance through TARP: (1) $5.25 billion on December 30, 2008, (2) $7.5 billion on May 21, 2009, and (3) $3.98 billion on December 30, 2009. This assistance was provided through the purchase of various types of preferred equity in GMAC, including mandatory convertible preferred stock and trust preferred securities. Holders of preferred equity are entitled to dividends before any dividend is paid to holders of common stock, but they have no voting rights in the company. The Treasury received warrants for approximately $825 million in additional preferred equity in conjunction with these transactions and the preferred stock has paid dividends. In addition to the direct assistance for GMAC/Ally Financial, the company also received indirect TARP assistance in the form of an $884 million loan to Old GM for participation in a December 2008 rights offering for GMAC common stock. In early 2009, the Treasury and banking regulators conducted stress tests on large banks, including on GMAC. These tests were intended to identify financial institutions that needed additional capital. Such banks were to be eligible for the new TARP Capital Assistance Program if they proved unable to raise needed capital from the private markets. However, the Capital Assistance Program was never used because, other than GMAC, the banks, which were judged to need additional capital, were able to raise this capital from the private market. GMAC was unable to raise capital from the private market and instead received the two additional rounds of assistance from the Auto Industry Financing Program as detailed above. Since the initial assistance in 2008, the government not only injected additional capital into GMAC/Ally Financial, but also changed the form of the government investment. The $884 million loan to Old GM was converted in May 2009 into approximately 35% of common equity in GMAC/Ally held by the U.S. Treasury. In December 2009, $3 billion of preferred shares was converted into an additional 21% of common equity, raising the federal ownership to more than 56%. The warrants that came along with the assistance were also exercised. In December 2010, $5.5 billion of preferred equity was converted into approximately 17.5% of the company's common equity, raising federal ownership to 73.8%. The other large shareholders at that time were the GM Trust, 9.9% Cerberus Capital, 8.7% and other investors, 7.6%. The 73.8% government ownership stake was reduced to 63.4% through a share dilution in November 2013. Following this, the share eventually was reduced to 0% through both private and public equity sales by the government from January 2014 to December 2014. In total, the U.S. Treasury recouped $14.7 billion of the assistance principal and received $4.9 billion in dividends and other income from its involvement with GMAC/Ally between 2008 and 2014. The TARP assistance for GMAC/Ally Financial, like most of the TARP assistance, was initially provided through financial instruments that were expected to be repaid or repurchased by the recipients. In some cases, including GMAC/Ally Financial, the U.S. Treasury converted all or some of TARP assistance into common equity in the company. Assistance converted to common equity was not subject to repayment by the company, but represented an ownership stake in the company. Conversion into common equity meant that the government's ability to recoup its assistance depended on the price received when the government sold its shares. If the value of the shares when sold was less than the amount of the government's assistance, Ally Financial had no obligation to compensate the government for the difference. Conversely, if the common equity stake were sold for more than the amount of the assistance, the government would retain any excess. In addition to the funds repaid through asset sales, the TARP assistance also produced other income, such as interest, dividends, or capital gains, which could be considered as offsetting losses on common equity sales should such losses occur. As specified by the TARP statute, proceeds from TARP assistance "shall be paid into the general fund of the Treasury for reduction of the public debt." The outcomes of the government's holdings of common equity in other large TARP recipients varied: Citigroup. Early in 2009, $25 billion of TARP assistance to Citigroup was converted into approximately 34% of the equity in the company, which was then sold to private investors. This conversion proved beneficial for the government, with a capital gain of approximately $6.9 billion from the stock sale and nearly $1 billion in dividends and warrants sales. Other cases, however, have not provided similar gains. General Motors. In the case of New GM, approximately $40 billion out of a total of $50.2 billion in loans was converted into 60.8% of the common equity in the company. The Treasury sold off these shares between December 2010 and December 2013. The assistance for GM realized an $11.2 billion loss with additional income of $0.7 billion. AIG. In early 2011, $49.1 billion of TARP preferred share holdings was converted into common equity in AIG, with the government holdings peaking at more than 92% due to both TARP and Fed assistance for the company. This equity was sold over time, with sales finishing in December 2012. The loss recorded by the Treasury on the TARP portion of the AIG assistance amounted to $13.5 billion, although this was offset by $17.6 billion recouped from the shares that resulted from Fed assistance. The Treasury also recorded $1.0 billion in income from the AIG assistance. Chrysler. Treasury's 6.6% common equity holding in New Chrysler was sold to Fiat in a direct sale for $500 million, with another $60 million paid for equity rights that were held by the U.S. Treasury. The government realized a $2.9 billion loss on the assistance principal with $1.7 billion in income received. The Treasury's 73.8% common equity holding in Ally Financial was sold partly to third party investors and partly to Ally itself. Through these sales and the sale of preferred equity that was not converted, the government was repaid $14.7 billion of the $17.2 billion of assistance principal, realizing a $2.5 billion loss. In addition, however, the government received a total of $4.9 billion in dividends and other income from its support for GMAC/Ally Financial. Thus, the government recouped a total of $19.6 billion, $2.4 billion more than the $17.2 billion in assistance originally provided. This gain is not correctly referred to as a "profit," as the calculation does not take into account factors, such as the Treasury's cost to borrow the funds extended to GMAC/Ally Financial, the time value of money, and an appropriate risk premium to compensate the taxpayers for the possibility that the assistance would not be recouped. Were those factors also included, the government's economic gain from TARP assistance would be lower. | Ally Financial, formerly known as General Motors Acceptance Corporation or GMAC, provides auto financing, insurance, online banking, and mortgage and commercial financing. For most of its history, it was a subsidiary of General Motors Corporation. Like some of the automakers, it faced serious financial difficulties due to a downturn in the market for automobiles during the 2008-2009 financial crisis and recession, while also suffering from large losses in the mortgage markets. With more than 90% of all U.S. passenger vehicles financed or leased, GMAC's inability to lend was particularly threatening to GM's retail sales and dealer-financing capabilities. The Bush and Obama Administrations used the Troubled Asset Relief Program (TARP) to provide assistance for the U.S. auto industry, concluding that the failure of one or two large U.S. automakers would cause additional layoffs at a time of already high unemployment, prompt difficulties and failures in other parts of the economy, and disrupt other markets. The decision to aid the auto industry was not without controversy, with questions raised as to the legal basis for the assistance and the manner in which it was carried out. The nearly $80 billion in TARP assistance for the auto industry included approximately $17.2 billion for GMAC, which changed its name to Ally Financial in 2010. The government's aid for GMAC was accomplished primarily through U.S. Treasury purchases of the company's preferred shares. Many of these preferred shares were later converted into common equity, resulting in the federal government acquiring a 73.8% ownership stake. This conversion from preferred to common equity significantly changed the outlook for the future government recoupment of the TARP assistance. After such a conversion, if the government's common equity were to end up being worth less than the assistance provided, the company would have no responsibility to compensate the government for the difference. Conversely, if the common equity were to be worth more than the assistance, the gain from this difference would accrue to the U.S. Treasury (and be used to pay down the national debt, as specified in the TARP statute). Beginning in November 2013, the government's stake in Ally Financial began dropping due to share dilution and the sale of the government's stock through both private placements and open market sales. The final sale of the government's Ally stock was completed in December 2014. With the completion of the sale, the government received a total of $14.7 billion in repayment for its assistance, leading the Treasury to recognize a loss of $2.5 billion. However, the government also received $4.9 billion in dividends and other income due to the TARP assistance to GMAC/Ally Financial. In addition to TARP assistance, during the financial crisis in 2008, GMAC converted from an industrial loan company into a bank holding company, an expedited conversion that was permitted by the Federal Reserve (Fed) due to prevailing emergency conditions in the financial markets. This change increased access to government assistance, including Fed lending facilities and Federal Deposit Insurance Corporation (FDIC) guarantees, and also increased regulatory oversight of the company. |
The Food and Drug Administration Amendments Act (FDAAA; P.L. 110-85 ) was signed into law on September 27, 2007. The law reauthorizes four expiring Food and Drug Administration (FDA) programs and expands the agency's authority to ensure the safety of prescription drugs and biologics, medical devices, and foods. FDAAA represents the most comprehensive FDA legislation since the Food and Drug Administration Modernization Act of 1997 (FDAMA; P.L. 105-115 ). The primary impetus for the legislation was the renewal of FDA's authority for two key user fee programs that were set to expire at the end of FY2007: the Prescription Drug User Fee Act (PDUFA, last reauthorized in 2002; P.L. 107-188 ), and the Medical Device User Fee and Modernization Act (MDUFMA, enacted in 2002; P.L. 107-250 ). The law also reauthorizes two other expiring authorities, which are related to pediatric pharmaceuticals: the Best Pharmaceuticals for Children Act (BPCA, last reauthorized in 2002; P.L. 107-109 ), and the Pediatric Research Equity Act (PREA, enacted in 2002; P.L. 108-155 ). In addition to the reauthorizations, FDAAA contains several other FDA-related provisions. These include provisions designed to enhance drug safety, spark the development of pediatric medical devices, expand the types of trials and the substance of information in clinical trial databases, create a new nonprofit entity to assist FDA with its mission, improve food safety, and affect a number of other areas related to public health. Several of FDAAA's provisions contain the authorization to appropriate funding; these are listed in Appendix A . Many create additional responsibilities with deadlines for federal agency personnel; see Appendix B . In addition, several of the authorities have sunset dates in 2012 or early 2013; see Appendix C . FDAAA's impact on FDA is important to two ongoing policy discussions. One discussion centers around the possibility of additional legislation to refine or restructure the agency's regulatory role. Understanding current law, as amended by FDAAA, is a good starting point for any such discussion. The second discussion is that of medical products in the health care system. The agency plays a critical role in bringing medical products to market, which is described below. In performing that role, as refined by FDAAA, FDA's regulation of medical products affects their quality, availability, and cost within the health care system. The FDA, an agency within the Department of Health and Human Services (HHS), regulates the safety of most human foods, all animal feeds, and certain other products such as cosmetics. The agency also regulates the safety and effectiveness of human drugs, biologics (e.g., vaccines), medical devices, and animal drugs. Those products regulated for effectiveness must be reviewed and approved by FDA before they can be placed in commerce, a process called premarket approval . (FDA is tasked with postmarket surveillance for these products as well.) Products regulated only for safety may enter commerce with little FDA oversight, though the agency may inspect production facilities and require that certain good manufacturing practices be carried out. FDA has the statutory authority to withdraw from commerce any product it regulates that it determines to be unsafe. Media coverage of issues related to the safety of food (e.g., spinach), drugs (e.g., Vioxx), and medical devices (e.g., cardiac stents) has brought congressional attention to FDA's performance and the funding it has available to carry out its statutory responsibilities. For those products requiring premarket approval, a central issue for Congress is how best to balance the need for the agency to help speed the products it regulates to market if they are safe and effective, and correct them, or keep them from entering or staying on the market, if they are not. For human foods, animal feeds, and other products not requiring premarket approval, key issues relate to FDA's ability to assure product safety and protect public health by preventing health threats from occurring, or by identifying and responding to problems quickly. Prior to the introduction of H.R. 3580 , the bill enacted as FDAAA, each chamber of Congress had passed its own version of comprehensive FDA reauthorization and reform legislation. These were the Food and Drug Administration Revitalization Act ( S. 1082 ), and the Food and Drug Administration Amendments Act of 2007 ( H.R. 2900 ). While most of the bills' provisions were similar, S. 1082 contained some provisions that were not present in H.R. 2900 on the topics of food safety, prescription drug importation, and domestic pet turtle market access. Of those, only the food safety provisions were adopted in FDAAA. See Table 1 for a listing of major topics covered in each bill. The remaining sections of this report contain descriptions of the key FDA programs addressed in FDAAA. FDAAA includes eleven titles, each of which is discussed below in its own section of this report. Each section introduces the topic, surveys the ways in which new provisions changed the law, provides links to relevant CRS reports, and presents a detailed table comparing FDAAA-enacted provisions to any existing previous law. The one exception is Title X, Food Safety, which is described briefly in this report, but addressed in more detail in a separate CRS report. In the text and tables, the Commissioner means the FDA Commissioner, and the Secretary means the HHS Secretary. The report uses several other acronyms as well, all of which are spelled out at their first point of use and in Appendix D . For clarity, the tables comparing FDAAA with previous law have the following attributes. Table provisions are cited to their location in FDAAA. Where applicable, cites are also included for the Federal Food, Drug, and Cosmetic Act (FFDCA), the Public Health Service Act (PHSA), and the United States Code (USC). The USC citations vary in specificity to match the citations listed in FDAAA. When table text extends across previous and current law fields, this indicates one of two things. If an FDAAA cite is present, FDAAA is reauthorizing or restating portions of provisions identical to those of the prior law. If no FDAAA cite is present, a preexisting law interacts with and is fundamental to interpreting FDAAA, but has not been amended by it. Title I of FDAAA, the Prescription Drug User Fee Amendments of 2007 (referred to as PDUFA IV), provides a five-year extension of FDA's authority to collect user fees from manufacturers of drug and biological products and expands the authorized uses of fee revenue. User fee revenue has provided an increasing proportion of FDA funding since PDUFA was first enacted in 1992. In FY1994, the first year FDA noted PDUFA revenue use in its budget justification documents, the fees contributed 9.7% of the human drug program's budget. At the time of FDAAA's passage, the FY2007 budget showed that PDUFA fees made up 44.7% of the agency's human drug program budget. In the years leading to PDUFA's enactment in 1992, FDA, consumers, and manufacturers all sought to shorten the time between a manufacturer's submission of an application and the agency's decision on whether to approve the product. FDA lacked the funding for staff to review those products quickly. With PDUFA, Congress gave FDA a revenue source to supplement direct appropriations. Congress also structured PDUFA to restrict the use of collected funds to new product review, and established a mechanism for agency-industry collaboration to create performance goals that set targets, primarily for review times. PDUFA has had a range of effects. New application review times decreased from 29 months in 1987 to 17 months in 1994. PDUFA's restriction of the use of fee revenue to premarket review created what many saw as an imbalance between resources available to premarket and postmarket activities. In its 1997 and 2002 reauthorizations, Congress gave FDA limited authority to use some of the fees for postmarket safety activities. During 2004 discussions in preparation for PDUFA IV, several safety problems with aggressively marketed drugs—such as Vioxx—received wide publicity. This heightened the ongoing concern over the balance of attention between premarket review and postapproval safety monitoring. FDAAA reflects that increased focus on postapproval drug safety throughout, but especially in this title, described below, and in Title IX (Enhanced Authorities Regarding Postmarket Safety of Drugs), discussed later in this report. Title I of FDAAA addresses types of fees, authorized fee revenue, authorized uses of fees, new fees for the advisory review of direct-to-consumer television advertisements, reauthorization and report requirements, and effective dates, as summarized in the following material. Types of Fees. FDAAA reauthorizes the assessment, collection, and use of three types of fees from manufacturers of drugs and biological products. These are application fees, establishment fees, and product fees. Authorized Fee Revenue. FDAAA establishes fee revenues, for each fiscal year, of $392,783,000, with various adjustments for inflation, workload, rent and rent-related expenses, and final-year adjustments. Congress added to that base amount fee revenues for drug safety totaling $225 million over the five-year reauthorization. Authorized Uses of Fees. The new law expands the list of postmarket safety activities for which the fees could be used. These include developing and using adverse-event data-collection systems, including information technology systems; developing and using improved analytical tools to assess potential safety problems, including access to external data bases; and implementing and enforcing new FFDCA requirements relating to postapproval studies and clinical trials, labeling changes, risk evaluation and mitigation strategies, and adverse event reports and postmarket safety activities. FDAAA also removes the calendar and time limitations on postapproval activities. When Congress first allowed PDUFA revenue use on postmarket activities in 2002, it set a three-year limit from the time of a drug's approval. New Fees for Advisory Review of Advertisements. FDAAA creates a new user fee to support FDA's advisory review of prescription-drug television advertising. The program calls for a manufacturer to pay a fee if it voluntarily submits an advertisement for pre-dissemination review. The review is to be advisory. The law authorizes FDA to assess fees only on manufacturers that request such reviews. It further directs that if the Secretary has not received at least $11.25 million in fees by 120 days after enactment, the DTC advisory review user fee program shall not commence and all collected fees shall be refunded. Reauthorization and Report Requirements. FDAAA codifies certain core elements of the prescription drug user fee program that, although included in PDUFA I, II, and III, were never placed into the FFDCA. One is the requirement for annual performance and fiscal reports to Congress. The others relate to the Secretary's interaction and communication with various stakeholders. These include public hearings regarding the Secretary's negotiations with industry regarding performance goals; and the requirement that the Secretary, in preparation for the next PDUFA reauthorization, consult with congressional committees, scientific and academic experts, health-care professionals, representatives of patient and consumer advocacy groups, and the regulated industry to develop recommendations for PDUFA V, including goals and plans for meeting the goals. Effective Dates. The amendments in this title took effect on October 1, 2007. Authority to assess, collect, and use drug fees ceases to be effective October 1, 2012. The reporting requirements cease to be effective January 31, 2013. Title II of FDAAA, the Medical Device User Fee Amendments of 2007 (MDUFA 2007), reauthorizes FDA's authority to collect user fees from medical device manufacturers, and makes certain other amendments to the regulation of devices. Congress initially gave the agency the authority to collect such fees in 2002, with the Medical Device User Fee and Modernization Act (MDUFMA; P.L. 107-250 ). MDUFMA established user fees for premarket applications (PMAs), premarket notifications (510(k)s), and other types of requests to market medical devices. The 2002 law incorporated, by reference, performance goals for many types of premarket device reviews. It also enabled third-parties to conduct establishment inspections, and added new regulatory requirements for reprocessed single-use devices. In FY2007, when FDAAA was enacted, medical device user fees generated $35,202,000. This represents an increase of 144.7% over the amount first collected in FY2003. In FY2007, devices user fees comprised 9.0% of the agency's user fee revenue, and 1.8% of its total budget. FDA's authority to collect medical device user fees was due to expire on October 1, 2007. Congress reauthorizes the authority in MDUFA 2007, Subtitle A. In Subtitle B, it amends some aspects of the regulation of medical devices. The details of each of these are discussed below. Subtitle A of MDUFA 2007 reauthorizes FDA's expiring authority to collect user fees through October 1, 2012, and makes certain other changes to MDUFMA. The primary change is that MDUFA 2007 adds three new types of user fees (annual establishment fees, registration fees, and 30-day fees). The first two are to be paid regularly by establishments with devices on the market, generating a predictable base of device user fee income for FDA. MDUFMA had only enabled the collection of fees for applications related to FDA's approval or clearance of a product, which the agency had noted made the agency's user fee income difficult to predict. This was because the number of applications could vary from year to year. The agency asserted that, by contrast, fees paid annually would result in a revenue stream that was more reliable. This move toward a more predictable funding stream mirrors the approach taken by PDUFA for drugs and biological products. MDUFA 2007 lowers the amounts of fees paid by device manufacturers for FY2008, and then includes a subsequent annual increase in fee amounts through FY2012. Despite the FY2008 decrease in the amounts of individual fee amounts, the total fee revenue generated will increase from FY2007 levels; revenue lost in reduced fee amounts will be offset by revenue generated by new types of fees. MDUFA 2007 changes some provisions relevant to specific types of fees. Both MDUFMA and MDUFA 2007 generally establish fee amounts for various types of activities by setting them as a proportion of the cost of submitting a PMA. The amount charged for a PMA is therefore also called the base fee . MDUFA 2007 strikes a provision that had required the Secretary to adjust the premarket notification fee amount annually in a unique way, instead it sets it, like other fees, as a percentage of the base fee amount. For a different fee, the FDAAA-created establishment fee, the law gives the Secretary the authority to increase the fee amount in FY2010 if too few manufacturers have paid it. MDUFA 2007 changes the law regarding reduced fees paid by small businesses in several ways. Under MDUFMA, entities qualifying as small businesses had certain fees waived and paid others at a reduced rate. MDUFA 2007 further reduces the fee amounts small businesses pay, removes a provision that the assets of partners and parent firms be considered in small business qualification, and enables foreign firms to qualify as small businesses. Regarding modular applications, those submitted to FDA in separate pieces, MDUFA 2007 for the first time also affords the possibility of refunds for applications withdrawn at different points. MDUFA 2007 extends a trigger requirement beyond FY2007 indefinitely. The trigger, which is designed to ensure that user fees supplement rather than supplant direct appropriations, requires that there be a certain amount of medical device-related direct appropriations in order for the Secretary to assess medical device user fees and be expected to meet performance goals. MDUFA 2007 amends a provision regarding the collection of fees in excess of the amount authorized. The previous law required that if fees collected for a fiscal year exceed the authorized appropriation, the excess would be subtracted from the subsequent year's authorization. By contrast, MDUFA 2007 allows excess fees to be carried over to cover shortfalls over the course of several years. MDUFA 2007 amends a provision describing how FDA may use the device fees it collects. The new provision in theory could have enabled fees to be expended on postmarket activites, but does not appear, in practice, to have done so. It states that fees will be dedicated toward expediting the process for the review of device applications and for assuring the safety and effectiveness of devices, as set forth in a letter from the Secretary to relevant congressional committees ("Commitment Letter"). It is conceivable that assuring the safety and effectiveness of devices could be interpreted to encompass postmarket surveillance, however the Commitment Letter does not list surveillance and enforcement activities. In addition, MDUFA 2007 maintains two separate MDUFMA provisions that articulate and generally limit the expenditure of user fee funds to premarket activities. MDUFA 2007 requires the Secretary to continue to file annual performance and fiscal reports through FY2012, and writes these report requirements into the FFDCA. The law also requires that the performance report include information on previous cohorts for which the Secretary had not given a complete response. In FDA's development of its performance goal recommendations to the Congress, MDUFA 2007 maintains MDUFMA's requirements that the agency consult with an array of groups, and take specified steps to invite public input. Unlike the previous law, MDUFA 2007 specifies that the recommendations be revised upon consideration of public comments, requires the recommendations' transmittal to Congress, and writes the performance goal-related requirements into the FFDCA. Separate from the user fee authorizations, MDUFA 2007 authorizes the appropriation of specific sums from FY2008 through FY2012 for the review of postmarket safety information on medical devices. MDUFMA made similar authorizations, though no funds were appropriated. MDUFA 2007 became effective on October 1, 2007. Subtitle B of MDUFA 2007 makes various changes to the regulation of medical devices. It extends from FY2007 through FY2012 the authority to have third parties review premarket notifications. Producers of devices that are marketed in the United States are required to register annually with FDA. MDUFA 2007 restricts the period within which device producers must register with the Secretary. It also reduces from twice to once per year the requirement that those who register with the Secretary provide a list of devices on which they perform specific functions (e.g., the manufacture, preparation, propagation, compounding or processing of a device). MDUFA 2007 amends electronic registration regulations to require electronic filing as a default, and without necessitating rulemaking by the Secretary as would have previously been required. MDUFA 2007 amends two portions of the FFDCA's provisions regarding records and reports on devices . First, it adds a requirement that the Secretary promulgate regulations establishing a unique identification system for medical devices. Second, it modifies the reporting requirements for devices linked to serious injuries or deaths. MDUFA 2007 revises the requirements for inspections by accredited third parties in three ways. First, it reduces administrative requirements associated with qualifying for the program. Second, it expands participation in the program. Third, it permits device companies to voluntarily submit to FDA reports by third parties assessing conformance with appropriate international quality systems standards, such as those set by the International Standards Organization. FDA is to consider the information in these reports in setting its inspection priorities. MDUFA 2007 requires the Comptroller General to conduct two studies, and the FDA to conduct one. The Comptroller General is required to conduct one study on the appropriate use of the process under FFDCA 510(k) (premarket notification) to determine whether a device is safe and effective. It is required to conduct a second study on nosocomial (hospital-acquired) infections associated with medical devices. The FDA is required to conduct a study on whether the relationship between indoor tanning device use and the development of skin damage warrants a label change for the devices. Title III of FDAAA is the Pediatric Medical Device Safety and Improvement Act of 2007 (PMDSIA). PMDSIA was enacted based upon reports of a critical need for pediatric medical devices that help diagnose and treat diseases and conditions affecting children. Apparently, developing medical devices for children is less profitable and more problematic than developing them for adults. Fewer children need medical devices than adults, and children have physical attributes (e.g., size, biochemistry, growth rates), activities, and environmental influences that are different from those of adults. In order to encourage the development of the pediatric devices, PMDSIA creates some new reporting requirements related to certain pediatric devices, offers several types of incentives to manufacturers to create pediatric medical devices, and gives FDA the authority to require postmarket studies of approved pediatric devices to ensure their continued efficacy and safety. PMDSIA creates a set of reporting requirements for applications made under FFDCA 515 and 520(m). Section 515 governs PMAs to market class III devices (these require FDA's highest level of safety controls). Section 520(m) governs humanitarian device exemptions (HDEs). An HDE allows a manufacturer with a device aimed at a U.S. patient population of less than 4,000 to market the product without having to demonstrate its effectiveness (only its safety), and to have certain application fees waived. The exemption from proving effectiveness is designed to encourage manufacturers to develop medical devices for these small markets, assisting patients with rare diseases and conditions who might otherwise not be served. PMDSIA creates requirements for both types of applications, inserting a new section, 515A, into the medical device approval regulations. Section 515A requires those requesting approval to market a device under 515 and 520(m) to include, if readily available, a description of any pediatric subpopulation with the disease or condition that the devices is intended to treat, and the number of affected pediatric patients. Section 515A also allows the Secretary to conclude that adult data can be used to support a reasonable assurance of effectiveness in pediatric subpopulations, as appropriate. The section also requires the Secretary to report annually to relevant congressional committees, specified information about pediatric devices approved in the preceding year. PMDSIA creates one set of incentives for manufacturers to create pediatric medical devices by making some modifications directly to the HDE. Primarily, PMDSIA exempts some specified manufacturers of pediatric devices from the general HDE prohibition on selling a device for an amount that exceeds its costs of research and development, fabrication, and distribution. The exemption extends only to specified requests submitted on or before October 1, 2012. PMDSIA gives the Secretary specified pricing-exemption related enforcement and inspection authorities, and creates reporting requirements for adverse events related to devices that qualify for the pricing exemption. The law also requires the Comptroller General to submit a report to relevant congressional committees on the impact of the pricing exemption. Regarding funding for research on pediatric medical devices, the PMDSIA requires the Secretary to establish a demonstration project to promote pediatric device development. The law authorizes $6 million per year for FY2008 through FY2012 to support the demonstration grants and related activities. The law also requires the National Institutes of Health (NIH) Director to designate a contact point to help pediatric medical device developers locate funding. In addition, it requires the Secretary to submit a plan for expanding pediatric medical device research and development to relevant congressional committees. Finally, the PMDSIA incorporates certain postmarket surveillance measures related to pediatric medical devices. It expands the conditions under which the Secretary may require postmarket studies as a condition of approval for class II or III devices to include devices expected to have significant use in pediatric subpopulations. These studies may exceed the general 36-month limitation in duration if necessary to assess the impact of the device on pediatric populations' growth and development. The PMDSIA also includes a related dispute resolution provision, entitling a manufacturer to request a review, during which the device may not be deemed misbranded except as necessary to protect public health. FDA has approved for adult use many products never tested in children. Yet clinicians often prescribe them for children believing that the safety and effectiveness demonstrated with adults would hold for younger patients. However, this off-label prescribing can result in children receiving products that do not work for them, or receiving too much or too little of a potentially useful drug. Studies show that, depending on the maturation and development of a child's organs and other factors, some drugs vary in how long they stay in the body, affecting their usefulness. Some side effects are unique to children or children of specific ages, including effects on growth and development. Recognizing the obstacles (which could be economic, ethical, legal, or mechanical) that make manufacturers reluctant to conduct research to address these questions, FDA and Congress developed two approaches to facilitate pediatric research. FDAAA continues both programs. The first, the Pediatric Research Equity Act (FDAAA Title IV, discussed in this section) is a mandatory program that requires pediatric assessments as part of every new application regarding a new ingredient, indication, dosage form, dosing regimen, or route of administration. The second, the Best Pharmaceuticals for Children Act (FDAAA Title V, discussed in the following section of this report) is voluntary, offering a six-month marketing exclusivity for a product in return for pediatric studies. In 1998, FDA published the Pediatric Rule, which mandated that manufacturers submit pediatric testing data, referred to as a pediatric assessment , at the time of all new drug applications. In 2002, a federal court declared the rule invalid, holding that FDA lacked the statutory authority to promulgate it. Congress gave FDA that authority with the enactment of the Pediatric Research Equity Act of 2003 (PREA; P.L. 108-155 ). PREA requirements cover all drug and biological product applications or supplements to applications concerning a new active ingredient, new indication, new dosage form, new dosing regiment, or new route of administration. The Act includes provisions for deferrals and waivers. PREA also authorizes the Secretary to require the sponsor of an already approved and marketed drug or biological product to submit a pediatric assessment based on criteria described in the law. The Pediatric Research Equity Act of 2007, Title IV of FDAAA, reauthorizes PREA, amending it to strengthen standards for required tests, explanation of deferrals, labeling, and publicly accessible information. PREA now requires the Secretary to establish an internal committee, composed of FDA employees with specified expertise, to participate in the review of pediatric plans and assessments, deferrals, and waivers. The law requires the Secretary to track assessments and labeling changes and to make that information publicly accessible; establishes a dispute resolution procedure, which allows the Commissioner, after specified steps, to deem a drug to be misbranded if a manufacturer refuses to make a requested labeling change; and includes review and reporting reporting requirements for adverse events. PREA requires reports from both the Institute of Medicine (IOM) and the Government Accountability Office (GAO). It also continues to link the program's authorization to the five-year authority FDAAA provides to the pediatric exclusivity program. (See discussion of FDAAA Title V in the next section of this report.) Title V of FDAAA reauthorizes and changes legislation first passed in 1997. As part of the FDA Modernization Act of 1997 ( P.L. 105-115 ), Congress provided drug manufacturers with a financial incentive to conduct pediatric use studies on their patented products. The "Pediatric Studies of Drugs" provision provided that if a manufacturer complied with a written FDA request for a specific pediatric study, FDA would add six months to its market exclusivity for that product. This tool is the second approach that FDA and Congress have taken to encouraging pediatric drug research, the other, required pediatric assessments of new products, is discussed in the preceding section of this report regarding FDAAA Title IV. In 2002, the Best Pharmaceuticals for Children Act (BPCA 2002; P.L. 107-109 ) reauthorized the exclusivity provisions for another five years. It also added provisions to encourage pediatric research of products that were no longer covered by patent or other marketing exclusivity agreements, to which pediatric exclusivity was not relevant. It required the Secretary to list those off-patent products for which pediatric studies are needed to assess safety and effectiveness. It also established an off-patent research fund at NIH (PHSA 409I) and authorized appropriations of $200 million for FY2002 and such sums as are necessary for each of the five years until the provisions were set to sunset on October 1, 2007. For on-patent drugs whose manufacturers declined FDA's written requests for studies (and, therefore, exclusivity), BPCA 2002 amended FFDCA 505A to allow FDA to refer drugs needing pediatric studies to the Foundation for the NIH (FNIH, PHSA 499), creating a second program of FDA-NIH collaboration. Other provisions in the 2002 BPCA included giving priority status to pediatric supplemental applications; the establishment of an FDA Office of Pediatric Therapeutics (OPT); the definition of pediatric age groups to include neonates; and a direction to the Secretary to contract with the IOM for a review of regulations, federally prepared or supported reports, and federally supported evidence-based research, all relating to clinical research involving children. The IOM report to Congress was also to include recommendations on best practices relating to research involving children. Title V of FDAAA again reauthorizes the pediatric exclusivity program, amending FFDCA 505A to sunset on October 1, 2012. It also encourages research on off-patent products, strengthens the requirements for labeling changes based on the results of pediatric use studies, and provides for the reporting of adverse events. FDAAA authorizes the Secretary to grant additional marketing exclusivity, for both new drugs and drugs already on the market, only after a sponsor has completed and reported on the studies that the Secretary has requested in writing, including appropriate formulations of the drug for each age group of interest, and after any appropriate labeling changes are approved, all within the agreed upon time frames. An applicant who turns down a request on the grounds that developing appropriate pediatric formulations of the drug is not possible must provide evidence to support that claim. The new law requires that the sponsor propose pediatric labeling resulting from the studies. For a product studied under this section, the labeling must include study results and the Secretary's determination whether those results demonstrate the drug's safety and effectiveness (if the results do or do not indicate safety and effectiveness, or if they are inconclusive). The product sponsor must disseminate labeling change information to health care providers, and the Commissioner must report to the Secretary on the review of all adverse event reports and recommendations on actions in response. Other provisions of the law set time frames for the actions it requires. Public notice requirements are expanded beyond the current notice of an exclusivity decision to include copies of the written request. The Secretary must also publicly identify any drug with a developed pediatric formulation that studies had demonstrated to be safe and effective for children that an applicant has not introduced onto the market within one year. A new dispute resolution process includes referral to the Pediatric Advisory Committee. The internal review committee, which FDAAA Title IV requires the Secretary to establish, must review all written requests. The Secretary, with that committee, must track all pediatric studies and labeling changes according to specified questions. Other provisions require applicants to submit, along with the report of requested studies, all postmarket adverse event reports regarding that drug; refine study scope to allow the Secretary to include preclinical studies; and except from exclusivity any drug with another exclusivity that is to expire in less than nine months. FDAAA amends PHSA Section 409I (as discussed earlier), which required that the Secretary, through the NIH Director and in consultation with the Commissioner and pediatric research experts, list approved drugs for which pediatric studies are needed to assess safety and effectiveness. It changes the specifications from an annual list of approved drugs to a list, revised every three years, of priority study needs in pediatric therapeutics, including drugs or indications. If the Secretary determines there is a need for pediatric information for a drug for which pediatric studies have not been completed, the Secretary must either issue a proposal to award a grant to conduct such studies, if funds are available through FNIH, or refer the drug for inclusion on the list established under PHSA Section 409I. FDAAA also requires reports from the IOM and the GAO. The provisions in Title V of FDAAA make up the following two tables: the first addressing amendments to FFDCA, the second relating to PHSA. Title VI of FDAAA adds new FFDCA Sections 770, 771, and 772 requiring the establishment of the Reagan-Udall Foundation for the Food and Drug Administration (the Foundation), a nonprofit corporation to advance FDA's mission regarding product development, innovation, and safety. The initial Board of Directors (the Commissioner, and the directors of NIH, CDC, and AHRQ) is to select the appointed members from a National Academy of Sciences-provided candidate list and then resign from the board. The ongoing board is to include representatives from industry, academic research organizations, government agencies, patient or consumer advocacy organizations, and health care providers. FDAAA directs the Foundation to establish goals and priorities relating to unmet needs and then coordinate with federal programs, and award grants, contracts, and other agreements with public and private individuals and entities to advance those goals. Title VI directs the Commissioner to transfer between $500,000 and $1,250,000 to the Foundation from FDA appropriations each year. FDAAA added a new FFDCA Section 910 that requires the Secretary to establish an Office of the Chief Scientist within the FDA Office of the Commissioner. Among the duties of the Secretary-appointed Chief Scientist would be to oversee, coordinate, and ensure quality and regulatory focus of FDA's intramural research programs. A new FFDCA Section 566 authorizes the Secretary, through the Commissioner, to enter into collaborative agreements (Critical Path Public-Private Partnerships) with eligible educational or tax-exempt organizations to implement the FDA Critical Path Initiative. The agreements are to develop innovative, collaborative projects in research, education, and outreach for the purpose of fostering medical product innovation, enabling the acceleration of medical product development, and enhancing medical product safety. The provision specifies the expertise and experience required of a partner entity. It requires the Secretary to submit an annual report to the authorizing congressional committees, and authorizes to be appropriated $5 million for FY2008 and such sums as may be necessary for each of FY2009 through FY2012. Title VII of FDAAA, Conflicts of Interest , contains provisions that revise FDA's approach to advisory committee members' conflicts of interest. FDA uses advisory committees to provide the agency with independent advice from outside experts on issues related to human and veterinary drugs, biological products, medical devices, and food. Advisory committees make recommendations to FDA, which FDA may or may not follow. To be credible and useful, many say that FDA must eliminate or reduce conflicts of interest in its committees. However, others note that the most expert members in the field are often those involved directly or indirectly in the activities about which FDA is seeking advice, creating the potential for such conflicts. In 2006 and 2007, the media reported that FDA advisory committees are biased in favor of drug approval, and that many committee members have conflicts of interest. Prior to the passage of FDAAA, the law generally required that committee members be free from conflicts of interest, but allowed for exceptions to that rule under specific circumstances. A conflict of interest might have required a potential committee member to disclose the conflict, refrain from voting, and/or not participate in a committee, depending on the nature of the conflict. The law was articulated primarily in three locations: (1) the Federal Advisory Committee Act (5 USC Appendix; FACA); (2) the FDA advisory committee policy (21 USC 355(n)), which applied only to trials of drugs and biologics—not devices; and (3) a law governing special government employees—such as advisory committee members—Acts Affecting Personal Financial Interest (18 USC 208). FDAAA inserts a new provision into Chapter VII, Subchapter A, of the FFDCA, effective October 1, 2007. The provision changes both the process of recruiting advisory committee members, as well as some circumstances under which and processes by which conflict-of-interest waivers may be granted. The new provisions repeal 21USC 355(n), but move much of its substance to a new location; the effect is that the requirements previously only applicable to drug and biologic advisory committees apply to committees providing advice on all types of products that FDA regulates. FDAAA defines an advisory committee as a FACA-covered entity that provides the Secretary with advice and recommendations regarding activities of the FDA, and defines financial interest as defined under 18 USC 208(a). This definition covers activities such as a person's or their family members' current or future employment, trusteeship, or directorship. On its face, it does not apply to activities such as stock ownership, former employment, or receipt of a grant or contract, although FDA's regulations do require disclosure of these types of activities. FDAAA requires advisory committee member recruitment mechanisms to be focused on reaching experts from areas such as academia, medical research institutions, and public interest and consumer groups. It also discourages the number of permissible exceptions to the financial conflict rules, such as the use of waivers or written certifications. FDAAA requires advisory committee members' full financial disclosure prior to a meeting on a related matter. It precludes participation by a member with a conflict of interest unless exempted by the Office of Government Ethics. The Act also allows a waiver of the voting restriction if necessary to provide the committee with essential expertise. FDAAA restricts the percentage of committees' membership that may consist of people who have received one of three types of exceptions to the financial conflict prohibitions: (1) waivers granted by the Secretary under newly created FDAAA provisions, (2) written determinations under 18 USC 208(b)(1), and (3) written certifications under 208(b)(3). The Secretary is required to determine the number and proportion of advisory members who received exceptions in FY2007. For FY2008 through FY2012, the Secretary must reduce the proportion of excepted members by an additional 5% per year from the FY2007 number. This limitation does not apply to financial interest exemptions made under 18 USC 208(b)(2). FDAAA requires public disclosures for conflict-of-interest determinations, certifications, and waivers (but not 208(b)(2) exemptions), except for those exempted from disclosure under the Freedom of Information Act of 1974 (5 USC 522). It requires the Secretary to submit annual reports regarding advisory committee membership and conflict-of-interest waivers. It also requires the Secretary to review and update FDA conflict-of-interest guidance not less than once every five years. Title VIII of FDAAA, Clinical Trial Databases , expands requirements for the registration of clinical trials, and adds requirements for the publication of their results. The text of the title was arrived at after extensive discussions, which required an understanding of the nature of scientific inquiry and medical product development. Scientific inquiry is, at its best, an objective exercise in which results are not pre-ordained, and all valid findings are published. Medical product development depends upon traditional scientific methods, and product sponsors are typically business enterprises. Prior to marketing, product sponsors are required to demonstrate the safety and effectiveness of their products, typically through clinical trials. However, both sponsors and medical journals may be reluctant to publish the results of trials that fail to show that products perform better than a placebo, or that raise too many safety concerns. In 2004, Congress and others raised questions about the safety and effectiveness of several FDA-approved products (e.g., antidepressants, anti-inflammatory drugs, and cardiac stents) about which unfavorable trial results had not been publicly disclosed. The issue of public access to all trial results, regardless of their findings, then gained significant traction. Prior to the enactment of FDAAA, clinical trial registration was required at the outset of certain clinical trials testing drugs to treat life-threatening diseases or conditions. This requirement was criticized because it did not mandate the registration of a broader range of trials, because it contained no enforcement mechanism, and because it did not require the posting of trial results. Title VIII of FDAAA contains provisions related to all three criticisms. FDAAA's provisions apply to trials involving not only drugs, but also devices and biologics. The Act includes requirements pertaining to most clinical trials beyond Phase I. In general, FDAAA requires that specified information be submitted by the trial's responsible party (RP; usually the trial sponsor), to the NIH Director. Following submission, the NIH Director is to make the information publicly available via the Internet, with specified exceptions. Enforcement mechanisms are provided for noncompliant RPs. For the purpose of carrying out the clinical trials database provisions, FDAAA authorizes $10,000,000 for each fiscal year. Further details of the way that FDAAA amends current law are discussed below, in subsections entitled Registry; Results; Coordination, Compliance, and Enforcement; and Other Items. FDAAA requires the expansion of the existing data bank (clinicaltrials.gov, which is hosted by the National Library of Medicine) to include the registration of applicable drug, device, and biologics trials as described above. Submissions for the registry are to include four types of material: descriptive information about the trial, recruitment information for potential subjects, trial location and contact information, and administrative data, such as protocol identification numbers. The information required by FDAAA includes and expands upon that required under previous law, as well as elements of the World Health Organization's International Clinical Trials Registry Platform registration data set. The Secretary may modify these requirements by regulation. In making the information public, the NIH Director is to ensure that it is searchable in a number of specified ways. The Director is also to ensure that the registry is easily used by the public, and that entries may be easily compared. FDAAA generally requires the RP to submit information to the NIH Director within 21 days after the first patient is enrolled in the trial. This requirement is similar to the one that existed previously. The NIH Director is required to post information about drug and biologics trials not later than 30 days after the information is submitted by the RP. In contrast, for device trials, information is to be posted not earlier than the date of FDA approval or clearance, and not later than 30 days after approval or clearance. The RP for an applicable clinical trial is required to submit updates to the NIH Director to reflect changes to registry information. The Director is to make the update information publicly available and generally ensure that previously submitted information remains accessible. Previous law allowed for the inclusion of results information with the consent of the trial sponsor, but did not require it. FDAAA requires the Secretary, acting through the NIH Director, to expand the registry to include results of applicable clinical trials and to ensure that the results are made publicly available via the Internet. Three categories of results information are to be added according to the following timeframe. First, beginning 90 days after FDAAA enactment, the Secretary is to ensure that the registry contains links to specified existing results . Second, within one year after FDAAA enactment, the Secretary, acting through the NIH Director, is to expand the registry to include specified basic results . Third, within three years after FDAAA enactment, the Secretary is to add information to create an expanded registry and results data bank by rulemaking. The first type of results to be made available in the registry, existing results , consists of links to existing FDA and NIH documentation. These results must be posted for clinical trials that form the primary basis of an efficacy claim or are conducted after product approval or clearance. Links to this information are to be posted not earlier than 30 days after the approval or clearance of the product, or not later than 30 days after the information becomes publicly available. The second type of results to be made available in the registry, basic results , consists of demographic, outcome, and scientific point of contact information, as well as agreements that restrict the principal investigator (PI) to publicly discuss or publish results. These results must be submitted for products that FDA has approved, licensed, or cleared. The RP is to submit basic results information to the Secretary within one year following the earlier of the estimated or actual completion date of the trial, with certain exceptions. The third type of results information, expanded registry and results , is to be submitted to and made available in the registry pursuant to rulemaking. Rulemaking is to occur within three years of FDAAA enactment. Rulemaking is to require the submission of clinical trial information for approved or cleared products, and is to determine whether results information for unapproved products should be included as well. The expanded registry and results database is to include basic results, as well as: (1) a non-technical summary of results; (2) a technical summary of results; (3) protocol information; and (4) such other categories the Secretary determines are appropriate. FDAAA directs the Secretary to promulgate a second set of regulations regarding adverse event reporting. Not later than 18 months after FDAAA enactment, the Secretary is to determine the best method for including appropriate information on serious and frequent adverse events in the registry and results database. If the Secretary fails to take action within 24 months after FDAAA enactment, the Secretary must include specified adverse-event related elements in the registry and results database. As amended by P.L. 110-316 , FDAAA's adverse event reporting requirements apply to drugs, biologics, and medical devices. The House passed a measure that would expand it to devices as well. An RP may voluntarily submit information about trials that are not required for submission if the RP has made submissions for all required trials. If necessary to protect public health, the Secretary may require the submission of additional registry and results information. The former registry law did not contain any specific compliance or enforcement measures. By contrast, FDAAA contains four sets of enforcement and compliance requirements, and specifies civil penalties for noncompliance. One set attaches to federal grant funding. A second set of compliance requirements must be met when submitting a drug, biological product, or device submission to the FDA. A third set of FDAAA requirements specifies that clinical trial information submitted by the RP must be truthful and not misleading in any particular. Under a fourth set of requirements, the NIH Director is to include a notification in the database if an RP fails to submit required clinical trials registry or results information. Previous law did not specify penalties or enforcement mechanisms related to registry requirements. Previous law contained general mechanisms for enforcing compliance with FDA requirements that may have been applicable, but which FDA never used for registry requirement violations. FDAAA amends the prohibited acts section of the FFDCA, to clarify that the clinical trial databases provisions are enforceable. FDAAA also amends the FFDCA's civil monetary penalty provisions, articulating those for noncompliance with the clinical trial database requirements. FDAAA contains a few additional provisions pertaining to informed consent, state clinical trial databases, and FFDCA violations. It requires the Secretary to update investigational new drug regulations so that informed consent includes a statement that clinical trial information has been or will be submitted for inclusion in the registry databank. Previous law contained informed consent requirements, but none specific to the registry. The Act prohibits any state or political subdivision from requiring the registration of clinical trials or their results in a database. It also specifies that the fact of submission of off-label use clinical trial information, if in compliance with revised registry and results database requirements, is not to be construed as evidence of a new intended use. In addition, the availability of compliant database submissions is not to be considered as labeling, adulteration, or misbranding under the FFDCA. Title IX of FDAAA gives the FDA new authorities to ensure drug safety and effectiveness. These build on decades of incremental additions to FDA's regulatory scope and its ability to identify drug safety problems and to correct or minimize them. Since the 1938 passage of the FFDCA, the manufacturer of a new drug has had to demonstrate to FDA the product's safety before the agency would approve it for marketing in the United States. In 1962, the Harris-Kefauver Amendments to the FFDCA added product effectiveness to the premarket requirements. FDA cannot assert that any drug is completely safe. Instead, it considers whether, given the available information, the drug is safe enough when used correctly by the types of individuals and for the diseases or conditions for which it was tested. FDA and others must remain alert to new information as those drugs are used more widely because, until a very large number of individuals have taken a drug, a rare adverse effect may not occur or a very common condition may not be recognized as drug-associated. Prior to FDAAA, the law allowed FDA to require a postmarket study as a condition of its initial approval of a marketing application, but did not authorize FDA to add such requirements after approval. The law did not allow FDA to require that manufacturers submit drug advertising material for review or approval before dissemination. Neither did it provide for civil penalties, authorizing only the revocation of approval or licensing (or the threat of revocation) to compel manufacturers to change labeling or advertising. Subtitle A includes various provisions regarding postmarket studies and surveillance of human drugs. Its provisions do not apply to veterinary drugs. FDAAA authorizes the Secretary, under specified conditions after a drug is on the market, to require a study or a clinical trial. The Secretary may determine the need for such a study or trial based on newly acquired information. To require a postapproval study or trial, the Secretary must determine that (1) other reports or surveillance would not be adequate, and (2) the study or trial would assess a known serious risk or signals of serious risk, or identify a serious risk. The law directs the Secretary regarding dispute resolution procedures. FDAAA authorizes the Secretary, upon learning of new relevant safety information, to require a labeling change. It also creates procedures, including time limits, for notification, review, dispute resolution, and violation, regarding labeling change requirements. FDAAA authorizes the Secretary to require, under specified conditions, a risk evaluation and mitigation strategy (REMS) at the time of a new application, after initial approval or licensing when a new indication or other change is introduced, or when the Secretary becomes aware of new information and determines a REMS is necessary. Any approved REMS must include a timetable of assessments. The Secretary may include requirements regarding instructions to patients and clinicians, and restrictions on distribution or use (and a system to monitor their implementation). The law allows a waiver from REMS restrictions on distribution or use for certain medical countermeasures in the time of a declared public health emergency, and creates a mechanism to assure access to a drug with a REMS for off-label use for a serious or life-threatening disease or condition. FDA practice has long included most of the elements that a REMS may include. FDAAA gives FDA, through the REMS process, the authority for structured follow-through, dispute resolution, and enforcement. These include required reviews of approved REMS at specified times initially and then as the Secretary determines; detailed procedures for the review of both proposed REMS and required or voluntary assessments or modifications; establishment of a Drug Safety Oversight Board; and evaluation of whether the various REMS elements assure safe use of a drug, and whether they limit patient access or place an undue burden on the health care system. FDAAA expands the definition of misbranding to include the failure to comply with certain requirements regarding REMS, postmarket studies and clinical trials, and labeling. It establishes civil monetary penalties for violations of those requirements. The maximum for one violation is $250,000, up to $1 million for all violations within one adjudication proceeding. The law describes escalating penalties, based on continuing violations and efforts at correction, up to $10 million in a single proceeding. FDAAA creates a new FFDCA Section 503B to authorize the Secretary to require submission of a television advertisement to the Secretary for review before its dissemination. Based on this review , during which the Secretary may consider the impact the drug might have on specific population groups (such as older and younger individuals, or racial and ethnic minorities), the Secretary may recommend, but not require, changes in the ad. The law authorizes the Secretary to require that an ad include certain disclosures without which the Secretary determines that the ad would be false or misleading. These disclosures concern information about a serious risk listed in a drug's labeling, and the date of a drug's approval. An amendment to the FFDCA requires that television and radio ads present the required information on side effects and contraindications in a clear, conspicuous, and neutral manner (Section 502(n)). A new FFDCA Section 303(g) establishes civil penalties for the dissemination of a false or misleading direct-to-consumer (DTC) advertisement. The amount is limited to $250,000 for the first violation in any three-year period, and to $500,000 for each subsequent violation in that period. FDAAA requires a study by the FDA Advisory Committee on Risk Communication and a report to Congress from the Secretary regarding DTC advertising and its communication of health information and its effect on information access and health disparities among population subsets. FDAAA directs the Secretary to collaborate with public, academic, and private entities to develop a postmarket risk identification and analysis system using electronic databases. Detailed provisions require the Secretary to protect individually identifiable health information; consult the Drug Safety and Risk Management Advisory Committee; communicate with key stakeholders; coordinate with other drug safety data sources; and report to Congress. FDAAA authorizes the appropriation of $25 million for each of FY2008 through FY2012 in addition to funds available under PDUFA for these activities. Various sections of Title IX of FDAAA, in addition to those described above, address the provision of health information. One required report to Congress must address how best to communicate risks and benefits to the public, including the use of REMS and whether to use a unique symbol in the labeling of a new drug or indication. Any published DTC prescription drug advertisement must include a statement encouraging the reporting of negative side effects to FDA, along with a 1-800 number and website address. The Secretary must submit a report to Congress after studying whether the statement in printed advertisements is appropriate for television advertisements. FDAAA authorizes increased appropriations to support components of the drug safety provisions. For the surveillance and assessment activities, the Secretary may use $25 million of PDUFA fees each year to carry out those activities. For REMS and other drug safety activities in this title, the new law increases the revenue authorized under PDUFA by an additional $225 million over the period FY2008 through FY2012, and designates its use for drug safety activities. The provisions in Subtitle B of FDAAA Title IX address topics related to drug safety. The first section requires the Secretary to issue guidance for the conduct of clinical trials of antibiotic drugs ; and convene a public meeting regarding orphan antibiotic products. A few sections address the physical security of drug products, such as requiring the Secretary to develop standards and technology to protect the drug supply chain against counterfeit and damaged drugs. Other sections address communication with the public, expert committees, and others, about agency actions and plans. The Secretary must develop and maintain an Internet Web site with extensive drug safety information, and publish a list of all authorized generic drugs . The Secretary must provide public access to action packages for product approval or licensure, including certain reviews; and establish an Advisory Committee on Risk Communication . The Secretary must refer an application for a new active ingredient to an FDA advisory committee or include in the action letter reasons for not doing so. FDAAA requires that the Secretary report on FDA's implementation of its plan to respond to recommendations in the IOM 2006 report The Future of Drug Safety . The Secretary must also screen weekly the Adverse Event Reporting System database and report quarterly regarding new safety information or potential signals of a serious risk; report on procedures for addressing ongoing postmarket safety issues identified by the Office of Surveillance and Epidemiology; and annually review the backlog of postmarket safety commitments, report to Congress, and set relevant dates. Finally, FDAAA prohibits the use in food of certain drugs or biological products, and prohibits the Secretary from delaying the review of generic drug applications on the basis of certain citizen petitions . P.L. 110-316 amended the FDAAA provision, adding the requirement that consideration of petitions be separate and apart from review and approval of any application. Title X of FDAAA, entitled Food Safety, contains provisions designed to enhance FDA's authority and responsibilities to ensure the safety of the food supply. These were added to FDAAA after several widely reported outbreaks of food-borne illness that affected hundreds of individuals. In response, many members of Congress expressed concern about both domestic and imported food products and whether the current food safety system is adequate for handling the current globalized food supply. As enacted, FDAAA requires the Secretary to establish processing and ingredient standards, update labeling requirements for pet food, and establish an early warning and surveillance system to identify adulteration and outbreaks of illness associated with pet food. The Secretary is to work with states to improve the safety of produce and strengthen state food safety programs. The Act requires the creation of a registry for reportable information on foods (including human and animal products) with safety problems that allows for the identification of the supply chain of the reportable food. Alerts are to be issued for such foods, with records maintained and available for inspection. Additional provisions require attention to aquaculture and seafood inspection, environmental risks associated with genetically engineered seafood products, imported foods, pesticide monitoring and ginseng dietary supplements. Title XI of FDAAA, entitled Other Provisions , contains provisions relating to a number of topics. It is divided into two subtitles. Subtitle A—In General covers a range of topics: FDA employee publications, tropical disease treatments, genetic tests, NIH, and severability of FDAAA. Subtitle B—Antibiotic Access and Innovation focuses solely on that issue. Both are discussed below. The first topic addressed in Subtitle A is agency clearance of employee scientific publications. The Secretary is required to establish and make publicly available clear written policies to implement the publication provisions. For FDA officers or employees who are directed by policy to obtain agency review or clearance prior to their work's publication or presentation, FDAAA provides a timeline for such review or clearance. Nothing in the policy is to be construed as affecting any restrictions on publication or presentation provided by other law. The second topic addressed in Subtitle A is the introduction of a priority review voucher as an incentive to develop medical products that treat tropical diseases. Qualifying diseases are those listed in the law, and any other infectious disease the Secretary designates by regulation. Diseases designated by regulation must disproportionately affect poor and marginalized populations, and must have treatments with no significant market in developed nations. The FDAAA provision adds a new use to the older FDA priority review mechanism. Rather than (or in addition to) providing the possible financial benefit of priority review to a sponsor for its tropical disease product application, FDAAA directs FDA to reward that sponsor for developing that product by giving it a priority review voucher that it can use for any one proposed subsequent product that would not otherwise qualify for priority review. The new provision further alters FDA's priority review mechanism by allowing the tropical disease product sponsor to transfer the voucher, including by sale, to another entity. The Secretary is to establish a user fee program and set the fee amounts for sponsors of human drug applications that are the subject of a priority review voucher. The third topic addressed is the regulation of genetic testing. FDAAA requires that, if the specified Secretary's Advisory Committee does not complete and submit its report and recommendations regarding regulation and oversight of genetic testing to the Secretary by July 2008, the Secretary is to enter into a contract with the IOM to conduct a study and issue a report on the topic. The fourth topic consists of technical amendments to sections of the PHSA (42 USC 201 et seq.), making five changes. Though the section is titled "NIH Technical Amendments," the first provision does not apply to NIH, but is rather a correction to P.L. 109-417 , the Pandemic and All-Hazards Preparedness Act, and applies to the hospital preparedness program administered by the HHS Assistant Secretary for Preparedness and Response. The provision amends PHSA Section 319C-2 to make appropriate reference to the applicable funding formula for hospital preparedness and surge capacity grants. The second provision adds minority health disparities to the types of data that the NIH Director is to assemble to assess research priorities. The third provision adds postdoctoral training funded through research grants to the list of research activities that the NIH Director is required to catalog in a biennial report to Congress. The fourth provision designates PHSA 403C (relating to the drug diethylstilbestrol) as 403D. The fifth provision specifies that each institution that receives an NIH award for training graduate students under its subchapter (PHSA, Title IV, Part A) need only report to NIH information regarding postdoctoral training funded through research grants, and not each degree-granting program at the institution. It further indicates that leaves of absence are to be subtracted when calculating the average time between graduate study and receipt of a doctoral degree. The fifth topic addressed is severability. It directs that if any provision of FDAAA is found to be unconstitutional, the remainder of the Act shall remain in effect. FDAAA addresses antibiotic access and innovation by amending both the FFDCA and the PHSA. It also requires a GAO report assessing the effect of these provisions. Under separate sections of the FFDCA, FDA both regulates antibiotics and provides incentives for the development of orphan drugs. FDAAA links those approaches by amending the Orphan Drug Act to require the Commissioner to consider (including convening a public meeting) which serious and life-threatening infectious diseases might be designated as rare diseases. If appropriate, the Secretary, by issuing new guidance, could designate product development activities for those diseases as qualifying for grants and contracts under the Orphan Drug Act. FDAAA also extends the Secretary's authority to issue grants and contracts for orphan drug development, and authorizes the appropriation of $30 million for each of FY2008 through FY2012. FDAAA also adds a new subsection to FFDCA that allows a sponsor to consider as the same active ingredient a specific kind of chemical variant (a non-racemic drug) of an ingredient in an approved (racemic) drug. In addition, a separate provision of the law amends the PHSA to require the Secretary, through the Commissioner, to make publicly available clinically susceptible concentrations of bacteria (amounts that characterize the level of bacterial susceptibility and resistance to a drug). Appendix A. Authorized Appropriations Appendix B. Action Items with Deadlines for Government Officials The following chart contains a listing of FDAAA action items with deadlines for government officials. It is broken down by FDAAA title. Within each title, action items are listed by deadline. More detailed information regarding each of the items in the chart is available in the section of this report that corresponds to the title in which it is listed. The following notes may be helpful to the reader. First, the chart includes federal agency personnel deadlines with specific dates only. It does not list deadlines for action by non-governmental personnel, though FDAAA includes many of these. Neither does it list required actions for federal agency personnel that have no specific deadlines, though FDAAA contains many of these as well. Second, for user ease, the title of the person required to take action is bolded. Third, for items that require action at regular intervals (such as annual reports), only the initial item is listed by date. The requirement for recurrence is specified in the text. Appendix C. Authorities with Sunset Dates Appendix D. Alphabetical List of Acronyms | On September 27, 2007, the Food and Drug Administration Amendments Act of 2007 (FDAAA; H.R. 3580) was signed into law (P.L. 110-85). The comprehensive law reauthorizes four expiring Food and Drug Administration (FDA) programs and expands the agency's authority to regulate the safety of prescription drugs and biologics, medical devices, and foods. Understanding the way in which FDAAA changed the law governing the agency informs policy discussions aimed at additional FDA reform and reorganization, as well as those related more broadly to the quality, availability, and cost of medical products in the health care system. At its core, FDAAA renews the authority for two key user fee programs that were set to expire on October 1, 2007: the Prescription Drug User Fee Act (PDUFA; P.L. 107-188) and the Medical Device User Fee and Modernization Act (MDUFMA; P.L. 107-250). In FY2007, the year in which FDAAA was enacted, these programs accounted for 91% of FDA's user fee revenue and 18% of FDA's total budget. Without the reauthorizations, and absent a substantial increase in FDA's annual appropriations, the agency would have lost a significant amount of funding. In addition to user fee programs, FDAAA reauthorizes two other FDA authorities related to prescription drugs for pediatric populations, which were also due to expire on October 1, 2007: the Best Pharmaceuticals for Children Act (BPCA; P.L. 107-109) and the Pediatric Research Equity Act (PREA; P.L. 108-155). These laws provide marketing exclusivity incentives and requirements for studying pediatric use of drugs. FDAAA also contains provisions related to drug safety, pediatric medical devices, clinical trial databases, the creation of a new nonprofit entity to assist FDA with its mission, and food safety. This report presents a detailed summary of provisions in FDAAA. Each section of the report begins with background information about the FDA relevant to the passage of FDAAA and some references, if appropriate, to the two bills that formed its basis (S. 1082 and H.R. 2900), and a law that amended it (P.L. 110-316); describes FDAAA's contents; and analyzes how FDAAA changed the law. The report also contains links to pertinent CRS reports. This report, which is intended for reference use, will not be updated other than to reflect any technical changes that Congress might enact. |
Are oil speculators the messengers bearing bad news, or are they themselves the bad news? The Commodity Futures Trading Commission (CFTC), which regulates speculative trading in energy commodities, has found no evidence that prices are not being set by the economic fundamentals of supply and demand. Many analysts agree, arguing that long-term supply growth will have difficulty keeping up with demand. Others, however, believe that changes in the fundamentals do not justify recent increases in energy prices, and seek the cause for soaring prices in the futures and derivatives markets, which are used by financial speculators as well as producers and commercial users of energy commodities. The energy futures markets, which date from the 1980s, involve two kinds of traders. Hedgers—producers or commercial users of commodities—trade in futures to offset price risk. They can use the markets to lock in today's price for transactions that will occur in the future, shielding their businesses from unfavorable price changes. Most trading, however, is done by speculators seeking to profit by forecasting price trends. Together, the trading decisions of hedgers and speculators determine commodity prices: there is no better mechanism available for determining prices that will clear markets and ensure efficient allocation of resources than a competitive market where hedgers and speculators pool information and trade on their expectations of future prices. Since many transactions in the physical markets take place at prices generated by the futures markets, speculators clearly play a large part in setting energy prices. In theory, this should not drive prices away from the fundamental levels: if financial speculators trade on faulty assumptions about supply and demand, other traders with superior information—including those who deal in the physical commodities—should be able to profit at their expense. In other words, there is no reason why speculation in and of itself should cause prices to be artificially high. Theory says increased speculation should produce more efficient pricing. In practice, however, some observers, including oil company CEOs, OPEC ministers, and investment bank analysts, now speak of a "speculative premium" in the price of oil. This view implies that without speculation, prices could fall significantly without disrupting current patterns of consumption and production. How could the price discovery function of the energy derivatives market have broken? Several explanations are possible. First, the market could be manipulated. Price manipulation, which is illegal under the Commodity Exchange Act, involves deliberate strategies by a trader or group of traders to push prices to artificial levels. Since derivatives markets reward correct predictions about future prices, manipulation can be very profitable. Most manipulations in the past have involved short-lived price spikes, brought about by spreading false information, or concerted buying or selling. Since 2002, the CFTC has brought 40 enforcement cases involving manipulation, but these usually have involved attempts to generate short-term price spikes, which may be very profitable for the manipulators, but do not appear to explain the long-term energy price trends observed in recent years. It is rare, but possible, for a market to be rigged over a longer period of time when a single trader or group amasses a dominant position in both physical supplies and futures contracts and obtains enough market power to dictate prices. Examples include the Hunt brothers' attempt to corner the silver market in 1979-1980 and the manipulation of the copper market by Yasuo Hamanaka of Sumitomo in the mid-1990s. The CFTC has not produced any evidence that such a grand-scale manipulation of energy prices is underway and has testified before Congress repeatedly that prices are being set competitively. In the absence of manipulation, another explanation for prices above fundamental levels is a speculative bubble. If, as was the case in the dot-com stock boom, a majority of traders become convinced that a "new era" of value has arrived, they may bid up prices sharply in defiance of counter-arguments based on fundamentals. Eventually, prices return to fundamental levels, often with a sudden plunge. This is what many forecast for energy prices, including George Soros, perhaps the best known speculator of the day. The bubble explanation is the same as the speculative premium argument. If market participants are trading on mistaken ideas about the fundamentals, they may set a price that is above the true price (which is the current market price minus the speculative premium). However, there is no sure method for determining what the true price is; the only observable price is the one the market generates. Policy options to discourage speculation driven by irrational exuberance are limited. Actions to reduce the amount of speculative trading, such as increasing the margin requirements on futures contracts or restricting access to the markets, may not produce the desired outcome. Higher margins raise trading costs, which should reduce trading volumes, but the final effect on prices is uncertain. Empirical studies have not found a link between higher margins and lower price volatility, or any evidence that would suggest that prices would fall. Apart from the possibility that traders in general are getting the price wrong, there is an argument that prices have been driven up by a change in the composition of traders. In recent years, institutional investors—like pension funds, endowments, and foundations—have increasingly chosen to allocate part of their portfolios to commodities. This is rational from the point of view of the individual fund, as it may increase investment returns and diversify portfolio risks; but when many institutions follow the same strategy at the same time, the effect can be that of a bubble. A number of bills are aimed at reducing the incidence or impact of institutional investment on the energy markets. These, and other proposals to improve the regulation of derivatives markets, are summarized below. Legislative approaches to ensuring that commodity prices are not manipulated or distorted by excessive speculation focus on (1) extending regulatory control to previously unregulated markets, (2) ensuring that speculators cannot use foreign futures markets to avoid U.S. regulation, and (3) restraining the ability of institutional investors (and others who do not deal in the physical commodities themselves) to take large positions in commodities. These three areas are known respectively as the "Enron loophole," the "London loophole," and the "swaps loophole." The "Enron loophole" refers to a range of transactions that occur off the regulated futures exchanges, in an "over-the-counter" (OTC) market where the CFTC has had little regulatory jurisdiction, and from which it does not receive comprehensive information about who is trading, in what volumes, and at what price. The Commodity Futures Modernization Act of 2000 (CFMA, P.L. 106-554 ) created a statutory exemption from CFTC regulation for certain contracts based on "exempt commodities," defined in the legislation as commodities that are neither agricultural nor financial. Two types of energy derivative markets were thereby exempted: (1) bilateral, negotiated transactions between two counterparties that are not executed on a trading facility, and (2) trades done on an "electronic trading facility." The CFMA specified that these markets must not be accessible to small investors; all traders must be "eligible contract participants" (financial institutions, units of government, or businesses or individuals with substantial financial assets) or, in the case of the electronic trading facility exemption, "eligible commercial entities" (eligible contract participants who either deal in the physical commodity or regularly provide risk management services to those who do). A substantial volume of over-the-counter energy trading makes use of these exemptions. There is a large market in energy swaps, where investment banks like Goldman Sachs and Morgan Stanley offer contracts linked to energy prices. The OTC market in swaps has also evolved towards an exchange model, where contracts are traded rapidly over an electronic network, and may be backed by a clearing house. The best known of these electronic trading facilities is operated by Intercontinental Exchange Inc. (ICE). The ICE over-the-counter market handles a volume of natural gas contracts roughly equal in size to that handled by Nymex, the largest energy futures exchange. A Government Accountability Office report in October 2007 noted the growth of the OTC market and raised questions about whether the federal regulator had the information it needed to ensure that markets were free of fraud and manipulation. In the same month, the CFTC issued a report recommending legislative action to increase the transparency of energy markets. In May 2008, with the Farm Bill ( H.R. 2419 , P.L. 110-234 ), Congress passed legislation that generally follows the CFTC's recommendations and potentially brings part of the OTC market under CFTC regulation. The new law affects electronic trading facilities handling contracts in exempt commodities (primarily energy or metals). If the CFTC determines that a contract traded on such a facility plays a significant price discovery role, that is, if the prices it generates are used as reference points for other transactions and markets, the facility will come under CFTC regulation. The market will have to register with the CFTC and demonstrate its capacity to comply with several core principles. The principles and requirements include maintaining and enforcing rules against manipulation, establishing position limits or accountability levels to prevent excessive speculation, and providing the CFTC with daily reports on large traders' positions. The provisions of the Farm Bill, however, do not affect the unregulated status of energy contracts that are not entered into on a trading facility, in other words, the swap market in exempt commodities. Thus, the argument is made that the Enron loophole has been only partially closed. A number of bills propose to end the statutory exemption for OTC energy trades altogether, by putting energy commodities on the same regulatory basis as agricultural commodities. Under current law, derivatives contracts based on farm commodities may only be traded on a regulated exchange, unless the CFTC issues an exemption. The CFTC is authorized to grant such exemptions on a case-by-case basis, after determining that the contract would not be against the public interest. Other bills, including H.R. 6244 and S. 3268 , would authorize the CFTC to impose reporting requirements and position limits on energy swap markets. Unlike the Enron loophole, which addresses the distinction between the regulated exchange markets and the unregulated OTC market, the "London loophole" refers to differences in the oversight of regulated markets in different countries. The U.K. counterpart to Nymex, the leading U.S. energy futures market, is ICE Futures Europe, which is regulated in the U.K. by the Financial Services Authority (FSA). For several years, the U.K. exchange has been offering energy futures contracts in the United States, via electronic terminals. Ordinarily, an exchange offering futures contracts to U.S. investors is required to register with the CFTC as a "designated contract market," and to comply with all applicable laws and regulations. However, in the case of ICE Futures Europe, the CFTC has waived that requirement, by means of a series of no-action letters, on the grounds that the U.K. market is already regulated at home, and that requiring it to register with the CFTC would be duplicative and add little in terms of market or customer protections. Initially, the U.K. market offered electronic access to U.S. traders to its most popular contract, a futures contract based on the price of Brent Crude oil, produced in the North Sea. After the market was acquired by ICE, however, it introduced a "look-alike" contract that was identical to Nymex's West Texas Intermediate crude oil future. This contract, which could be settled by making or taking delivery of physical crude oil in the United States, now trades in significant volumes—transactions that would presumably take place on the Nymex otherwise. With concern over high and volatile energy prices, there has been more scrutiny of ICE Futures Europe's activities in the United States. Can traders avoid speculative position limits by trading on ICE, in addition to (or instead of) Nymex? Does the CFTC receive the same information from ICE Futures Europe about large trading positions that could be a source of manipulation or instability (if they were liquidated suddenly)? A number of bills propose to close the London loophole, either by requiring foreign boards of trades (exchanges) to comply with all U.S. registration and regulatory requirements if they offer contracts that can be settled by physical delivery within the United States, or by making CFTC relief from such requirements and regulation contingent upon a finding that (1) it will receive from the foreign market information that is comparable or identical to what it receives from domestic exchanges and (2) the foreign market is subject to a regulatory regime that is comparable to the CFTC's. In the case of ICE Futures Europe, the CFTC announced that it had amended the "no-action relief letter" under which ICE Futures Europe is permitted direct access to U.S. customers. The amended letter conditions direct access on ICE Futures Europe's adoption of equivalent U.S. position limits and accountability levels on its West Texas Intermediate crude oil contract, which is linked to the New York Mercantile Exchange crude oil contract. This agreement complements a 2006 memorandum of understanding with the FSA providing for sharing of trading information. The CFTC's agreement with ICE appears to fulfill the purposes of several of the bills, but only with respect to the London market. The CFTC has issued other no-action letters granting regulatory waivers to foreign markets, including the Dubai Mercantile Exchange (a joint venture with Nymex), permitting it to offer contracts in the United States (to be cleared by Nymex). On July 7, 2008, the CFTC announced that it would modify the no-action letter to the Dubai exchange on terms similar to the agreement with ICE Futures Europe. The view that excessive speculation is driving up energy prices is widely held, but controversial. The question of whether current prices are justified by fundamental factors of supply and demand, or whether irrational exuberance has created a bubble in energy prices (similar to what was observed in dot-com stocks in the late 1990s), is beyond the scope of this report. However, testimony presented to Congress has identified a recent trend in financial markets that some argue may be putting upward pressure on prices: decisions by institutional investors, such as pension funds, foundations, or endowments, to allocate a part of their portfolio to commodities. From the point of view of a fund manager, investment in commodities may be very attractive under current market conditions. Average returns on stocks and bonds have been relatively low for the past few years, and there is little optimism that they will improve in the near term. Commodities, on the other hand have been the "hot sector." While commodity investment is recognized as being highly risky, a risky asset in a large, diversified portfolio does not necessarily increase overall portfolio risk. The risk of a downturn in commodity prices is not generally correlated with risks in stocks or bonds; in some cases, there may be an inverse relationship. For example, if the price of oil drops suddenly, an institution may lose money on its commodity investment, but the price change will be good for its transportation stocks. Institutional investors may take positions in commodities in a number of ways, but they do not generally trade on the futures exchanges directly. Instead, they use an intermediary, such as a commodity index fund or an OTC swap contract that is structured to match the return of a published index of commodity prices. As a result of this investment strategy, institutional investors in commodities are often called "index traders." While the decision of an individual pension fund to put 3%-4% of its portfolio in commodities may appear entirely rational, some observers argue that the aggregate impact of institutional index trading has been to overwhelm the commodity markets, because of the disproportion between the amount of money held by pension funds, foundations, and other institutions and the amounts that have traditionally been traded in the energy futures market. In other words, index investing is seen as excessive speculation. One particular feature of index trading is the focus of several legislative proposals: the "swaps loophole." The CFTC and the exchanges maintain position limits or accountability levels that apply to speculative traders. Speculators either face a ceiling on the number of contracts they may own, or, if they breach a position accountability level, they must explain to the exchange why they are accumulating such a large position. The purpose of the speculative limits is to prevent manipulation by speculators with very large positions, and to limit the market impact in cases where losses force speculators to liquidate their positions suddenly. Hedgers, those who use the futures markets to offset price risk arising from their dealings in the underlying commodity, are generally exempt from position limits. Hedgers are allowed to take futures positions of any size, provided those positions are commensurate with their commercial interests. The rationale for exempting them from position limits is that when they have a hedged position, they have no incentive to manipulate the market: any gains in their futures position will be offset by losses in their physical transactions, and vice versa. (They use the futures markets to lock in today's price, meaning that subsequent price changes do not affect them.) Traditionally, hedgers have been thought of as those who are active in the physical commodity market; in the energy market, these would be oil producers, refiners, transporters, and industrial users such as airlines and utilities. With the rise of index trading, however, the definition of hedger has broadened. Both the CFTC and Nymex now extend exemptions from speculative position limits to swaps dealers who are using the futures exchanges to hedge price risk arising from a financial contract with an institutional investor. In other words, a pension fund wishing to invest in commodities may go to a swaps dealer and enter into a contract that will pay returns equal to the percentage increase in an index of commodity prices. In economic terms, this is equivalent to a long position in futures, which will gain value if the underlying commodity price rises. The swap dealer has, in effect, taken the short side of the trade: it will lose money if prices rise. The swap dealer is exposed to price risk, and may wish to offset that risk by purchasing exchange-traded futures contracts. Because the dealer is using the futures market to hedge the risk of the swap, the exchanges and the CFTC exempt it from position limits, even though it does not deal in the physical commodity. The rationale is the same as for traditional hedgers: since the swap dealer will gain on its futures position whatever it loses on the swap, and vice versa, it has no incentive to manipulate futures prices. The effect of this "swaps loophole," however, is to permit the ultimate customers—the institutional investors who are clearly speculating on commodity prices—to take larger positions than they would be able to do if they traded directly on the futures exchanges, where they might be constrained by speculative position limits. Hence the description of institutional investors' index trading as excessive speculation. A number of bills propose to constrain the ability of institutional investors to use the swaps loophole. They would limit the definitions of "bona fide hedger" or "legitimate hedge trader" to those who deal in the physical commodity, or they would prohibit trading in OTC energy contracts by those who do not deal in the physical commodity. Three bills ( H.R. 2991 , S. 3044 , and S. 3183 ) call for the CFTC to raise margins on oil futures. The margin requirement is the minimum amount of money per futures contract that traders must deposit with their brokers. Margin requirements are set by the exchanges, and are intended to cover losses. At the end of each day, the exchange credits or debits every trader's margin account with the amount of gains or losses. Traders whose margin accounts fall below the minimum requirement will be required to post additional margin before the market opens next day, or their positions may be closed out at a loss. The exchanges tend to raise margins during periods of price volatility, when the probability of large price swings increases the risk of loss. Nymex has raised the initial margin requirement for crude oil futures contracts (each of which represents 1,000 barrels of oil) several times in 2008. Since everyone in futures markets trades on margin, raising margins means higher trading costs, which should cause some traders to reduce the size of their positions and reduce trading volume overall. However, as noted above, there is no empirical evidence that higher margins dampen price volatility, making the effect on price uncertain. Several bills call for supplemental appropriations to permit the CFTC to hire 100 new employees to monitor the energy or agricultural derivatives markets. H.R. 6377 , passed by the House on June 26, 2008, and other bills direct the CFTC to use its existing powers, including its emergency authority, to curb immediately the role of excessive speculation in energy and to eliminate price distortion, unreasonable or unwarranted price fluctuations, or any unlawful activities that prevent the market from accurately reflecting the forces of supply and demand for energy. (CFTC's emergency authority includes the power to change margin levels or order the liquidation of trading positions.) A number of bills call for studies of various aspects of the market, including the effects of raising margin, the adequacy of international regulation, the effects of speculation, and the impact of index trading on prices. Table 1 below provides summaries of all legislation that bears on the regulation of energy speculation. Table 2 provides a more detailed comparison of H.R. 6604 and S. 3268 , two bills that were brought to the floor in their respective chambers in July 2008 but failed on procedural votes. | While most observers recognize that the fundamentals of supply and demand have contributed to record energy prices in 2008, many also believe that the price of oil and other commodities includes a "speculative premium." In other words, speculators who seek to profit by forecasting price trends are blamed for driving prices higher than is justified by fundamentals. In theory, this should not happen. Speculation is not a new phenomenon in futures markets—the futures exchanges are essentially associations of professional speculators. There are two benefits that arise from speculation and distinguish it from mere gambling: first, speculators create a market where hedgers—producers or commercial users of commodities—can offset price risk. Hedgers can use the markets to lock in today's price for transactions that will occur in the future, shielding their businesses from unfavorable price changes. Second, a competitive market where hedgers and speculators pool their information and trade on their expectations of future prices is the best available mechanism to determine prices that will clear markets and ensure efficient allocation of resources. If one assumes that current prices are too high, that means that the market is not performing its price discovery function well. There are several possible explanations for why this might happen. First, there could be manipulation: are there traders in the market—oil companies or hedge funds, perhaps—with so much market power that they can dictate prices? The federal regulator, the Commodity Futures Trading Commission (CFTC), monitors markets and has not found evidence that anyone is manipulating prices. The CFTC has announced that investigations are in progress, but generally manipulations in commodities markets cause short-lived price spikes, not the kind of multi-year bull market that has been observed in oil prices since 2002. Absent manipulation, the futures markets could set prices too high if a speculative bubble were underway, similar to what happened during the dot-com stock episode. If traders believe that the current price is too low, and take positions accordingly, the price will rise. Eventually, however, prices should return to fundamental values, perhaps with a sharp correction. One area of concern is the increased participation in commodity markets of institutional investors, such as pension funds, foundations, and endowments. Many institutions have chosen to allocate a small part of their portfolio to commodities, often in the form of an investment or contract that tracks a published commodity price index, hoping to increase their returns and diversify portfolio risk. While these decisions may be rational from each individual institution's perspective, the collective result is said to be an inflow of money out of proportion to the amounts traditionally traded in commodities, with the effect of driving prices artificially high. This report summarizes the numerous legislative proposals for controlling excessive speculation, including H.R. 6604 and S. 3268, which received floor action in their respective chambers in July 2008. It will be updated as events warrant. |
The federal government is a creature of the Constitution. It enjoys no authority that cannot be traced back to the Constitution. This is as true of Congress as of the other branches. Although the Constitution grants Congress extensive legislative powers, it vests Congress with explicit authority to enact criminal law in only three places. Article I, Section 8, clause 6 states that "Congress shall have Power ... To provide for the Punishment of counterfeiting the Securities and current Coin of the United States." A few lines later, the Constitution gives Congress authority over three additional classes of crime, when it declares that "Congress shall have Power ... To define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations." Finally, the Constitution defines the crime of treason, but empowers Congress to set its punishment. A casual reader might conclude that Congress may enact no other class of criminal statutes. After all, the Tenth Amendment denies Congress any authority that the Constitution does not grant it. Upon closer examination, however, it becomes clear that the Constitution elsewhere gives Congress, the President, and the federal courts sweeping powers. Moreover, the authority it places in the hands of Congress includes an implementing power, that is, the authority to enact laws necessary and proper to the implementation of those other powers—authority that by implication includes the authority to enact reasonably related criminal laws. Nevertheless, Congress's criminal law enacting powers are not boundless. Some limitations reside with the grant of authority. Article III, for example, allows Congress to set the punishment for treason, but denies it permission to punish treason with corruption of the blood. The Constitution mentions other limitations in areas apart from its grants of authority, like the prohibition on ex post facto laws or abridgement of freedom of speech. The third class of limitations is more difficult to discern. Whether understood as contextual, or structural, or implicit in the Tenth Amendment, they are the limitations of federalism, the limitations that flow from the fact the Constitution emerged as a compact between the sovereign it created and the sovereigns that created it. What follows is a discussion of selected recent cases that illustrate the scope and boundaries of Congress's power to enact criminal laws under the Constitution's necessary and proper, commerce, high seas, law of nations, spending, and military clauses. The Congress shall have Power ... To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, all other Powers vested by this Constitution in the Government of the United State, or in any Department or Officer there. "[T]he Necessary and Proper Clause makes clear that the Constitution's grants of specific federal legislative authority are accompanied by broad power to enact laws that are 'convenient or useful' or 'conductive' to the authority's 'beneficial exercise.'" The phrase "necessary and proper" does not demand absolute necessity. It is enough that a statute is rationally related to the constitutional power it seeks to "carry into execution." The Supreme Court's Comstock decision offered an expansive view of the Necessary and Proper Clause, with caveats. Two Sex Offender Registration and Notification Act (SORNA) cases, Kebodeaux and Elk Shoulder , treat the caveats and thus the scope of the Clause very differently. Two other recent appellate decisions, Bond and Belfast , raise questions of the Tenth Amendment limits, if any, on congressional authority under the Clause. The Supreme Court has granted certiorari in Bond and Kebodeaux . The Supreme Court in Comstock stated that a statute that relies on the Necessary and Proper Clause need not always be but one step removed from the constitutional power it brings to life. Comstock and his fellow petitioners challenged the constitutional underpinning of 18 U.S.C. 4248. Section 4248 authorizes federal courts to order the civil commitment of federal inmates whose release is imminent on the grounds that the prisoners are mentally ill and sexually dangerous. The Court did not rule upon whether Section 4248 was a necessary and proper means of carrying into execution the Commerce Clause pursuant to which the statute of Comstock's conviction had been enacted. Instead of reference to the Commerce Clause, it began with the observation that, other than in the case of piracy and other constitutionally identified crimes, the enactment of criminal statutes generally occurs by operation of the Necessary and Proper Clause. It then identified the links in the chain that began with the constitutional authority to enact criminal laws and ended with Section 4248. Section 4248, it held, "is a 'necessary and proper' means of exercising the federal authority that permits Congress to create federal criminal laws, to punish their violation, to imprison violators, to provide appropriately for those imprisoned, and to maintain the security of those who are not imprisoned but who may be affected by the federal imprisonment of others." The Comstock Court confirmed, however, that a statute cannot be "proper" if it is constitutionally prohibited or inconsistent with the letter or spirit of the Constitution. The Court listed five considerations upon which its decision was predicated. Although it did not say so, the implication is that without the five, the Court might have found Section 4248 inconsistent with the spirit of federalism that permeates the Constitution. The five were (1) the breadth of the Necessary and Proper Clause, (2) the long history of federal involvement in arena [of the mental health of federal prisoners], (3) the sound reasons for the statute's enactment in light of the Government's custodial interest in safeguarding the public from dangers posed by those in federal custody; (4) the statute's accommodation of state interests [e.g., the statute demands that federal custody of the committed inmate be surrendered when the appropriate state expresses a willingness to assume responsibility], and (5) the statute's narrow scope. The United States Court of Appeals for the Fifth Circuit and the United States Court of Appeals for the Ninth Circuit read the Comstock five considerations differently. The Fifth Circuit, sitting en banc in United States v. K ebodeaux , applied the considerations and found the Necessary and Proper Clause insufficient to support the application of the Sex Offender Registration and Notification Act (SORNA) to a fully discharged federal sex offender. The Ninth Circuit, in United States v. Elk Shoulder , applied the same considerations and came to opposite conclusions in the case of a federal sex offender still under supervised release. While a 21-year-old soldier, Kebodeaux was court martialed for engaging in consensual sex with a 15-year-old. Some years after his release and discharge, Congress enacted SORNA, which required federal sex offenders to register with state authorities and to maintain the currency of their registrations. Shortly thereafter, the Attorney General exercised his statutory authority to impose the obligation upon those who had been convicted of federal offenses prior to SORNA's passage. Then, Kebodeaux moved from El Paso to San Antonio within the state of Texas without reporting his relocation to state authorities. He was convicted under 18 U.S.C. 2250(a) for the failure. Elk Shoulder was convicted of sexually abusing a six-year-old within the territorial jurisdiction of the United States in violation of 18 U.S.C. 2241(c). He had been released from prison, but was on supervised release when SORNA was enacted. He moved from place to place in Montana, but never registered and was subsequently convicted under 18 U.S.C. 2250(a) for the failure. Both Circuits agreed that the Comstock decision provides the proper mode of analysis for challenges grounded in the Necessary and Proper Clause. Their respective views of the Comstock considerations differ dramatically thereafter. First, the Fifth Circuit conceded that the Necessary and Proper Clause vests Congress with broad authority. The Ninth Circuit went a step further and concluded that "SORNA was rationally related to an enumerated power" (the power to enact legislation governing activities within the territorial jurisdiction of the United States). Second, the Comstock Court noted that the civil commitment statute at issue was "a modest addition to a set of federal prison-related mental-health statutes that have existed for many decades." The Ninth Circuit stated that in like manner SORNA was a modest addition to the federal parole, probation, and supervised release laws that date back to 1910. SORNA and those provisions both deal with the post-incarceration supervision. The Fifth Circuit found SORNA historically novel. It found the probation-supervised release analogy wanting because, unlike SORNA, both probation and supervised release are part of the punishment for the original federal offense crime. Although failure to comply is a crime, SORNA's registration demands are not considered punitive. Moreover, SORNA did not exist until long after Kebodeaux had served his sentence. In its third consideration, the Comstock Court highlighted the sound policy reasons for the statute's enactment (protection of the public from those in federal custody). In the mind of the Ninth Circuit, the Comstock statute authorized civil commitment to protect the public from federal sex offenders, while SORNA required registration to protect the public from federal sex offenders. Both were reasonably adapted to a legitimate end. The Fifth Circuit disagreed. It believed that custodial responsibility for those soon to be released differs from custodial responsibility for those released long ago. The difference prevented the Fifth Circuit from classifying SORNA's application to Kebodeaux as reasonably related to a constitutional power. The Fourth Comstock consideration is the accommodation of state interest. The Comstock statute allowed the appropriate state to assume jurisdiction over soon-be-released prisoners whom federal authorities would otherwise subject to federal civil commitment. The Ninth Circuit found at least equivalent accommodation in SORNA. It does not supplant the state systems. Its criminal penalties only apply with respect to state sex offenders who travel in interstate commerce or to federal sex offenders. Its encouragement of state acceptance of federal standards is modest. The Fifth Circuit, on the other hand, viewed SORNA as less accommodating than the Comstock statute. Unlike the Comstock statute, SORNA gives state authorities no option to substitute state discretion for that of federal authorities. Finally, the Comstock Court observed that the regulatory scheme under consideration was neither too remote from the enumerated power upon which it relied nor too sweeping in scope. The same could be said of SORNA, the Ninth Circuit asserted. Again, the Fifth Circuit took a different view: the government's rationale in defense of SORNA—that federal conviction vests Congress with boundless, timeless legislative authority over the individual—"is anything but narrow." The Fifth Circuit concluded that SORNA, as applied to Kebodeaux, failed to satisfy the Comstock considerations and consequently exceeded Congress's authority under the Necessary and Proper Clause. The Ninth Circuit, writing after the Fifth Circuit's opinion had been announced, explicitly disagreed with it: "Because we reject the Fifth Circuit's conclusion that Congress cannot 'reassert jurisdiction over someone it had long ago unconditionally released from custody,' a proposition for which the Fifth Circuit provided no support, we disagree with its analysis of the Comstock considerations, which is based almost exclusively on that conclusion." The Bond decision addressed the question of whether structural, federalism concerns limit congressional authority under the Necessary and Proper Clause to enact treaty implementing legislation. Mrs. Bond sought revenge against her husband's paramour by coating the woman's car door handles and door knobs with toxic chemicals. Mrs. Bond was convicted of using a chemical weapon in violation of the Chemical Weapons Implementation Act. She argued on appeal that either the statute did not apply to her conduct or that Congress lacked the constitutional authority to enact legislation that swept into federal court a local "run of the mill" assault case, like her own. The Third Circuit Court of Appeals initially held that Mrs. Bond had no standing to challenge her conviction on federalism grounds, maintaining that only a state could object to intrusion upon its sovereign prerogatives. The Supreme Court reversed. Mrs. Bond may claim the benefits of federalism, since it "secures to citizens the liberties that derive from the diffusion of sovereign power." When the case returned to the Third Circuit for a decision on the merits, the court was faced with the question of the extent to which principles of federalism limit congressional authority under the Necessary and Proper Clause to implement a United States treaty. The Supreme Court appeared to have provided the answer in Missouri v. Holland . There, in the face of a federalism objection, the Court declared that "[i]f the treaty is valid there can be no dispute about the validity of the statute under Article I, Section 8, as a necessary and proper means to execute the powers of the Government." In theory, a treaty may be invalid in three ways. First, it may exceed the authority granted in the Treaty Power. Second, it may exceed an express limitation that appears elsewhere in the Constitution. Finally, it may exceed an implicit constitutional limitation. As to the first, the Holland Court considered the Migratory Bird Treaty subject matter properly attributed to the Treaty Power: it constituted a matter of national concern that could "be protected only by national action in concert with that of another power." Second, the Migratory Bird Treaty "[did] not contravene any prohibitory words to be found in the Constitution." Therefore, "[t]he only question [was] whether [the Migratory Bird Treaty was] forbidden by some invisible radiation from the general terms of the Tenth Amendment." The Holland Court answered this last question by comparing the strength of the competing state and federal claims. Missouri's claim rested on a "slender reed. Wild birds are not in possession of anyone; and possession is the beginning of ownership. The whole foundation of the State's rights is the presence within [its] jurisdiction of birds that yesterday had not arrived; tomorrow may be in another State and in a week a thousand miles away." The federal interest, on the other hand, was substantial: Here a national interest of very nearly the first magnitude is involved. It can be protected only by national action in concert with that of another power. The subject-matter is only transitorily within the State and has no permanent habitat therein. But for the treaty and the statute there soon might be no birds for any powers to deal with. We see nothing in the Constitution that compels the Government to sit by while a food supply is cut off and the protectors of our forests and our crops are destroyed. It is not sufficient to rely upon the States. The reliance is vain, and were it otherwise, the question is whether the United States is forbidden to act. We are of [the] opinion that the treaty and statute must be upheld. In the Third Circuit upon return, Mrs. Bond conceded the validity of the Chemical Weapons Convention. She argued instead that the Constitution imposes explicit and implicit limits on congressional authority under the Necessary and Proper Clause. "The problem with [Mrs.] Bond's attack," in the eyes of the Third Circuit, was "that, with practically no qualifying language in Holland to turn to" the court was "bound to take at face value the Supreme Court's statement that '[i]f the treaty is valid there can be no dispute about the validity of the statute ... as a necessary and proper means to execute the powers of the Government.'" Nor was the court convinced that the implementing statute "disrupts the balance of power between the federal government and the states," the argument at the heart of Mrs. Bond's challenge. The court was not unsympathetic to Mrs. Bond's contention that her case did not belong in federal court: Mrs. "Bond's prosecution seems a questionable exercise of prosecutorial discretion, [The decision to use the Act—a statute designed to implement a chemical weapons treaty—to deal with a jilted spouse's revenge on her rival is, to be polite, a puzzling use of the federal government's power], and indeed appears to justify her assertion that this case 'trivializes the concept of chemical weapons.'" A concurring member of the panel was even more critical and expressed the hope that the Supreme Court would accept the case for review. The Court has done so. The Belfast decision addressed the question of whether due process limits Congress's treaty implementing authority. The United States District Court for the Southern District of Florida convicted Belfast of overseas violations of the Torture Act, a statute enacted to implement the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT). Belfast argued that the Torture Act exceeded congressional authority under the Treaty Power and Necessary and Proper Clauses, because it outlawed conspiracy when the Convention did not mention and because the statute included a more sweeping definition of torture. On appeal, the Eleventh Circuit Court of Appeals concluded that "[a]pplying the [Necessary and Proper Clause's] rational relationship test in this case, we are satisfied that the Torture Act is a valid exercise of congressional power under the Necessary and Proper Clause, because the Torture Act tracks the provisions of CAT in all material respects." Since the violations occurred overseas, the threat to state law enforcement interests was minimal and posed no restriction on congressional authority. Nevertheless, the Constitution confines congressional authority both explicitly and implicitly for the protection of the people of the United States. Belfast asserted that the absence of CAT ratification by the nation where the torture occurred denied him the notice of its application to him which due process required. The court was unconvinced. It reminded him that "[t]he Supreme Court made clear long ago that an absent United States citizen is nonetheless 'personally bound to take notice of the laws [of the United States] that are applicable to him and to obey them.'" The issue of structural limitations did not arise. The Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes. The classic statement of Congress's legislative power under the Interstate Commerce Clause appears in United States v. Lopez , United States v. Morrison , and Gonzales v. Raich . There the Court points out that the Clause grants Congress authority to enact three classes of statutes. "First, Congress may regulate the use of the channels of interstate commerce," as it has done when it outlawed the interstate transportation of stolen property or the interstate transportation of kidnap victims. "Second, Congress is empowered to regulate and protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even though the treat may come only from intrastate activities," as it has done when it outlawed the destruction of aircraft or the theft of property from interstate shipment. "Finally, Congress' commerce authority includes the power to regulate those activities having a substantial relation to interstate commerce," as it has done when it outlaws cultivation and possession of controlled substances. In New York v. United States , the Court noted that Congress could not rely on the Commerce Clause to commandeer the legislative and regulatory processes of the states in order to enforce a federal program for the disposal of radioactive waste. This is no less true when a statute offers the states a choice of two unpalatable alternatives—federal commandeering or taking title to radioactive waste. The Court explained in Printz v. United States that by the same token, Congress could claim no Commerce Clause or Necessary and Proper Clause authority to compel state law enforcement officials to conduct background checks on prospective handgun purchasers as part of a federal regulatory program. Moreover, the Court held in Lopez that the Commerce Clause did not empower Congress to enact statutes that outlawed possession of a firearm in a school yard and in Morrison that it does not permit creation of a federal cause of action for the victims of violent, gender-based animus. The Clause does not enable any such attempt to regulate activities without a more immediate relation to commerce, particularly if the activities are markedly local. This is not to deny, as the Court acknowledged in Raich , that Congress may regulate intrastate activity such as the cultivation and possession of marijuana that has a substantial impact on a class of interstate commercial activity such as the interstate and international traffic in marijuana. Seven National Federation of Independent Business justices found the Patient Protection and Affordable Care Act's individual mandate more than the Interstate Commerce Clause empowers. The Kebodeaux court found the outer reaches of the Sex Offender Registration and Notification Act (SORNA) beyond Congress's power under the Interstate Commerce Clause as well as the Necessary and Proper Clause. A confluence of views, rather than a holding, in National Federa tion of Independent Business v. Sebelius , appears to identify a previously unannounced limitation on the congressional power under the Interstate Commerce Clause: the Clause does not empower Congress to penalize the failure to engage in commerce. The question involved the so-called individual mandate feature of the Patient Protection and Affordable Care Act. The individual mandate, with some exceptions, requires healthy individuals, who might otherwise forgo purchasing health insurance, to obtain insurance or to pay a penalty. The provision is designed to compensate insurers for their required coverage of certain unhealthy individuals. Although a majority of the Court found that the mandate is the valid exercise of Congress's constitutional taxing power, seven Justices—three members of the majority and four dissenters—stated that the Commerce Clause afforded insufficient constitutional authority for its enactment. Chief Justice Roberts, joined by Justices Breyer and Kagan, observed that the power to regulate commerce does not include the power to require individuals to engage in commerce. The four dissenters struck much the same cord when they noted: "The Individual Mandate in the Act commands that every individual shall ... ensure that the individual ... is covered under minimum essential coverage. If this provision 'regulates' anything, it is the failure to maintain minimum essential coverage.... But that failure—that abstention from commerce—is not 'Commerce.' To be sure, purchasing insurance is 'Commerce'; but one does not regulate commerce that does not exist by compelling its existence." However, the dissenters' opinion was grounded also on the principle that "Whatever may be the conceptual limits upon the Commerce Clause ... [it] cannot be such as will enable the Federal Government to regulate all private conduct...." The case did not involve enactment of a criminal statute. However, the scope of the Commerce Clause defines the scope of congressional authority to enact implementing criminal legislation. Having concluded that application of SORNA in the case before it exceeded Congress's Necessary and Proper powers, the Fifth Circuit in Kebodeaux also rejected the suggestion that SORNA, as applied, might be considered a valid exercise of Congress's Commerce Clause powers under the "channels of commerce," the "instrumentalities of commerce," or the "substantial effect on commerce" prong of the Clause. It held that "Congress lacks the constitutional authority under the 'channels of interstate commerce' to require fully discharged former federal sex offenders to register whenever they relocate within a state, because it risks the use of interstate travel by sex offenders; nor under the protecting the instrumentalities of interstate commerce because sex offenders may pose a risk to interstate traffic if they travel interstate." The Fifth Circuit concluded that the justifications were too sweeping and too intrusive upon state criminal law prerogatives. As for the substantial impact on commerce prong, the Fifth Circuit thought SORNA, as applied, looked too much like the regulation of non-economic activity in Lopez and Morrison and too little like the regulation of "quintessentially economic activity" in Raich . A disagreement has recently developed in the lower federal appellate courts over whether the Lopez Interstate Commerce Clause standards relating to commercial channels, instrumentalities, and effects apply with equal force to the Foreign Commerce Clause. A few years ago, the Ninth Circuit stated that congressional authority under the Foreign Commerce Clause could be defined without reference to the Lopez standards. More recently, the Third Circuit expressly questioned that approach. In between, the Second Circuit sidestepped the question with a statutory construction that avoided the constitutional issues, a construction Congress may have had in mind when it expanded a related proscription in reauthorization of the Violence Against Women Act. Clark, an American expatriate, lived in Cambodia but about once a year returned to the United States for family and business reasons. Clark was convicted under 18 U.S.C. 2423(c) for traveling in foreign commerce and engaging in commercial sexual activity with children under the age of 18 in Cambodia. Clark appealed, arguing among other things, that his conduct rested beyond the outer limits of the Foreign Commerce Clause. The Ninth Circuit held that "[t]he combination of Clark's travel in foreign commerce and his conduct of an illicit commercial sex act in Cambodia shortly thereafter puts the statute squarely within Congress's Foreign Commerce Clause authority. In reaching this conclusion, we view the Foreign Commerce Clause independently from its domestic brethren." A dissenting member of the panel objected that the Foreign Commerce Clause should not be read to permit Congress to regulate all commercial activities once an individual has engaged in international travel. Weingarten, another American expatriate, sexually abused his daughter for years. He was eventually convicted for transportation of a child with intent to engage in unlawful sexual activity in violation of 18 U.S.C. 2423(a) and for travel in foreign commerce with the intent to engage in unlawful sexual activity with a child in violation of 18 U.S.C. 2423(b). A flight between Belgium and Israel formed the basis of one of the foreign commerce counts. On appeal, Weingarten argued alternatively that (1) travel between two foreign countries without a nexus to the United States could not meet the statutory requirement of "travel in foreign commerce," or (2) if the statute purported to do so, it exceeded congressional authority under the Foreign Commerce Clause. The Second Circuit opted to construe the statute so that it did not apply to travel between foreign countries with no nexus to the United States. Constitutional avoidance, however, seems to have played a role in the court's election. Pendleton flew from New York to Germany where he sexually assaulted a child. He was convicted of traveling in foreign commerce and engaging in unlawful sexual activity with a child in violation of 18 U.S.C. 2423(c). He challenged the constitutional authority of Congress to rely on the Foreign Commerce Clause to enact a statute that punishes noncommercial overseas sexual activity. The Third Circuit disagreed. Although it declined the government's invitation to endorse the Ninth Circuit's Clark decision, it found it need not resolve the issue. The facts before it satisfied Lopez's "channels of commerce," making it unnecessary to decide whether the Foreign Commerce Clause reaches areas not covered by the Interstate Commerce Clause's channels, instrumentalities, and affects standards. Congress enjoys constitutional authority to prevent the use of the channels of commerce for purposes of illicit sex tourism, the Third Circuit held. The Violence Against Women Reauthorization Act of 2013 amends Section 2423(c) to permit prosecution of American expatriates who engage in unlawful sexual conduct overseas without the need to establish travel in foreign commerce: "Any United States citizen or alien admitted for permanent residence who travels in foreign commerce or resides either temporarily or permanently in foreign country , and engages in any illicit sexual conduct with another person shall be fined under this title or imprisoned not more than 30 years, or both." The Congress shall have Power ... To define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations. Clause 10 is said to contain three distinct components: one for piracy, one for felonies committed upon the high seas, and one for offenses against the law of nations. The Bellaizac-Hurtado court's understanding of the Law of Nations Clause leaves Congress with little discretion to "define and punish." The Dire court's construction of the piracy statute leaves the scope of the Piracy Clause somewhat uncertain. On the other hand, once due process concerns are resolved, Congress seems to be thought to enjoy much greater legislative latitude under the High Seas Clause, as evidenced by cases decided under the Maritime Drug Law Enforcement Act (MDLEA) and the Drug Trafficking Vessel Interdiction Act (DTVIA), Panamanian authorities arrested Bellaizac-Hurtado and his co-defendants after they abandoned in Panamanian waters an unflagged vessel containing 760 kilograms of cocaine. A federal grand jury subsequently indicted them under the Maritime Drug Law Enforcement Act (MDLEA) for possession of cocaine, with intent to distribute, aboard a vessel subject to United States jurisdiction. They pleaded guilty, but reserved the right to appeal the questions of congressional power to authorize their convictions under the Piracy, High Seas, and Law of Nations Clause. The court determined that congressional authority under the Law of Nations Clause did not extend to a prohibition of drug trafficking within the territorial waters of another nation. The court's analysis began with the proposition that Congress's authority to "define and punish ... Offenses against the Law of Nations" does not include the authority to define what constitutes an offense under the law of nations. "Whether the offense as defined is an offense against the law of nations depends on the thing done, not on any declaration to that effect by congress." It then decided that an offense must be contrary to customary international law in order to constitute an offense against the law of nations. Customary international law, the court said, is that law which is generally and consistently practiced by nations throughout the world out of a sense of legal obligation. Drug trafficking, the offense at issue, was not recognized as contrary to customary international law when the Law of Nations Clause was drafted nor has since acquired that status, the court stated. Although most nations have endorsed treaties obligating them to suppress drug trafficking, the court cited evidence that the practice in many nations belies any assertion that they feel compelled to do so out of a sense of legal obligation. The Bellaizac-Hurtado court had little Supreme Court jurisprudence upon which to build. Although not relevant for the court's analysis, the only Supreme Court decision directly on point suggests that Congress's power under the Law of Nations Clause may be slightly more robust in other contexts: "The law of nations requires every national government to use 'due diligence' to prevent a wrong being done within its own dominion to another nation with which it is at peace, or to the people thereof." The High Seas Clauses cases primarily arise out of the Maritime Drug Law Enforcement Act (MDLEA) and more recently out of the Drug Trafficking Vessel Interdiction Act (DTVIA). Early on, the lower federal appellate courts concluded that Congress's power "to define and punish Piracies and Felonies committed on the High Seas, and Offences against the Law of Nations" vested it with authority to enact MDLEA. Some also recognized a due process limitation on the courts' ability to try and punish MDLEA defendants. The DTVIA cases continue this line of reasoning. Ibarguen-Mosquera was convicted of operating an unflagged, semi-submersible vessel in international waters in violation of the Drug Trafficking Vessel Interdiction Act (DTVIA). He argued unsuccessfully that DTVIA exceeded congressional authority under Article I, Section 8, and violated due process. The court dispensed with the first contention quickly by pointing to Congress's authority under the High Seas Clause. Its sole remaining concern was any due process limitation on Congress's ability to reach foreign nationals traveling outside U.S. territorial waters. The lower federal appellate courts generally conclude that the demands of due process have been satisfied, if the assertion of jurisdiction is consistent with international law. For this, the court cited its precedents and those of some of the other circuits which have consistently held that unflagged, stateless vessels enjoy no right to freely travel the high seas. Saac was likewise convicted under DTVIA, and he too challenged its constitutionality. The court referred to the High Seas Clause and noted that the Clause did not explicitly confine its scope to either U.S. territorial waters or U.S. citizens. The court disposed of the due process argument with the observation that the DTVIA is consistent with the due process satisfying principles of international law that allow a country to enact laws against universally condemned misconduct (e.g., drug trafficking), and against threats to its national security (e.g., smuggling). Cardales-Luna was convicted under MDLEA after U.S. Coast Guard officials interdicted his Bolivian-registered vessel on the high seas and discovered that it contained 400 kilograms of cocaine. Bolivian authorities consented to the application of MDLEA aboard the vessel, thereby satisfying MDLEA's "vessel within the jurisdiction of the United States" requirement. The court did not address the issue of Congress's legislative authority, since neither Cardales-Luna nor the government raised the issue. A dissenting member of the panel, however, would have done so. Judge Torruella contended that "the application to MDLEA to Appellant [constitutes an] ultra vires extension of [Congress'] Article I legislative powers to foreign territory, as applied to persons and/or activities that have no nexus with the United States." Moreover, he suggested that "the question of Congress exceeding its Article I power under the facts of this [MDLEA] case is structural in nature and [therefore] cannot be waived by the individual concerned or the nation of which he is a citizen or on whose vessel he is apprehended." In the course of his analysis, Judge Torruella examined and rejected several possible sources of congressional authority. He found power under the Piracy, High Seas, and Law of Nations Clause wanting because he understood the Clause confined to piracy, slave trading, and offenses contrary to customary international law. Implementation of the maritime jurisdiction of the federal courts demands an American vessel. Implementation of the Treaty Clause requires a treaty. The Foreign Commerce Clause demands a "demonstrable and direct nexus to the United States." Dire was convicted of piracy under 18 U.S.C. 1651 following his participation in an armed attack on a U.S. Navy frigate that he believed to be a merchant ship. The Fourth Circuit acknowledged that Congress has the constitutional authority to define and punish piracy. Section 1651 outlaws piracy "as defined by the law of nations." This, the court concluded, means piracy as understood by customary international law at the time of the offense. The Congress shall have Power To lay and collect Taxes ... to provide ... for the general Welfare of the United States. The Supreme Court has said in the past that Congress's exercise of the Spending Clause is subject to certain limitations: "[F]irst[,] ... the exercise of the spending power must be in pursuit of 'the general welfare.' ... Second, ... if Congress desires to condition the States' receipt of federal funds, it must do so unambiguously enabling the States to exercise their choice knowingly, cognizant of the consequences of their participation. Third, ... conditions on federal grants might be illegitimate if they are unrelated to the federal interest in particular national projects or programs.... Finally, ... other constitutional provisions may provide an independent bar to the conditional grant of federal funds." National Federation brings home the point that Congress may not use its spending power to coerce state participation in a federal program. The Patient Protection and Affordable Care Act purported to condition the continued receipt of federal Medicaid funds upon a state's participation in an expanded Medicaid program. Seven Justices of the Court—three from the majority and four dissenters—felt that was more than the Spending Clause conveys. Coercion doomed the effort. Congress may employ the power of the purse to encourage the states to participate in a federal program; it may not use it to compel them to do so. The dissenters pointed out that "'the legitimacy of Congress' power to legislate under the spending power ... rests on whether the State voluntarily and knowing accepts' [a condition].... Congress effectively engages in [] impermissible compulsion when state participation in a federal spending program is coerced, so that the States' choice whether to enact or administer a federal regulatory program is rendered illusory." Chief Justice Roberts, in the portion of his opinion joined by Justices Breyer and Kagan, made the same point. Neither he nor the dissenters found it necessary to mark precisely where persuasion becomes coercion. Wherever the line, the Medicaid expansion was beyond it. Again, National Federation did not involve a criminal statute, but the scope of the power defines the scope of power to enact criminal laws in its implementation. The Congress shall have Power ... To declare War ... To raise and support Armies ... To provide and maintain a Navy; To make Rules for the Government and Regulation of the land and naval Forces ... To provide for organizing, arming, and disciplining the Militia.... Brehm, a foreign national and Department of Defense (DOD) contractor, assaulted another foreign DOD contractor at Kandahar Airfield in Afghanistan. He was brought to the United States and convicted of assault resulting in serious bodily injury under the Military Extraterritorial Jurisdiction Act (MEJA). Brehm argued that the Constitution gave Congress no authority to outlaw altercations between foreign nationals outside the United States and that due process precluded any effort to do so. The Fourth Circuit concluded that the Military Clauses supplemented by the Necessary and Proper Clause supplies all the constitutional authority required. As for due process limitations, the circumstances and the nature of his conduct afforded Brehm fair notice that his dangerous assault exposed him to prosecution. | The powers of Congress begin and end with the Constitution. The Constitution vests Congress with explicit authority to enact criminal laws relating to counterfeiting, piracy, crimes on the high seas, offenses against the law of nations, and treason. It grants Congress other broad powers, such as the power to regulate interstate commerce. The Constitution's Necessary and Proper Clause allows Congress to enact criminal laws when reasonably related to the regulation of commerce or to one of the other constitutionally enumerated powers. The Constitution also imposes limits on the powers of Congress, however. It places those limits in the terms it uses in its grants of authority, in explicit prohibitions, and in the Tenth Amendment reminder of the restrictions implicit in the federal union. Recently, the Supreme Court and the lower federal appellate courts have supplied several examples of the scope and limits of congressional authority. In the case of the Commerce Clause, seven Justices of the Supreme Court endorsed separate opinions in National Federation explaining that the power to regulate interstate commerce does not include the power to require participation in commerce. The Fifth Circuit held in Kebodeaux that the Commerce Clause does not embody the power to outlaw purely intrastate movement with only an attenuated nexus to commercial activity. As for foreign commerce, the circuits disagree on whether Congress's regulatory authority is subject to the same constraints that apply to its powers over domestic commerce. The Ninth Circuit (Clark) believes it is not. The Third Circuit (Pendleton) disagrees. (The Violence Against Women Reauthorization Act, P.L. 113-4 (S. 47), eliminates the need to prove a foreign commerce element in the law that gave rise to the circuit split.) In the realm of the Necessary and Proper Clause, the Eleventh Circuit in Belfast observed that Congress may pass criminal legislation in order to implement a treaty obligation, and the Third Circuit in Bond held that it may do so without regard to federalism concerns. Moreover, the Ninth Circuit Court of Appeals concluded in Elk Shoulder that Congress may outlaw the unregistered movement within a state of a federally convicted sex offender who is on supervised release. The Fifth Circuit held in Kebodeaux, however, that the Clause does not permit enactment of a statute that outlaws such movement after the offender has been fully discharged. Although they did not join in a single opinion, seven Justices in National Federation concluded that Congress's power under the Spending Clause may not be used to compel the states to accept expansion of a federal regulatory regime or to face draconian economic consequences. The case did not involve criminal penalties, but a limit on Congress's Spending Clause power is a limit on its authority to enact implementing necessary and proper criminal legislation. Article I, Section 8, clause 10 grants Congress the power "to define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations." Federal appellate courts have looked to customary international law for explanations of the power over offenses against the law of nations (Bellaizac-Hurtado) and piracy (Dire). The High Seas cases (Saac and Ibarguen-Mosquera) continue to acknowledge congressional authority to outlaw drug trafficking in international waters subject only to an elusive due process limitation. The Constitution's Military Clauses permit Congress to criminalize overseas assaults by Defense Department foreign contractors (Brehm), but do not permit it to punish an individual's conduct based solely on his status as a former member of the Armed Forces even when supplemented by the Necessary and Proper Clause (Kebodeaux). |
The reason that Congress has sometimes declared private organizations or individuals federal employees for FTCA purposes is generally that it has concluded that potential liability, or the high cost of liability insurance, could discourage an organization, or its employees or volunteers, from doing the work it does. Thus, the basic argument in favor of these statutes is that, by immunizing potential defendants from tort liability, they encourage work that Congress deems to be in the public interest. In addition, because the United States has "deep pockets," these statutes can also benefit some plaintiffs. An injured party who prevails in an action against the United States is more likely to be compensated fully than one who prevails against a private party. In general, however, these statutes probably leave injured parties worse off. First, they arguably remove an incentive for individuals protected by them to exercise due care in the performance of their duties. Second, they leave some injured parties with no remedy, because the FTCA makes the United States liable for only some of the torts of its employees. In general, the FTCA makes the United States liable for the torts of its employees to the extent that a private employer would be liable for the torts of its employees, under the law of the state where the tort occurred. However, the FTCA has exceptions under which the United States may not be held liable even though a private employer could be held liable under state law. These exceptions include suits by military personnel for injuries sustained incident to service, suits based on the performance of a discretionary function, intentional torts, claims arising out of combatant activities, claims arising in a foreign country, and others. In addition, the FTCA does not permit awards of punitive damages, and does not allow jury trials (and plaintiffs in tort cases tend to prefer jury trials). The Supreme Court has held that the FTCA makes federal employees immune from suit under state law for torts committed within the scope of employment even when an FTCA exception precludes recovery against the United States. United States v. Smith , 499 U.S. 160 (1991). The same apparently would be the case with respect to organizations or individuals who are not federal employees but who are declared federal employees for FTCA purposes. Consequently, in considering whether to make a private organization or individual a federal employee for FTCA purposes, Congress may wish to balance the benefits of immunizing the organization or individual from liability against the likelihood of leaving potential plaintiffs without a remedy. A way that Congress might protect both plaintiffs and defendants would be to allow the defendants to be sued but provide for the United States to take over the defense of the suit and to pay any damages for which the defendants are held liable. This way, plaintiffs would not be precluded by the exceptions in the FTCA from recovering against the United States. A partial precedent for this approach was the National Swine Flu Immunization Program, P.L. 94-380 (1976), which made an action against the United States under the FTCA the exclusive remedy for persons having claims in connection with the swine flu immunization program of the 1970s against vaccine manufacturers, but it removed or relaxed several of the FTCA exceptions that might have precluded recovery in some cases. A statute may declare the employees of a private entity to be federal employees for purposes of the FTCA, but not declare the entity itself to be a federal employee for purposes of the FTCA. It may instead declare the entity to be a federal agency for purposes of the FTCA, or it may remain silent as to the status of the entity. If it declares the entity to be a federal agency for purposes of the FTCA, then the entity would be immune from tort liability, because, under the FTCA, only the United States may be sued. If it remains silent as to the status of the entity, then the entity presumably could be sued in addition to the United States (and would not have the benefit of the exceptions, such as the discretionary function exception, that protect the United States from liability). Perhaps, however, the entity could argue that, since its employee is a federal employee for purposes of the FTCA, its employee should not be deemed its employee for purposes of state tort law. If an entity's employees are not deemed its employees for purposes of state tort law, then the entity would not be responsible for its employees' torts. In deciding this question, a court would of course consider the language and legislative history of the particular statute involved. The following are examples of statutes that make private organizations or individuals federal employees for FTCA purposes, and thus immune from liability under state tort law: (1) "[T]he Administrative Assistant, with the approval of the Chief Justice, may accept voluntary personal services to assist with public and visitor programs.... No person volunteering personal services under this subsection shall be considered an employee of the United States for any purpose other than for purposes of [the FTCA]." 28 U.S.C. § 677(c). (2) The Commission on the Advancement of Women and Minorities in Science, Engineering, and Technology Development Act, 42 U.S.C. § 1885a note, § 5(i), provides: "Members of the Commission shall not be deemed to be employees of the Federal Government by reason of their work on the Commission except for purposes of—(1) the tort claims provisions of chapter 171 of title 28, United States Code." (3) The Domestic Volunteer Service Act of 1973, 42 U.S.C. § 5055(f)(3), provides, with respect to volunteers in the ACTION Agency (including the Volunteers in Service to America (VISTA) program and the Older American Volunteer Programs): "Upon certification by the Attorney General that the defendant was acting in the scope of such person's volunteer assignment at the time of the incident out of which the suit arose, any such civil action or proceeding shall be ... deemed a tort action brought against the United States under the provisions of title 28...." (4) The Federal Land Policy and Management Act of 1976, 43 U.S.C. § 1737(f), provides: "Volunteers shall not be deemed employees of the United States except for purposes of—(1) the tort claims provisions of title 28...." (5) The Federally Supported Health Centers Assistance Act of 1992, 42 U.S.C. § 233(g), provides that such centers, and their officers, employees, and contractors, shall be deemed employees of the Public Health Service, and the FTCA shall be the exclusive remedy with respect to any medical malpractice they may commit. (6) The Health Insurance Portability and Accountability Act of 1996, 42 U.S.C. § 233( o ), extended the same protection as the Federally Supported Health Centers Assistance Act of 1992 to a "free clinic health professional" providing a "qualifying health service," which means an unpaid volunteer providing "any medical assistance required or authorized to be provided in the program under title XIX of the Social Security Act," commonly called "Medicaid." (7) The Fish and Wildlife Act of 1956, 16 U.S.C. § 742f(c)(4), provides that volunteers for, or in aid of programs conducted by the Secretary of the Interior through the Fish and Wildlife Service or the Secretary of Commerce through the National Oceanic and Atmospheric Administration shall be considered a federal employee "[f]or the purpose of the tort claim provisions of title 28." (8) The Glass Ceiling Act of 1991, 42 U.S.C. § 2000e note, § 203(h)(3). This statute, which was enacted by the Civil Rights Act of 1991, provides: "A member of the [Glass Ceiling] Commission, who is not otherwise an employee of the Federal Government, shall not be deemed to be an employee of the Federal Government except for purposes of—(A) the tort claims provisions of chapter 171 of title 28, United States Code." (9) The Indian Health Care Improvement Act, 25 U.S.C. § 1680c(d), provides that non-Indian Health Service health care practitioners who provide services to individuals eligible for health services under the act may be regarded as employees of the Federal Government for purposes of the FTCA. (10) The Indian Self-Determination and Education Assistance Act, 25 U.S.C. § 450f(d), provides that [A]n Indian tribe, a tribal organization or Indian contractor carrying out a contract, grant agreement, or cooperative agreement under this section or section 450h of this title is deemed to be part of the Public Health Service in the Department of Health and Human Services while carrying out any such contract or agreement and its employees (including those acting on behalf of the organization or contractor as provided in section 2671 of Title 28 [the FTCA] are deemed employees of the Service while acting within the scope of their employment in carrying out the contract or agreement.... (11) The National Gambling Impact Study Commission Act, 18 U.S.C. § 1955 note, § 6(e), provides that, for purposes of the FTCA "the Commission is a 'Federal agency' and each of the members and personnel of the Commission is an 'employee of the Government.'" (12) The National Guard Challenge Program of opportunities for civilian youth, 32 U.S.C. § 509(i)(1)(B), provides that a person receiving training under the National Guard Challenge Program shall be considered an employee of the United States for purposes of the FTCA. (13) The National Guard Technicians Act of 1968, 32 U.S.C. § 709(d), provides that a technician employed under the act is "an employee of the United States." The act does not mention the FTCA, but apparently does make these individuals federal employees for FTCA purposes. See, Proprietors Insurance Co. v. United States , 688 F.2d 687 (9 th Cir. 1982). (14) The National Service Trust Act, 42 U.S.C. § 12651b(f), provides: "For purposes of the tort claims provisions of chapter 171 of title 28, United States Code, a member of the Board [of Directors of the Corporation for National and Community Service] shall be considered to be a Federal employee." It also provides that Corporation volunteers "shall not be subject to the provisions of law relating to Federal employment ... except that—(i) for the purposes of the tort claims provisions of chapter 171 of Title 28, a volunteer under this division shall be considered to be a Federal employee." 42 U.S.C. § 12651g(a)(B). (15) The Peace Corps Act, 22 U.S.C. § 2504(h), provides: "Volunteers shall be deemed employees of the United States Government for the purposes of the Federal Tort Claims Act and any other Federal tort liability statute...." (16) The Strom Thurmond National Defense Authorization Act for Fiscal Year 1999, 16 U.S.C. § 670c(d), provides: In connection with the facilities and programs for public outdoor recreation at military installations ..., the Secretary of Defense may accept—(1) the voluntary services of individuals and organizations.... A volunteer ... shall not be considered to be a Federal employee ... except that—(1) for the purposes of the tort claims provisions of chapter 171 of title 28, United States Code, the volunteer shall be considered to be a Federal employee. (17) The Support for East European Democracy (SEED) Act of 1989, 22 U.S.C. § 5422(c)(2), provides that a volunteer providing technical assistance to Poland or Hungary through the Department of Labor shall be deemed an employee of the United States for purposes of "the tort claims provisions of Title 28...." (18) The Take Pride in America Act, 16 U.S.C. § 4604(c)(2), provides that, for purposes of the FTCA, "a volunteer under this subsection shall be considered an employee of the government...." (19) "[T]he United States Geological Survey may hereinafter contract directly with individuals or indirectly with institutions or nonprofit organizations ... for the temporary or intermittent services of science students or recent graduates, who shall be considered employees for purposes of [the FTCA]." 43 U.S.C. § 50d. (20) The Volunteers in the National Forests Act of 1972, 16 U.S.C. § 558c(b), provides: "For the purpose of the tort claim provisions of Title 28, a volunteer under sections 558a to 558d of this title shall be considered a Federal employee." (21) The Volunteers in the Parks Act of 1969, 16 U.S.C. § 18i(b), provides: "For the purpose of the tort claim provisions of title 28 of the United States Code, a volunteer under this Act shall be considered a Federal employee." The following 32 additional statutory provisions listed in this paragraph also cause non-federal employees or entities to be treated as federal employees for purposes of liability: 5 U.S.C. § 3161(i)(4) (temporary organizations), 7 U.S.C. § 2279c(b)(8) (Department of Agriculture), 10 U.S.C. § 1588(d) (Armed Forces), 10 U.S.C. § 2113(j)(4) (Uniformed Services University of the Health Sciences), 10 U.S.C. § 2360(b) (Secretary of Defense), 10 U.S.C. § 2904(c) (Strategic Environmental Research and Development Program Scientific Advisory Board), 14 U.S.C. § 93(t)(2) (Coast Guard), 15 U.S.C. §§ 4102(d), 4105(5) (Arctic Research Commission), 16 U.S.C. § 450ss-3(b)(5) (Oklahoma City National Memorial Trust), 16 U.S.C. § 565a-2 (Forest Service), 16 U.S.C. § 932(a)(3) (Great Lakes Fishery Commission), 16 U.S.C. § 952 (International Commission for the Scientific Investigation of Tuna, and Inter-American Tropical Tuna Commission), 16 U.S.C. § 971a(1) (International Commission for the Conservation of Atlantic Tunas), 16 U.S.C. § 1421e (Secretary of Commerce), 16 U.S.C. § 1703(a)(3) (Youth Conservation Corps), 16 U.S.C. § 3602(c) (North Atlantic Salmon Conservation Organization), 16 U.S.C. § 5608(c) (Northwest Atlantic Fisheries Organization), 20 U.S.C. § 76 l (e)(2) (Trustees for the John F. Kennedy Center for the Performing Arts), 20 U.S.C. § 4420(b) (Institute of American Indian and Alaska Native Culture and Arts Development), 22 U.S.C. § 2124c(i)(3) (Rural Tourism Development Foundation), 22 U.S.C. § 3508(d) (Institute for Scientific and Technological Cooperation), 24 U.S.C. § 421(b) (Armed Forces Retirement Board), 24 U.S.C. § 422(d) (Retirement Home Board), 33 U.S.C. § 569c (Army Corps of Engineers), 36 U.S.C. § 2113(f)(2) (American Battle Monuments Commission), 42 U.S.C. § 233(p) (persons who manufacture, distribute, or administer smallpox countermeasures, or who transmit vaccinia after receiving a smallpox countermeasure), 42 U.S.C. § 7142(b) (National Atomic Museum), 42 U.S.C. § 7142c(b)(2) (American Museum of Science and Energy), 42 U.S.C. § 12620(c) (Civilian Community Corps), 42 U.S.C. § 12655n(b)(3) (American Conservation and Youth Service Corps), 49 U.S.C. § 106( l )(5)(C) (Federal Aviation Administration), 49 U.S.C. § 20107(b) (Secretary of Transportation). The most recent statute that provides that non-federal employees shall be deemed federal employees under the FTCA is the Project BioShield Act of 2004, P.L. 108-276 , which enacted § 319F-1 of the Public Service Health Act. Section 319F-1(d)(2) (42 U.S.C. § 247d-6a(d)(2)) provides that a person carrying out a personal service contract under the statute, "and an officer, employee, or governing board member of such person shall, subject to a determination by the Secretary, be deemed to be an employee of the Department of Health and Human Services for purposes of [the FTCA]." Section 319F-1(d)(2), however, contains exceptions to the immunity from liability that the FTCA otherwise grants to federal employees: Should payment be made by the United States to any claimant ..., the United States shall have ... the right to recover against [the person deemed a federal employee] for that portion of the damages so awarded or paid, as well as interest and any costs of litigation, resulting from the failure ... to carry out any obligation or responsibility ... under a contract with the United States or from any grossly negligent or reckless conduct or intentional or willful misconduct.... | The Federal Tort Claims Act (FTCA), 28 U.S.C. § 1346(b), 2671-2680, makes the United States liable, in accordance with the law of the state where a tort occurs, for some of the torts of its employees committed within the scope of their employment. It also makes federal employees immune from all lawsuits arising under state law for torts committed within the scope of their employment. (The FTCA does not prevent a federal employee from being sued for violating the Constitution or a federal statute that authorizes suit against an individual.) Sometimes, Congress wishes to immunize a private organization, or its employees or volunteers, from tort liability. One way it may do so is to enact a statute declaring that the organization or its employees or volunteers shall be deemed federal employees for purposes of the FTCA. This report discusses the pros and cons of this type of statute, and then provides examples of more than 50 such statutes. |
The United States exports agricultural products to nearly every country in the world. The U.S. Department of Agriculture (USDA) reports that U.S. agricultural exports reached nearly $139 billion in FY2017 ( Figure 1 ). To successfully ship agricultural products, exporters must conform to importer requirements. USDA's Animal and Plant Health Inspection Service (APHIS) is the U.S. government authority tasked with regulating most animal and plant product exports. Export health certificates are commonly necessary for the export of horticultural products (e.g., fruits and vegetables) and livestock, which represent over one-third ($53 billion) of U.S. agricultural exports in FY2017 ( Figure 2 ). APHIS is also responsible for informing the international community of U.S. animal or plant disease outbreaks. To meet the health standards required by U.S. trading partners, APHIS and other U.S. federal agencies negotiate "export health certificates" with each partner country ( Figure 3 ). Export health certificates are also part of broader agreements between the United States and its trading partners on the World Trade Organization's (WTO) established "sanitary and phytosanitary" (SPS) measures. These measures protect against diseases, pests, toxins, and other contaminants. APHIS technical personnel, often working with other federal agencies, negotiate with their foreign counterparts on SPS measures. APHIS maintains a public website with import requirements by product and country to assist U.S exporters. Without these certificates, shipments could be delayed or rejected. Neither APHIS nor any other U.S. agency enforces or requires the usage of export health certificates, but failure to obtain an importer-required specific certificate would likely lead to a rejected shipment by the importing country. This report discusses APHIS's role in export health certificate issuance to facilitate agricultural trade. APHIS is not the sole issuer of export health certificates; many food and agricultural products (i.e., that are not horticultural products or livestock) have oversight by other federal agencies that are outside the scope of this report. Many of the U.S. agricultural and food products for export fall under APHIS's jurisdiction. An APHIS export health certificate informs the importing country that the U.S. product is free of certain diseases, and it includes additional information required by the importer. In FY2017, APHIS issued close to 675,000 federal export health certificates for international agricultural shipments. APHIS manages programs on a national basis through two regional offices and 433 field offices. APHIS performs work in all U.S. states and territories, Mexico, Central America, South America, the Caribbean, Western Europe, Asia, and Africa. In particular, APHIS has jurisdiction over the following agricultural products: Live animals, animal products, veterinary biologics (vaccines, bacterins, antisera, diagnostic kits, and other products of biological origin), and biotechnology permits for genetically engineered organisms. Live plants, plant products (nursery stock; small lots of seed; fruits and vegetables; timber; cotton; cut flowers; and protected, threatened, and endangered plants), organisms (arthropods and mollusks, fungi, bacteria, nematodes, mycoplasma, viroids and viruses, biological control agents, bees, Plant Pest Diagnostic Laboratories, federal noxious weeds, and parasitic plants), and soil. APHIS is not the only issuer of export health certificates. For example, the Department of Commerce has jurisdiction over the administration of health certificates for fish and seafood. A listing of agencies and their commodity responsibilities is provided in Table 1 . Depending on a trade agreement's SPS chapter, more than one type of certificate could accompany a particular agricultural product. For example, an importing country may require two certificates from a U.S. exporter of hatching eggs, including one requiring the exporter to participate in the Agricultural Marketing Service's "export verification program" and a second requiring the exporter to obtain an APHIS export health certificate. APHIS export health certificates do not apply to certain food and agricultural products. Table 1 introduces the commodity jurisdictions and the types of attestation other federal agencies provide to U.S. exporters. The following list describes the most common types of certificates and programs—outside of the APHIS export health certificates—that facilitate agricultural exports. 1. Certificate of Free Sale. The Department of Health and Human Services' Food and Drug Administration (FDA) has jurisdiction over a wide range of food products. FDA provides an importing country with a Certificates of Free Sale to meet the requirements regarding a product's regulatory or marketing status. FDA issues this certificate for conventional foods for human consumption, dietary supplements, infant formula, medical foods, and foods for special dietary use. 2. Export Certificate of Wholesomeness . USDA's Food Safety and Inspection Service (FSIS) issues Export Certificates of Wholesomeness for meat, poultry, and egg products that are exported from the United States. These certificates verify that the accompanying products have been inspected by FSIS at official FSIS slaughter and processing establishments and approved cold storage facilities. 3. Export Verification (EV) Program. USDA's Agricultural Marketing Service (AMS) reviews and approves companies as eligible suppliers of certain products for export under the USDA EV Programs. The EV Program outlines the specified product requirements for individual countries that must be met through an approved Quality System Assessment Program. Only eligible suppliers may supply products for the applicable EV Program. Eligible products must be produced under an approved EV Program. Other USDA programs not discussed in this report also support U.S. agricultural exports including export promotion and financing programs. For more information, see CRS Report R44985, USDA Export Market Development and Export Credit Programs: Selected Issues . It is common for federal agencies to write memoranda of understanding (MOU) to facilitate cooperation among federal agencies to better support U.S. exports. For example, in 2008 the Department of Commerce's National Marine Fisheries Service—housed within National Oceanic and Atmospheric Administration (NOAA)—and the Department of the Interior's Fish and Wildlife Service entered into an MOU with APHIS to recognize the legal authorities and mandates for the management of aquatic animal health. In this case, all three of the agencies have the ability to endorse export health certificates for aquatic animals. This MOU describes the responsibilities of each agency and clarifies that they may request assistance from one another upon issuing an export health certificate from within their respective legal jurisdictions. Further, the MOU states that all three agencies have authority to attest to the health and pathogen status of the aquatic animals to be exported as required by an importing country. An exporter must collaborate with APHIS to obtain a plant or animal export health certificate. APHIS's Plant Production Quarantine (PPQ) and Veterinary Services (VS) oversee the health certificate endorsement process for a "plant health certificate" or "animal health certificate," respectively ( Figure 4 ). APHIS cooperates with many federal agencies, including AMS, Centers for Disease Control and Prevention, Customs and Border Protection, Fish and Wildlife Service, FDA, and FSIS to facilitate the verification process ( Figure 5 ). PPQ is the U.S. government authority that issues export plant heath certificates for plants, bulbs and tubers, seeds for propagation, fruits and vegetables, cut flowers and branches, grain, and growing medium. PPQ's plant health attestation assists exporters in meeting the importers' food safety requirements. The process of obtaining an export plant health certificate requires cooperation between the exporter and PPQ as follows: 1. The exporter must submit an application to PPQ. 2. PPQ technical staff performs specific tests on the plant products and determines certification based on country-specific import requirements. 3. After PPQ verifies the import requirements, the exporter receives a completed export certificate and pays a fee for the service. If the exporter provides PPQ with all of the necessary information, an exporter may receive APHIS's endorsement (digitally or in hard copy) within a few days. Export certificates are to be issued within 30 days of the phytosanitary inspection. VS is the authority for issuing export animal health certificates for live animals (including semen and embryos), pets, animal products, and biologics (vaccines, bacterins, antisera, diagnostic kits, and other products of biological origin). The process of obtaining an export animal health certificate requires cooperation between the exporter and VS 1. The exporter submits an application requesting export animal health certification from VS. 2. A USDA-accredited veterinarian or technical staff inspects and approves the facility where the live animals were raised. 3. USDA-accredited veterinarians and special laboratories perform all of the tests and/or animal examinations to verify that the exporter meets importer requirements before issuing a signed export health certificate. 4. The completed export animal health certificate is then sent to the exporter and the fee is collected. USDA's Office of Budget and Program Analysis provides an estimated number of APHIS-issued export certificates each year in the USDA Congressional Budget Justifications. Figure 6 shows an upward trend in the number of APHIS-issued export certificates between FY2011 and FY2017, with an increase of 27%. APHIS personnel may oversee the provision of an increased number of export health certificates. The President's FY2019 budget proposes to reduce the overall APHIS budget by 25%, which could impact the resources available to process the current volume of APHIS export health certificates. Export health certificates facilitate trade by verifying that U.S. agricultural exports meet importers' health and safety standards. APHIS, in collaboration with the U.S. Trade Representative (USTR), is primarily responsible for resolving disputes that arise between U.S. exporters and importing countries over health-certificate-related issues. In FY2017, APHIS negotiated or renegotiated 110 export protocols for animal products involving 24 new markets, three expanded markets, and 83 retained markets. APHIS also negotiated 126 export protocols for live animals. In particular, export health certificate discussions among scientific authorities contributed to opening markets for beef to China, poultry to Korea, and potatoes to Japan in FY2017. Export health certificates and the process underlying them may help facilitate trade in certain animal health situations. For example, following an outbreak of particular cases of Highly Pathogenic Avian Influenza (HPAI), or "bird flu," member countries of the World Organization for Animal Health (OIE) are obligated to report particular such incidents to OIE. The HPAI-affected country is expected to alert the international community and follow the OIE's disease control guidelines. In addition, they would likely have an altered relationship with their trading partners concerning poultry and poultry product exports (including certain eggs) following notification of the outbreak. Typically, importers would either ban poultry imports from the affected country or ban poultry from certain regions from the country—a negotiated "regionalization agreement." In this situation, regionalization protocols in the agreement may facilitate exports by limiting the ban to a particular region. Export health certificates may facilitate market-opening opportunities for U.S. exports, as in the case of U.S. pork exports to Argentina. Until 2017, the United States had for over 25 years neither access to export pork to Argentina nor a pork health certificate for Argentina because of animal health concerns Argentina cited in U.S. pork production. After Argentine food safety officials conducted an on-site verification of the U.S. meat inspection system in late 2017, the United States finalized a pork SPS agreement and export health certificate with Argentina. According to USDA, Argentina is a potential $10 million per year market for U.S. pork producers. Congress has direct interest in export health certificates—both through annual appropriations for APHIS activities and through congressional oversight. Examples of potential oversight issues include preparation for animal disease outbreaks, export-market openings, and potential U.S. agricultural trade barriers. In terms of annual appropriations, APHIS's mission is carried out in their budget: (1) Safeguarding and Emergency Preparedness/Response, (2) Agency Wide Programs, (3) Safe Trade and International Technical Assistance, and (4) Animal Welfare ( Figure 7 ). The Safeguarding and Emergency Preparedness/Response portion of the APHIS budget is responsible for monitoring animal and plant health in the United States and throughout the world, representing roughly 85% of APHIS's budget. Most of the export health certificate activities are housed in this mission area. In February 2018, the Office of Management and Budget released the President's FY2019 proposed budget. The FY2019 APHIS proposed budget totaled $742 million, down 25% from FY2018 funding. This proposed reduction would affect all major area activities, particularly Safeguarding and Emergency Preparedness/Response. The President's FY2019 APHIS budget proposal for this line item is $623.6 million, a decrease of nearly $200 million from FY2018. This proposed budget reduction for FY2019 could affect APHIS's ability to issue health certificates for both exports and imports of agricultural products. Limiting APHIS's ability to issue export health certificates could negatively impact U.S. agricultural exports. Likewise, APHIS funding for this budget line item also supports APHIS's ability to enforce animal and/or plant health requirements that protect the United States against the unintended introduction of animal and/or plant pests and diseases. As such, a reduction in funding to support these APHIS activities could slow the agency's ability to respond to a disease or pest outbreak in the future while also negatively impacting trade. These APHIS activities also administer certain U.S. commitments to the WTO. In contrast to the President's budget proposal for FY2019, both the House and the Senate proposed roughly $1 billion for the FY2019 APHIS budget, or roughly $260 million over the Administration's request and an increase from FY2018 ( Table 2 ). On May 16, 2018, the House Appropriations Committee reported H.R. 5961 with an increase of $16 million (+1.7%) year-over-year. On May 24, 2018, the Senate Appropriations Committee reported S. 2976 with an increase of $19 million (+1.9%) year-over-year. Finally, as the United States has entered into, or is currently negotiating or renegotiating, certain regional and bilateral free trade agreements that address agricultural trade, APHIS's health certificates would be expected to be a component of any SPS chapter included as part of a free trade agreement or trade negotiation that includes agriculture. These SPS chapters adhere to WTO guidelines and generally include additional specific importer requirements. Each importing country is allowed to have different import requirements—and some are stricter than others—which sometimes result in "non-tariff measures," as explained in the text box below. SPS requirements by individual countries can become the source of a trade dispute and may be used by some countries as a way to protect local markets, thereby discouraging U.S. exports. In these instances APHIS typically seeks to address U.S. exporters' concerns with the importing country's scientific authorities. | An agricultural export health certificate verifies that agricultural products are prepared or raised in accordance with requirements of the importing country. In the United States, export health certificates are issued primarily by the U.S. Department of Agriculture's (USDA) Animal and Plant Health Inspection Service (APHIS) for live animals, raw fruits and vegetables, and some grain products. APHIS ensures that U.S. exporters have met animal and plant health requirements for export. Other federal agencies, not discussed here, have authority over agricultural products outside of APHIS's jurisdiction, such as oversight of processed foods and processed meats. APHIS serves as the principal U.S. scientific authority on verification of the animal and plant export health certificates when communicating with foreign governments. Animal and plant export health certificates assure foreign countries that their health requirements (e.g., disease-free livestock and plants) have been met and aim to keep diseases from crossing international borders. In FY2017, APHIS issued almost 675,000 export health certificates that helped facilitate more than $50 billion in plant and animal product exports. A major driver of the volume of agricultural exports was meeting key "sanitary and phytosanitary" (SPS) measures established by international organizations such as the World Trade Organization. SPS measures are the rules that governments employ to protect against diseases, pests, toxins, and other contaminants. These SPS measures are verified in animal and plant health certificates, which in turn help to facilitate agricultural trade. Failure to meet export health certificate requirements can result in shipments being rejected or delayed, resulting in additional expense to the exporter. Therefore, export health certification allows both parties to agree to mutual trade terms and in so doing facilitates agricultural trade. Congress has direct interest in export health certificates through annual appropriations for APHIS activities. The President's proposed FY2019 budget for APHIS is $742 million (including building and facility costs), down 25% from FY2018 appropriations (P.L. 115-141). This proposed reduction decreases APHIS funding for "Safeguarding and Emergency Preparedness/Response," which provides technical support for both exported and imported agricultural products. In addition to facilitating U.S. agricultural exports, this item also supports APHIS enforcement of animal and/or plant health requirements that protect the United States against the unintended introduction of animal and/or plant pests and diseases. Limiting APHIS's ability to issue export health certificates could negatively impact U.S. agricultural exports. In May 2018, both the House and the Senate proposed roughly $1 billion for the APHIS FY2019 appropriations, an increase from FY2018, or roughly $260 million over the Administration's request. Potential issues for congressional oversight include preparation for animal disease outbreaks, opening export markets, and potential U.S. agricultural trade barriers. The Trump Administration has entered into, or is currently negotiating, regional and bilateral free trade agreements (FTAs) that address SPS measures and export health certificates. Each importing country can have different import requirements—which sometimes result in "non-tariff measures" (NTMs). SPS requirements by individual countries can become the source of a trade dispute and may be used by some countries as a way to protect local markets, thereby discouraging U.S. exports. An agricultural export health certificate verifies that agricultural products are prepared or raised in accordance with requirements of the importing country. In the United States, export health certificates are issued primarily by the U.S. Department of Agriculture's (USDA) Animal and Plant Health Inspection Service (APHIS) for live animals, raw fruits and vegetables, and some grain products. APHIS ensures that U.S. exporters have met animal and plant health requirements for export. Other federal agencies, not discussed here, have authority over agricultural products outside of APHIS's jurisdiction, such as oversight of processed foods and processed meats. APHIS serves as the principal U.S. scientific authority on verification of the animal and plant export health certificates when communicating with foreign governments. Animal and plant export health certificates assure foreign countries that their health requirements (e.g., disease-free livestock and plants) have been met and aim to keep diseases from crossing international borders. In FY2017, APHIS issued almost 675,000 export health certificates that helped facilitate more than $50 billion in plant and animal product exports. A major driver of the volume of agricultural exports was meeting key "sanitary and phytosanitary" (SPS) measures established by international organizations such as the World Trade Organization. SPS measures are the rules that governments employ to protect against diseases, pests, toxins, and other contaminants. These SPS measures are verified in animal and plant health certificates, which in turn help to facilitate agricultural trade. Failure to meet export health certificate requirements can result in shipments being rejected or delayed, resulting in additional expense to the exporter. Therefore, export health certification allows both parties to agree to mutual trade terms and in so doing facilitates agricultural trade. Congress has direct interest in export health certificates through annual appropriations for APHIS activities. The President's proposed FY2019 budget for APHIS is $742 million (including building and facility costs), down 25% from FY2018 appropriations (P.L. 115-141). This proposed reduction decreases APHIS funding for "Safeguarding and Emergency Preparedness/Response," which provides technical support for both exported and imported agricultural products. In addition to facilitating U.S. agricultural exports, this item also supports APHIS enforcement of animal and/or plant health requirements that protect the United States against the unintended introduction of animal and/or plant pests and diseases. Limiting APHIS's ability to issue export health certificates could negatively impact U.S. agricultural exports. In May 2018, both the House and the Senate proposed roughly $1 billion for the APHIS FY2019 appropriations, an increase from FY2018, or roughly $260 million over the Administration's request. Potential issues for congressional oversight include preparation for animal disease outbreaks, opening export markets, and potential U.S. agricultural trade barriers. The Trump Administration has entered into, or is currently negotiating, regional and bilateral free trade agreements (FTAs) that address SPS measures and export health certificates. Each importing country can have different import requirements—which sometimes result in "non-tariff measures" (NTMs). SPS requirements by individual countries can become the source of a trade dispute and may be used by some countries as a way to protect local markets, thereby discouraging U.S. exports. |
Since the creation of the modern U.S. intelligence community after World War II, neither Congress nor the executive branch has made public the total extent of intelligence spending except for two fiscal years in the 1990s. Rather, intelligence programs and personnel have largely been contained, but not identified, within the capacious expanse of the budget of the Department of Defense (DOD). This practice has long been criticized by proponents of open government. The intelligence reform effort of the mid-1970s that led to greater involvement of Congress in the oversight of the Intelligence Community also generated a number of proposals to make public the amounts spent on intelligence activities. Many observers subsequently argued that the end of the Cold War further reduced the need to keep secret the aggregate amount of intelligence spending. According to this view, with the dissolution of the Soviet Union, there are few foreign countries that can take advantage of information about trends in U.S. intelligence spending to develop effective countermeasures. Terrorist organizations, it is argued, lack the capability of exploiting total intelligence spending data. In recent years, proposals for making public overall totals of intelligence spending have come under renewed consideration. In 1991 and 1992 legislation was enacted that stated the "sense of the Congress" that "the aggregate amount requested and authorized for, and spent on, intelligence and intelligence-related activities should be disclosed to the public in an appropriate manner." Nevertheless, both the House and the Senate voted in subsequent years not to require a release of intelligence spending data. During the Clinton Administration, Director of Central Intelligence (DCI) George Tenet twice took the initiative to release total figures for appropriations for intelligence and intelligence-related activities. Despite the release of data for fiscal years 1997 and 1998, however, no subsequent appropriations levels have been made public. The issue has not, however, died. The 9/11 Commission, in its final report, recommended that "the overall amounts [or the "top line"] of money being appropriated for national intelligence and to its component agencies should no longer be kept secret. Congress should pass a separate appropriations act for intelligence, defending the broad allocation of how these tens of billions of dollars have been assigned among the varieties of intelligence work." A number of proposals for Intelligence reform legislation in 2004 included provisions for making the budget public, but the legislation ultimately enacted as the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) [hereafter referred to as the Intelligence Reform Act] did not include provisions for making budget numbers public. More recently, the FY2007 Intelligence Authorization legislation ( S. 372 ) reported in the Senate in January 2007 would require publication of budget totals for national, but not tactical, intelligence programs. This report describes the constituent parts of the intelligence budget, past practice in handling intelligence authorizations and appropriations, the arguments that have been advanced for and against making intelligence spending totals public, a legal analysis of these issues, and a review of the implications of post-Cold War developments on the question. It also describes past congressional interest in keeping intelligence spending totals secret. The meaning of the term "intelligence budget" is not easily described. Although some may assume it is equivalent to the budget of the Central Intelligence Agency, in actuality it encompasses a wide variety of agencies and functions in various parts of the Federal Government that are involved in intelligence collection, analysis, and dissemination. At the same time, some important information collection efforts (such as reporting by U.S. embassies to the State Department) are not considered as intelligence activities and their funding is not included in the intelligence budget. A further complication, to be addressed below, is the separate category of intelligence-related activities undertaken in DOD that are included in overall intelligence spending categories. For some purposes, it is sufficient to describe intelligence and intelligence-related activities as those authorized by annual intelligence authorization acts. In the context of annual budget reviews, both the executive branch and Congress have sought a comprehensive overview of all intelligence collection systems and activities. Thus, there emerged the concept of an intelligence community , not a monolithic organization but a grouping of governmental entities ranging in size from the CIA and NSA down to the small intelligence offices of the Treasury and Energy Departments. Except for the CIA, this community consists of components that are integral parts of agencies that are not themselves part of the Intelligence Community and their budgets are subject to separate authorization processes. Thus, for instance, the State Department's Bureau of Intelligence and Research is both part of the Intelligence Community and an organizational component of the Department of State. Its budget is considered as part of the overall intelligence budget and as a component of the State Department budget. Similar situations apply, on a much larger and expensive scale, in the Defense Department. Since these intelligence components are closely tied to their parent departments and share facilities and administrative structure with them, it is not always possible to desegregate intelligence and non-intelligence costs with precision. For the purposes of this discussion, the U.S. "intelligence budget" is considered to consist of those activities authorized by the annual intelligence authorization acts, viz. the intelligence and intelligence-related activities of the following elements of the United States government: (1) the Central Intelligence Agency (CIA); (2) the National Security Agency (NSA); (3) the Defense Intelligence Agency (DIA); (4) the National Geospatial-Intelligence Agency (NGA) (formerly the National Imagery and Mapping Agency (NIMA)); (5) the National Reconnaissance Office (NRO); (6) the intelligence elements of the Army, Navy, Air Force, and the Marine Corps (7) the State Department's Bureau of Intelligence and Research (INR); (8) the Federal Bureau of Investigation (FBI); (9) the Department of Homeland Security (DHS); (10) the Coast Guard; (11) the Department of the Treasury; (12) the Department of Energy; (13) the Drug Enforcement Administration (DEA). The parameters of the intelligence budget are, to some extent, arbitrary. Lines between intelligence and other types of information-gathering efforts can be fine. As noted earlier, reporting by the State Department's Foreign Service Officers is an invaluable adjunct to intelligence collection, but is not considered an intelligence activity. Similarly, some reconnaissance and surveillance activities, mostly conducted in DOD, are very closely akin to intelligence, but for administrative or historical reasons have never been considered as being intelligence or intelligence-related activities per se . The intelligence budget as authorized by Congress is now divided into two parts, the National Intelligence Program (NIP) and the Military Intelligence Program (MIP). NIP programs (formerly categorized as the National Foreign Intelligence Program (NFIP)) are those undertaken in support of national-level decision making and are conducted by the CIA, DIA, NSA, the NRO, NGA, and other Washington-area agencies. MIP programs are those undertaken by DOD agencies in support of defense policymaking and of military commanders throughout the world. Until September, 2005, there were two sets of programs within DOD—the Joint Military Intelligence Program (JMIP) and Tactical Intelligence and Related Activities (TIARA). JMIP programs, established as a separate category in 1994, supported DOD-wide activities. TIARA programs were defined as "a diverse array of reconnaissance and target acquisition programs which are a functional part of the basic military force structure and provide direct support to military operations." In recent years the overlap among intelligence and intelligence-related activities has grown—satellite photography, for instance, can now be made immediately available to tactical commanders and intelligence acquired at the tactical level is frequently transmitted to national-level agencies. As a result, JMIP and TIARA were combined by the Defense Department into the MIP in September 2005. Within the MIP are programs that formerly constituted the JMIP that support DOD-wide intelligence efforts as well as programs directly supporting military operations that were formerly categorized as TIARA. The relationship of intelligence-related programs to regular intelligence programs is a complex one that is not likely to be understood by many public observers. In 1994, then-DCI R. James Woolsey described them as a "loose amalgamation of activities that may vary from year to year, depending on how the various military services decide what constitutes tactical intelligence." Intelligence-related programs, which may constitute somewhere around a third of total intelligence spending, are integral parts of defense programs; in many cases they are also supported by non-intelligence personnel and facilities. (The administrative expenses, for instance, of a military base that has intelligence-related missions as well as non-intelligence functions would probably not be included in intelligence accounts.) The role of intelligence-related programs is sometimes misinterpreted in public discussions of the multi-billion dollar intelligence effort. With the passage of the Intelligence Reform Act in 2004, the Director of National Intelligence (DNI) has extensive statutory authorities for developing and determining the NIP and for presenting it to the President for approval. The President in turn forwards the NIP to Congress as part of the annual budget submission in January or February of each year. The Office of the DNI (ODNI) serves as the DNI's staff for annual budget preparation and submission. The DNI participates in the development of the MIP by the Secretary of Defense. The Under Secretary of Defense for Intelligence (USD(I)) has the responsibility to "oversee all Defense intelligence budgetary matters to ensure compliance with the budget policies issues by the DNI for the NIP." The USD(I) also serves as Program Executive for the MIP and supervises coordination during the programming, budgeting, and execution cycles. Thus, in the development of both the NIP and the MIP essential roles are played by the Office of the DNI and the office of the USD(I). The two offices have overlapping responsibilities and close coordination is required. Budgeting for secret intelligence efforts has long presented difficult challenges to the Congress. Realizing the need for some direction over the intelligence effort that had been disbanded in the immediate aftermath of World War II, President Truman established, in a directive of January 22, 1946, a coordinative element for intelligence activities, the Central Intelligence Group (CIG), headed by a Director of Central Intelligence, and consisting of representatives from the State, War, and Navy Departments. This was not the creation of a new agency, but a coordinative group; personnel and facilities were to be provided "within the limits of available appropriations." This arrangement was questioned, however, because of concern that specific authorization by Congress would be legally required to make funds available to any agency in existence more than a year. Thus, it might have been illegal for the CIG to expend funds after January 22, 1947. Shortly after taking office in June, 1946, the second DCI, General Hoyt S. Vandenberg, arranged for the creation of a "working fund" consisting of allotments from the Departments of State, War, and the Navy, under the supervision of the Comptroller General, to cover the costs of the relatively small CIG. It cannot be readily determined if funds were transferred from all three departments; the larger budgets of the War and Navy Departments may have made them more likely contributors than the State Department. Vandenberg, realizing the administrative weakness of this situation, began an effort to obtain congressional approval of an independent intelligence agency with its own budget. The National Security Act of 1947, which created the unified National Defense Establishment, included provisions for a Central Intelligence Agency, headed by a Director of Central Intelligence. It also authorized the transfer of "personnel, property, and records" of the CIG to the new CIA; it did not, however, provide additional statutory language regarding the administration of the CIA. With the creation of the CIA by the National Security Act of 1947, arrangements were made for the continuation of previous funding mechanisms; "[t]he Agency was to conform as nearly as possible to normal procedures until further legislation by Congress should make exceptions fitting the special needs of the Agency." It was recognized that follow-on enabling legislation would be required. After some delays, Congress passed the Central Intelligence Act of 1949 (P.L. 81-110) to provide a firmer statutory base for the CIA and to establish procedures for regular appropriations. This legislation, reported by the two armed services committees, provided authority for the CIA "to transfer to and receive from other Government agencies such sums as may be approved by the Bureau of the Budget [predecessor of today's Office of Management and Budget]...." The 1949 Act also provided that "sums transferred to the [CIA]... may be expended for the purposes and under the authority of this Act without regard to limitations of appropriations from which transferred...." Representative Carl Vinson, speaking on the floor of the House shortly after passage of the 1949 Act, stated that the legislation contained: the authority to transfer and receive from other Government agencies such sums as may be approved by the Bureau of the Budget for the performance of any of the agency functions. This is how the Central Intelligence Agency gets its money. It has been going on since the agency was created, and this simply legalizes that important function which is the only means by which the amount of money required to operate an efficient intelligence service can be concealed. In practice, the CIA Act of 1949 provides funding for CIA through the defense authorization and appropriation process. Funding for other intelligence activities undertaken by DOD agencies was logically included in defense bills. For many years, authorizations and appropriations for CIA were handled by a relatively small number of Members and staff of the two appropriations committees with consultation with members of the two armed services committees. According to available sources, senior Members of the Appropriations Committees insisted on maintaining the secrecy of the contents of the CIA's budget requests and congressional actions in response. In 1956, subcommittees were created in the Armed Services and Appropriations Committees of each House to oversee the CIA. Many assessments of the practice of congressional oversight of intelligence activities during the Truman, Eisenhower, Kennedy, and Johnson Administrations have concluded that the congressional role was in large measure supportive and perfunctory. This view has, however, come under serious challenge and there is considerable evidence that Congress took close interest in intelligence spending, especially in regard to major surveillance systems and the construction of headquarters buildings. The small handful of Members responsible for intelligence oversight had a close working relationship with the CIA. For a number of years, beginning in the Eisenhower Administration, Senator Richard Russell served both as chairman of the Armed Services Committee and of the Subcommittee on Defense Appropriations and had an especially important influence on intelligence spending. During these Cold War years, intelligence budgets grew considerably in significant part because of efforts to determine the extent of Soviet nuclear capabilities through overhead surveillance by manned aircraft such as the U-2s and reconnaissance satellites, and through a worldwide signals intelligence effort. NSA and DIA emerged as major intelligence agencies with large budgets; other agencies were created to launch satellites and interpret overhead photography. These capabilities, which contributed directly to the design of strategic weapons systems and to the negotiation of strategic arms control agreements with the Soviet Union, cost many billions of dollars. These programs were initiated, funded by Congress, and administered in secrecy and involved a number of intelligence agencies and components of DOD. President Lyndon Johnson said on March 16, 1967: I wouldn't want to be quoted on this but we've spent 35 or 40 billion dollars on the space program. And if nothing else had come out of it except the knowledge we've gained from space photography, it would be worth 10 times what the whole program has cost. Because tonight we know how many missiles the enemy has and, it turned out, our guesses were way off. We were doing things we didn't need to do. We were building things we didn't need to build. We were harboring fears we didn't need to harbor. Because of satellites, I know how many missiles the enemy has. During the Ford Administration, E.O. 11905 of February 18, 1975, consolidated the budget for all intelligence agencies and provided for a comprehensive review of the National Foreign Intelligence Program by the DCI and senior DOD and NSC officials. Subsequent executive orders (most recently E.O. 12333 of December 4, 1981) and the Intelligence Authorization Act for FY1993 ( P.L. 102-496 ) clarified and strengthened the DCI's role. The Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) gave the newly established position of Director of National Intelligence (DNI) authority to coordinate intelligence activities across the government and to manage the NIP. The DNI has specific responsibilities for developing and determining the annual consolidated NIP budget. The DNI also participates in the development of the MIP which is the responsibility of the Secretary of Defense. A key factor encouraging consolidated review of the intelligence budget has been increasingly detailed oversight by Congress. Efforts in the 1950s and 1960s to establish intelligence committees or to involve a larger number of Members in intelligence oversight were rebuffed, with oversight remaining in the hands of a small number of senior members. This situation was altered in the aftermath of the Vietnam War. In reaction to a series of revelations about allegedly illegal and improper activities by intelligence agencies in 1975, Congress created two (temporary) select committees to investigate the CIA and other intelligence agencies. The Church and Pike Committees investigated a wide range of intelligence issues and conducted well-publicized hearings. Although budgetary issues were not at the heart of the investigations, there emerged a consensus that congressional oversight of intelligence agencies needed to be strengthened and formalized and permanent intelligence committees established. There was also widespread sentiment expressed that more information regarding intelligence agencies and activities should be made public. Following the work of the Church and Pike Committees, Congress moved to revamp oversight of intelligence agencies. The Senate Select Committee on Intelligence (SSCI) was established in 1976, the House Permanent Select Committee on Intelligence (HPSCI) in 1977. Each of these committees was granted oversight of the CIA as well as other intelligence agencies and charged to prevent the types of abuses that the Church and Pike Committees had criticized. In conjunction with their oversight duties, HPSCI and SSCI were responsible for authorizing funds for intelligence activities undertaken by the CIA and other agencies throughout the government. There is, however, a crucial difference between the charters of the two committees. Although HPSCI has oversight of NIP and shares (with the Armed Services Committee) oversight of the MIP, the SSCI has oversight only over the NIP. In the Senate, oversight of the MIP is conducted by the Armed Services Committee (with informal consultation with the intelligence committee). Both SSCI and the Senate Armed Services Committee are represented in conferences on intelligence authorization bills; the final bill, as reported by the conference committee, authorizes both intelligence activities and intelligence-related activities. The two intelligence committees are not the sole organs of congressional oversight. The armed services committees often issue sequential reports on intelligence authorization bills. Annual defense authorization acts include the large national intelligence agencies in DOD as well as the intelligence efforts of the four services. Intelligence activities of agencies outside of CIA and DOD are authorized in other legislation although some departments have standing authorizations rather than annual authorization acts. As is the case with other congressional committees, intelligence oversight has entailed reviewing annual budget proposals for the Intelligence Community submitted by the administration, conducting hearings, preparing an annual authorization bill, and managing it for the respective chamber. The two committees publish reports to accompany the annual intelligence authorization bills, with dollar amounts for various intelligence agencies and activities included in classified annexes. The classified annexes are available to all Members, but only within Intelligence Committee offices and sanctions exist for any unauthorized release of classified data. The intelligence committees, however, do not have exclusive jurisdiction over expenditures for intelligence programs. National defense authorization acts also contain authorizing legislation for intelligence activities funded within their purview. There are various parts of defense authorization bills that are classified; some cover what are known as special access or "black" programs. These include not only some intelligence programs but also procurement of new weapons systems such as stealth aircraft. Members can obtain information about classified parts of defense authorization bills from the Armed Services Committees. Other authorization bills cover some intelligence activities providing a form of shared oversight. Budgets for INR, DEA and the FBI are funded through the appropriation bills that cover the Departments of Commerce, Justice, and State and similar procedures are used for Treasury and Energy Department intelligence entities in the Treasury, Postal Service, and General Government and Energy and Water Development appropriations bills. All of these combined, however, represent a small percentage of total intelligence spending–for instance, the FY2007 budget request for INR totaled only $51 million and other agencies are considerably smaller. There has been some controversy regarding the nature of authorizing legislation required. Section 504(a) of the National Security Act provides that appropriated funds may be obligated or expended for an intelligence or intelligence-related activity only if ... those funds were specifically authorized by the Congress for use for such activities... ." The nature of specific authorization had not, however, been defined. On November 30, 1990, President George H.W. Bush refused to sign ("pocket vetoed") the FY1991 Intelligence Authorization bill when it was presented to him (after the 101 st Congress had adjourned) and for over eight months intelligence activities were continued without an intelligence authorization act. Although some believed that authorizations contained within the National Defense Authorization Act for FY1991 ( P.L. 101-510 ) were sufficiently specific to meet the requirements of the statute, the House Intelligence Committee subsequently stated that, "It is the view of the congressional intelligence committees that only an intelligence authorization bill provides the degree of specificity necessary to comply with the meaning and intent of Section 504(a)." In 1993, language was included in the House report accompanying the FY1994 Defense Authorization Act that the Armed Services Committee "does not intend that the inclusion of ... authorization [of NFIP programs] be considered a specific authorization, as required by section [504] of the National Security Act of 1947... ." (This statement indicated that, whereas NFIP programs were not specifically authorized in defense authorization bills, TIARA programs were.) In addition, section 309 of the FY1994 Intelligence Authorization Act for FY1994 ( P.L. 103-178 ) amended the National Security Act of 1947 to make it explicit in law that the general authorization included in the 1947 legislation does not satisfy the requirement for specific authorization of intelligence and intelligence-related activities. In some years when appropriations have been passed prior to final action on authorization bills, the appropriations acts have included a provision similar to section 8092 of the FY2006 Defense Appropriations Act ( P.L. 109-148 ): Funds appropriated by this Act, or made available by the transfer of funds in this Act, for intelligence activities are deemed to be specifically authorized by the Congress for purposes of section 504 of the National Security Act of 1947 (50 U.S.C. 414) during fiscal year 2006 until the enactment of the Intelligence Authorization Act for fiscal year 2006. No FY2006 intelligence authorization bill was passed and, as a result, this brief clause in the appropriations bill served as the requisite authorization during FY2006. The FY2007 defense appropriations bill was passed prior to floor consideration of a FY2007 intelligence authorization bill and a similar clause was included in the defense appropriations bill ( P.L. 109-289 , section 8083). (No intelligence authorization legislation was passed in the 109 th Congress, but an intelligence authorization bill for FY2007 ( S. 372 ) was reported in the Senate in January 2007.) Although these provisions meet the statutory requirement for a "specific authorization," significantly less congressional guidance is provided for intelligence programs. As is the case with all government activities, the appropriations committees have a central role in intelligence programs. Even during the Cold War period when congressional oversight of intelligence activities received little public attention, annual appropriations were required and extensive hearing were held. In recent years, appropriations committees have had an increasingly significant influence on the conduct of intelligence activities. In 1998 a supplemental appropriation act ( P.L. 105-277 ) added substantial funds for intelligence efforts not included in the annual authorization bill, and in the post-9/11 period the practice of relying on supplemental appropriations for funding the regular operations of intelligence agencies has limited the extent of congressional guidance in regard to the intelligence budget. The reliance on supplemental appropriations has been widely criticized; the House Intelligence Committee in 2003 noted that while supplemental appropriations had reflected crisis in the aftermath of terrorist attacks, "The repeated reliance on supplemental appropriations has an erosive negative effect on planning, and impedes long-term, strategic planning. The Committee hopes that the IC has finally reached a plateau of resources and capabilities on which long-term strategic planning can now begin." In addition to use of supplemental appropriations to fund intelligence activities, as noted above the required "specific authorization" of intelligence programs required by the section 504 of the National Security Act has in FY2006 been supplied by one paragraph (section 8092) of the FY2006 defense appropriations act ( P.L. 109-148 ). The reliance on appropriations measures to authorize intelligence programs may change the contours of intelligence oversight in Congress by emphasizing the role of the two appropriations committees. The defense subcommittees of the two appropriations committees review intelligence budget requests and approve funding levels for intelligence agencies that are part of DOD or whose budgets are contained (but not publicly identified) in defense appropriations acts, that is, CIA as well as NSA, DIA, the NRO, and NGA. There is a difference between appropriations for the CIA and the ODNI which, although included in defense appropriations acts, are transferred by the Office of Management and Budget (OMB) directly to the DNI and the CIA Director without the involvement of DOD. The Secretary of Defense is, however, heavily involved in the budgets and activities of intelligence agencies in DOD. The CIA and the defense agencies account for the vast bulk of all intelligence spending. Much smaller amounts are funded in appropriations measures for other departments that contain elements of the Intelligence Community. The role of the appropriations committees can be significant. For instance, in 1992, the Defense Appropriation Act for FY1993 ( P.L. 102-396 ) reportedly reduced intelligence spending to a level significantly lower than authorized by the Intelligence Authorization Act ( P.L. 102-496 ). In 1990-1991, the Senate Appropriations Committee and the SSCI worked closely together to sponsor a facilities consolidation plan for some CIA activities without the active involvement of the HPSCI. Substantial changes have been made to intelligence programs by appropriations measures and in FY2006 no intelligence authorization act exists and thus agencies rely solely on appropriations legislation. Since the creation of the modern Intelligence Community in the aftermath of World War II, intelligence budgets have not been made public. At the conclusion of hostilities in August 1945, intelligence activities were transferred from the Office of Strategic Services (OSS) to the Army, Navy, and State Departments, which assumed responsibility for their funding. Meeting the expenses of the CIG, created in 1946, required the establishment of a "working fund," as noted above, which received allocations from the three departments. This pattern was continued when the CIA was established the following year (although there may have been relatively few, if any, transfers from the State Department). The transfer of appropriated funds was done secretly, reportedly at the insistence of Members of Congress. There are several parts of the intelligence budget that are made public. The costs of the Intelligence Community Management Account (CMA) are specified in annual intelligence authorization acts as are the costs of the CIA Retirement and Disability System (CIARDS). The CMA includes staff support to the DNI role and the CIARDS covers retirement costs of CIA personnel not eligible for participation in the government-wide retirement system. For FY2005, $310.4 million was authorized for 310 full-time CMA personnel and $239.4 million was authorized for CIARDS. In addition, the budget for the State Department's Bureau of Intelligence and Research is made public and some, but not all, tactical intelligence programs are identified in unclassified DOD budget submissions. Careful scrutiny of officially-published data on intelligence expenditures would not, however, provide a valid sense of the size and content of the intelligence budget. The Church and Pike committees both called for public disclosure of the total amounts of each annual intelligence budget. The then DCI, George H.W. Bush, and President Ford both appealed to the Senate not to proceed with disclosure and the question was referred to the newly created SSCI. After conducting hearings, SSCI recommended (by a one vote margin) in May 1977 ( S.Res. 207 , 95 th Congress) that aggregate amounts appropriated for national foreign intelligence activities for FY1978 be disclosed. The full Senate did not, however, act on this recommendation. HPSCI, established by House Rule XLVIII after the termination of the Pike Committee, made an extensive study of the disclosure question. After conducting hearings in 1978 (and despite the willingness of then DCI Stansfield Turner to accept disclosure of "a single inclusive budget figure") the House Committee concluded unanimously that it could find "no persuasive reason why disclosure of any or all amounts of the funds authorized for the intelligence and intelligence-related activities of the government would be in the public interest." With the failure of either chamber to take action, the disclosure question receded into the background as efforts (ultimately unsuccessful) were underway during the Carter Administration to draft a legislative charter for the entire Intelligence Community. The Reagan Administration showed markedly less interest in such questions as it launched a major expansion of intelligence activities. The issue would return during the Clinton Administration after the end of the Cold War and again in the recommendations of the 9/11 Commission as noted below. It should be understood that with the establishment of the two intelligence committees in the 1970s, Members have been able to review budget figures contained in the classified annexes accompanying reports intelligence authorization bills, although rules of both chambers prevent the divulging of classified information. Since the 1970s, arguments for and against the public disclosure of intelligence spending levels have turned on essentially the same issues, viz. the constitutional issue regarding the requirement for full reports of government expenditures (discussed below) and the broader question of the value of open political discourse, the dangers of revealing useful information to actual or potential enemies, and the difficulty of providing and debating aggregate numbers without being drawn into providing details. Advocates of disclosure argue that greater public discussion of intelligence spending made possible by the disclosure of spending levels would ultimately lead to a stronger intelligence effort. They maintain that no organization, even one with superior management and personnel, is immune to waste and inefficiency and that wider appreciation of the costs and benefits of intelligence could contribute in the long run toward improvements in the organization and functioning of intelligence. Senator William Proxmire put the case as follows: ... people not only have a right to know, but you are going to have a much more efficient government when they do know. We only make improvements when we get criticized, and you can only criticize when you know what you are talking about, when you have some information. If you know that there is a certain amount being spent on intelligence, then you are in a much stronger position to criticize what you are getting for that expenditure. Also, in terms of efficiency, publication of an aggregate figure for intelligence spending would result in a cleaner, more accurate defense budget. As presently handled, the defense budget includes significant unspecified national intelligence expenditures (e.g., the greater part of the CIA budget) that in many cases are not actually part of defense spending per se . Such expenditures make the defense budget and various components of it seem larger than is the case. Identification of those intelligence expenditures that are extraneous to defense could give the public a more accurate perception of defense costs. Those holding this position argue, in addition, that publication of limited intelligence spending totals would provide no useful information to a present or future adversary. Even during the height of the Cold War, Soviet authorities, they maintain, undoubtedly had a reasonably accurate knowledge of the extent of the U.S. intelligence budget and, in any event, were more concerned with the nature of our activities rather than the size of expenditures. Noting the demise of the Soviet Union, Representative Dan Glickman, then the Chairman of the House Intelligence Committee, stated in 1994 that "Unless a justification on national security grounds exists, keeping the budget totals secret serves only one purpose, and that is to prevent the American taxpayer from knowing how much money is spent on intelligence." Opposition to public release has been based on the conviction that intelligence by its very nature stands apart from other activities of the government and the publication of general budgetary information, potentially exploitable by an adversary attempting to discern U.S. intelligence capabilities and operations, could compromise the nation's intelligence capabilities. This concept perceives intelligence to be an exceptional activity that cannot be handled according to normal procedures of an open society. This is particularly true of those operations that involve the collection of intelligence information. Sophisticated reconnaissance devices, electronic technology, and human resources operating at significant risk are particularly vulnerable to human error or hostile penetration; consequently, they require extraordinary protective measures. In 1983, HPSCI described the unique vulnerabilities of intelligence systems as follows: Intelligence activities and capabilities are inherently fragile. Unlike weapons systems, which can be countered only by the development of even more sophisticated systems developed over a long period, intelligence systems are subject to immediate compromise. Often they can be countered or frustrated rapidly simply on the basis of knowledge of their existence. Thus budget disclosure might well mean more to this country's adversaries than to any of its citizens. Further, this information could then be used to frustrate United States intelligence missions. At the end of the Cold War along with the downsizing of the defense budget it was argued that intelligence spending should be significantly reduced. Some advocates of reduction anticipated that publication of spending totals would lead to a perception by the public that such levels of intelligence spending were unjustified and could be lowered. This potential for public opposition to existing levels of spending was also recognized by many who defended intelligence spending levels and probably reinforced their opposition to making the budget public. Although such perspectives may have been widely shared in the early 1990s, later in the decade the emergence of international terrorism and other transnational threats lead to concerns that intelligence spending should not be further reduced. The 9/11 attacks altered the climate regarding intelligence spending; even though there was widespread criticism of the performance of intelligence agencies, there was a pervasive determination to spend whatever was necessary on intelligence as part of the global war on terrorism. In recent years the argument for making intelligence spending levels public has not in general been a proxy argument for reducing intelligence spending inasmuch as few would argue that less intelligence is needed given the realistic potential for more Al Qaeda attacks. Other opponents of disclosure have argued that making public a few numbers indicating total spending levels (whether budget requests, authorizations, or appropriations) will be meaningless to the public debate. Explanations will be immediately required to show that these figures are divided among several functions, threats, and agencies, cover national and tactical programs, may or may not include administrative and logistical support, etc. Pressures will in a politically adversarial context mount to publish these sub-totals as well as an aggregated figure. It is further argued that these explanations would likely result in a degree of transparency for U.S. intelligence activities that would allow adversaries to take effective countermeasures. There is also a contrary argument that intelligence spending, even within the NIP, is in large measure related to defense programs and could be usefully expressed as a percentage of overall defense spending. Admiral Bobby Ray Inman, who served as Deputy Director of Central Intelligence in the early Reagan Administration, testified in 1991 that, "I am certainly prepared to make unclassified the total amount, and defend to the public why 10% of our total defense efforts spent for both national and tactical intelligence is not a bad goal at all. Just as I don't think that 11 or 12% of the budget for research and development is a bad goal at all for the country." Some opponents of greater disclosure point out that large fluctuations in intelligence spending might also reveal major new programs under development (the example of the U-2s and satellites is sometimes mentioned). Premature exposure of such new capabilities could severely limit their ability to acquire valuable information before adversaries become aware of U.S. capabilities. On the other hand, according to a 1991 Senate report, DCI Stansfield Turner "testified in 1977 that there had been no 'conspicuous bumps' in the intelligence budget for the preceding decade. The [Senate] Select Committee's experience is similarly that no secrets would have been lost by publishing the annual aggregate budget total since then." Unconvinced defense analysts insist that revealing the fact of significant changes in U.S. intelligence budgets from year to year will alert unfriendly governments or groups to new efforts against them (or to a slackened effort by the U.S. that can be exploited). Public discussion of the question of making intelligence budgets public has usually turned on the question of the constitutionality or the propriety of keeping intelligence spending figures classified. Beyond these issues, however, lies the less-discussed issue of the nature of intelligence and intelligence-related spending. The existence of the NIP and the MIP has been publicly acknowledged in many Executive and Legislative Branch publications. However, the respective roles of the separate programs are not well known outside of a relatively narrow circle of intelligence specialists. The role of tactical programs in particular is rarely considered in the context of discussions of making intelligence spending levels public. Observers express concern that characterizing some projects related to information support for targeting as a tactical intelligence program could be characterized in some cases as arbitrary inasmuch as similar projects may be included in other parts of the Defense budget. Reportedly, inclusion of some projects in the MIP program is not consistent from year to year and thus could lead to confusion in tracking intelligence spending. Some consideration has been given to making public only the budget for the NIP which contains funding for the CIA, the National Reconnaissance Office (NRO), the National Geospatial-Intelligence Agency (formerly the National Imagery and Mapping Agency (NIMA)), and the National Security Agency (NSA). When making total NIP spending public, some observers would consolidate responsibility for authorizing NIP in the two intelligence committees, leaving the armed services to deal with the MIP. It is likely that jurisdiction of the Armed Services committees will continue inasmuch as the NIP includes the budgets of major defense agencies that report to the Secretary of Defense and to which are assigned many thousands of military personnel. Some argue that the close ties between the NRO, NGA, and NSA and other Defense agencies also require that their budgets be prepared in the same Department. In 2002 the position of Under Secretary of Defense for Intelligence (USD(I)) was established by section 901 of the FY2003 National Defense Authorization Act ( P.L. 107-314 ). The incumbent of this position, currently Stephen Cambone, is charged with overseeing the budgets of DOD's intelligence agencies, including the portions that fall within the NIP and those are contained in the MIP. The USD(I) is the key point of contact between DOD and the Office of the DNI and the two offices collaborate in the preparation of annual budget submissions to Congress along with those of other intelligence agencies. An issue that arises in considering whether or not to disclose an aggregate intelligence budget figure is whether the Statement and Account Clause of the United States Constitution requires such disclosure. The pertinent constitutional language is contained in Article I, Section 9, Clause 7, which states: No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time. [Emphasis added.] A brief examination of the history of this language and of the scant case law interpreting the Statement and Account Clause may be of assistance in placing the disclosure issue in context. During the Constitutional Convention in Philadelphia, the first language on the subject of statements and accounts was offered on September 14, 1787, by George Mason. The debate on the matter, as reflected in Madison's "Notes of Debates," was as follows: Col. Mason moved a clause requiring "that an Account of the public expenditures should be annually published" Mr. Gerry 2ded. the motion Mr Govr. Morris urged that this wd. be impossible in many cases. Mr. King remarked, that the term expenditures went to every minute shilling. This would be impracticable. Congs. might indeed make a monthly publication, but it would be in such general Statements as would afford no satisfactory information. Mr. Madison proposed to strike out "annually" from the motion & insert "from time to time" which would enjoin the duty of frequent publications and leave enough to the discretion of the Legislature. Require too much and the difficulty will be get a habit of doing nothing. The articles of Confederation require half-yearly publications on this subject—A punctual compliance being often impossible, the practice has ceased altogether— Mr Wilson 2ded. & supported the motion—Many operations of finance cannot be properly published at certain times. Mr, Pinckney was in favor of the motion. Mr. Fitzimmons—It is absolutely impossible to publish expenditures in the full extent of the term. Mr. Sherman thought "from time to time" the best rule to be given. "Annual" was struck out—& those words—inserted nem: con: The motion of Col. Mason so amended was then agreed to nem: con: and added after—"appropriations by law as follows—"And a regular statement and account of the receipts & expenditures of all public money shall be published from time to time." During the Virginia ratifying convention, the Statement and Account Clause occasioned comment on at least two occasions. On June 12, 1788, James Madison observed: The congressional proceedings are to be occasionally published, including all receipts and expenditures of public money, of which no part can be used, but in consequence of appropriations made by law. This is a security which we do not enjoy under the existing system. That part which authorizes the government to withhold from the public knowledge what in their judgment may require secrecy, is imitated from the confederation—that very system which the gentleman advocates. On the 17 th of June, 1788, George Mason raised a question as to the "from time to time" language, and the following debate ensued: Mr. GEORGE MASON apprehended the loose expression of "publication from time to time" was applicable to any time. It was equally applicable to monthly and septennial periods. It might be extended ever so much. The reason urged in favor of this ambiguous expression was, that there might be some matters which require secrecy. In matters relative to military operations and foreign negotiations, secrecy was necessary sometimes; but he did not conceive that the receipts and expenditures of the public money ought ever to be concealed. The people, he affirmed, had a right to know the expenditures of their money; but that this expression was so loose, it might be concealed forever from them, and might afford opportunities of misapplying the public money, and sheltering those who did it. He concluded it to be as exceptionable as any clause, in so few words, could be. Mr. LEE (of Westmoreland) thought such trivial argument as that just used by the honorable gentleman would have no weight with the committee. He conceived the expression to be sufficiently explicit and satisfactory. It must be supposed to mean, in the common acceptation of language, short, convenient periods. It was as well as if it had said one year, or a shorter term. Those who would neglect this provision would disobey the most pointed directions. As the Assembly was to meet next week, he hoped gentlemen would confine themselves to the investigation of the principal parts of the Constitution. Mr. MASON begged to be permitted to use that mode of arguing to which he had been accustomed. However desirous he was of pleasing that worthy gentleman, his duty would not give way to that pleasure. Mr. GEORGE NICHOLAS said it was a better direction and security than was in the state government. No appropriation shall be made of the public money but by law. There could not be any misapplication of it. Therefore, he thought, instead of censure it merited applause; being a cautious provision, which few constitutions, or none, had ever adopted. Mr. CORBIN concurred in the sentiments of Mr. Nicholas on this subject. Mr. MADISON thought it much better than if it had mentioned any specified period; because, if the accounts of the public receipts and expenditures were to be published at short, stated periods, they would not be so full and connected as would be necessary for a thorough comprehension of them, and detection of any errors. But by giving them an opportunity of publishing them from time to time, as might be found easy and convenient, they would be more full and satisfactory to the public, and would be sufficiently frequent. He thought, after all, that this provision went farther than the constitution of any state in the Union, or perhaps in the world. Mr. MASON replied, that, in the Confederation, the public proceedings were to be published monthly, which was infinitely better than depending on men's virtue to publish them or not, as they might please. If there was no such provision in the Constitution of Virginia, gentlemen ought to consider the difference between such a full representation, dispersed and mingled with every part of the community, as the state representation was, and such an inadequate representation as this was. One might be safely trusted, but not the other. Mr. MADISON replied, that the inconveniences which had been experienced from the Confederation, in that respect, had their weight in him in recommending this in preference to it; for that it was impossible, in such short intervals, to adjust the public accounts in any satisfactory manner. Mr. HENRY. Mr Chairman, we have now come to the 9 th section, and I consider myself at liberty to take a short view of the whole. I wish to do it very briefly. Give me leave to remark that there is a bill of rights in that government. There are express restrictions, which re in the shape of a bill of rights; but they bear the name of the 9 th section. The design of the negative expressions in this section is to prescribe limits beyond which the powers of Congress shall not go. These are the sole bounds intended by the American government. Whereabouts do we stand with respect to a bill of rights? Examine it, and compare it to the idea manifested by the Virginian bill of rights, or that of the other states. The restraints in this congressional bill of rights are so feeble and few, that it would have been infinitely better to have said nothing about it. The fair implication is, that they can do every thing they are not forbidden to do. What will be the result if Congress, in the course of their legislation, should do a thing not restrained by this 9 th section? It will fall as an incidental power to Congress, not being prohibited expressly in the Constitution.... If the government of Virginia passes a law in contradiction to our bill of rights, it is nugatory. By that paper the national wealth is to be disposed of under the veil of secrecy; for the publication from time to time will amount to nothing, and they may conceal what they may think requires secrecy. How different it is in your own government! Have not the people seen the journals of our legislature every day during every session? Is not the lobby full of people every day? Yet gentlemen say that the publication from time to time is a security unknown in our state government! Such a regulation would be nugatory and vain, or at least needless, as the people see the journals of our legislature, and hear their debates, every day. If this be not more secure than what is in that paper, I will give up that I have totally misconceived the principles of the government. You are told that your rights are secured in this new government. They are guarded in no other part but this 9 th section. The few restrictions in that section are your only safeguards. They may control your actions, and your very words, without being repugnant to that paper. The existence of your dearest privileges will depend upon the consent of Congress, for they are not within the restrictions of the 9 th section.... Some attention to this clause was also given in the New York ratifying convention and in the Maryland House of Delegates. The pertinent portion of the New York debates took place on June 27, 1788. During those debates, Mr. Chancellor Livingston, in expounding upon concerns raised with regard to the power to tax, stated in pertinent part: ... You will give up to your state legislatures every thing dear and valuable; but you will give no power to Congress, because it may be abused; you will give them no revenue, because the public treasures may be squandered. But do you not see here a capital check? Congress are to publish, from time to time, an account of their receipts and expenditures. These may be compared together; and if the former, year after year, exceed the latter, the corruption will be detected, and the people may use the constitutional mode of redress.... ... I beg the committee to keep in mind, as an important idea, that the accounts of the general government are, "from time to time," to be submitted to the public inspection. Hon. Mr. SMITH remarked, that "from time to time' might mean from century to century, or any period of twenty or thirty years. The CHANCELLOR asked if the public were more anxious about any thing under heaven than the expenditure of money. Will not the representatives, said he, consider it essential to their popularity, to gratify their constituents with full and frequent statements of the public accounts? There can be no doubt of it. On November 29, 1787, the Delegates to the Constitutional Convention were called before the Maryland House of Delegates to explain the Principles, upon which the proposed Constitution was founded. James McHenry, in his explanation of Section 9, stated in part: ... When the Public Money is lodged in its Treasury there can be no regulation more consistent with the Spirit of Economy and free Government that it shall only be drawn forth under appropriation by Law and this part of the proposed Constitution could meet with no opposition as the People who give their Money ought to know in what manner it is expended. Thus, the history of this provision sheds some light upon the range of views with regard to anticipated benefits and intended sweep of this language, but does not give great attention to the possibility of secret funding for intelligence activities. Rather, the debate focused principally upon the general need for such a provision, the timing of the statements and accounts, and the practical impact of such a requirement. Nevertheless, there were a few indications that some of the delegates considered the possibility of secrecy attached to some of those statements and accounts. For example, one might compare Mr. Wilson's observations during the Constitutional Convention with those of Mr. Mason at the Virginia ratifying convention. Mr. Wilson noted that some financial operations could not be published at certain times. Mr. Mason recognized that at times necessity might dictate that some secrecy would attach to military operations or foreign negotiations, but rejected the notion that receipts and expenditures of public money should ever be concealed. The most explicit mention of receipts and expenditures shrouded in secrecy is contained in the remarks of Mr. McHenry. He regarded the clause's requirement of publication from time to time as so broad as to permit the Congress to dispose of the public wealth in secrecy or to conceal what they determine requires secrecy. The history of the clause leaves it uncertain whether or to what extent his views were shared by others. It appears clear that the concern over how public funds would be spent was the motivating force behind the inclusion of the Statement and Account Clause. The clause seems to impose an affirmative duty to disclose information with regard to public receipts and expenditures. These general outlines do not appear to provide unequivocal guidance as to the scope and frequency of these disclosures, however, and there are some indications that at least delay in releasing some information and possibly secrecy of some information was anticipated, whether with approbation or alarm, by some of those at the Constitutional Convention and the ratifying conventions. Further insight may be drawn from an examination of judicial interpretation of the clause in the intelligence budget context. Several cases appear to be of significance in this regard. In 1974, the United States Supreme Court decided United States v. Richardson , 418 U.S. 166 (1974). There a federal taxpayer challenged the constitutionality of provisions of the Central Intelligence Agency Act of 1949 concerning public reporting of expenditures on the ground that they violated the Statement and Account Clause. The provisions at issue permitted the CIA to account for its expenditures solely on the certificate of the Director, 50 U.S.C. § 403j(b). Richardson had made several attempts to obtain detailed information regarding the CIA's expenditures from the Government Printing Office and the Fiscal Service of the Bureau of Accounts of the Treasury Department, but found the information he received unsatisfactory. He questioned the constitutionality of the provision and requested that the Treasury Department seek an opinion from the Attorney General on this question. The Treasury Department declined to do so, and Richardson then filed suit. The district court dismissed for lack of standing and on the ground that the subject matter raised political questions not amenable to judicial determination. Richardson's request for a three-judge court to try the matter was also rejected by the District Court. The Court of Appeals for the Third Circuit, sitting en banc, reversed, and remanded for consideration by a three-judge court. The Supreme Court granted certiorari and reversed. The issue before the Court was whether the respondent had standing to sue. The Court found that he did not, without reaching the merits of the constitutional question. In so doing, the Court noted: It can be argued that if respondent is not permitted to litigate this issue, no one can do so. In a very real sense, the absence of any particular individual or class to litigate these claims gives support to the argument that the subject matter is committed to the surveillance of the Congress, and ultimately to the political process.... In footnote 11, 418 U.S. at 178, the Court also observed: Although we need not reach or decide precisely what is meant by "a regular Statement and Account," it is clear that Congress has plenary power to exact any reporting and accounting it considers appropriate in the public interest. It is therefore open to serious question whether the Framers of the Constitution ever imagined that general directives to the Congress or the Executive would be subject to enforcement by an individual citizen. While the available evidence is neither qualitatively nor quantitatively conclusive, historical analysis of the genesis of cl. 7 suggests that it was intended to permit some degree of secrecy of governmental operations. The ultimate weapon of enforcement available to the Congress would, of course, be the "power of the purse." Independent of the statute here challenged by respondent, Congress could grant standing to taxpayers or citizens, or both, limited, of course, by the "cases" and "controversies" provision of Art. III. Not controlling, but surely not unimportant, are nearly two centuries of acceptance of a reading of cl. 7 as vesting in Congress plenary power to spell out the details of precisely when and with what specificity Executive agencies must report the expenditure of appropriated funds and to exempt certain secret activities from comprehensive public reporting. See 2 M. Farrand, The Records of the Federal Convention of 1787, pp. 618-619 (1911); 3 id. , at 326-327; 3 J. Elliot, Debates on the Federal Constitution 462 (1836); D. Miller, Secret Statutes of the United States 10 (1918). Several lower court decisions are also instructive here. In Harrington v. Bush , 553 F.2d 190 (D.C. Cir. 1977), a Member of Congress sought declaratory and injunctive relief to foreclose the CIA from using the funding and reporting provisions of the 1949 Central Intelligence Act in connection with allegedly illegal activities. The United States Court of Appeals for the District of Columbia Circuit dismissed the suit for lack of standing. Plaintiff did not challenge the constitutional sufficiency of the funding and reporting provisions. In outlining the statutory and constitutional framework to set the case in context, the court noted that the funding and reporting requirements of the CIA Act ... represent an exception to the general method for appropriating and reporting the expenditure of federal funds. Article I, section 9, clause 7 of the U.S. Constitution ... is not self-defining and Congress has plenary power to give meaning to the provision. The Congressionally chosen method of implementing the requirements of Article I, section 9, clause 7 is to be found in various statutory provisions.... With respect to the reporting of expenditures, the key statutory provision of general application is 31 U.S.C. § 1029 which imposes a duty on the Secretary of the Treasury to provide Congress on an annual basis with "... an accurate, combined statement of the receipts and expenditures ... of all public moneys...." Since Congressional power is plenary with respect to the definition of the appropriations process and reporting requirements, the legislature is free to establish exceptions to this general framework, as has been done with respect to the CIA.... In Halperin v. CIA , 629 F.2d 144 (D.C. Cir. 1980), a private citizen sought access to CIA documents regarding legal bills and fee arrangements of private attorneys retained by the Agency through the Freedom of Information Act, 5 U.S.C. § 552. The documents were held to be exempt from disclosure under FOIA, exception 3, which addressed documents specifically exempted by statute. Judge Gasch found both that the documents were exempted under the protection from unauthorized disclosure afforded intelligence sources and methods, 50 U.S.C. § 403(d)(3) (1976), and that the information sought was specifically exempted by Section 6 of the Central Intelligence Act, 50 U.S.C. § 403g (1976). The plaintiff argued that application of these statutes under the FOIA exemption was violative of the Statement and Account Clause. The appellate court, relying upon United States v. Richardson, supra , rejected his argument, holding that he lacked standing to challenge the constitutionality of secret appropriations and expenditures for the CIA. The court found that the nature of the injury alleged by the plaintiff under FOIA was undifferentiated and common to all members of the Public and therefore, like the taxpayer in Richardson , the plaintiff had not shown the "`particular concrete injury' required for standing." In determining the constitutionality and justiciability of statutory secrecy for CIA expenditures, the Halperin court reviewed the history of the Statement and Account Clause. As to the debates in the Virginia ratifying convention in June of 1788, the court opined: Mason's statement clarifies several points concerning the Framers' intent. First it appears that Madison's comment on governmental discretion to maintain the secrecy of some expenditures, far from being an isolated statement, was representative of his fellow proponents of the "from time to time" provision. Second, as to what items might legitimately require secrecy, the debates contain prominent mention of military operations and foreign negotiations, both areas closely related to the matters over which the CIA today exercises responsibility. Finally, we learn that opponents of the "from time to time" provision, exemplified by Mason, favored secrecy only for the operations and negotiations themselves, not for receipts and expenditures of public money connected with them. But the Statement and Account Clause, as adopted and ratified, incorporates the view not of Mason, but rather of his opponents, who desired discretionary secrecy for the expenditures as well as the related operations.... The court regarded Patrick Henry's concern over the "time to time" language and the potential for expenditures being concealed by Congress as confirmation for the court's interpretation of the Madison-Mason debate. It observed further: Viewed as a whole, the debates in the Constitutional Convention and the Virginia ratifying convention convey a very strong impression that the Framers of the Statement and Account Clause intended it to allow discretion to Congress and the President to preserve secrecy for expenditures related to military operations and foreign negotiations. Opponents of the "from time to time" provision, it is clear, spoke of precisely this effect from its enactment. We have no record of any statements from supporters of the Statement and Account Clause indicating an intent to require disclosure of such expenditures. The Halperin court also found confirmation for its conclusion that the Statement and Account Clause did not require disclosure of the expenditures at issue from the historical evidence of government practices with regard to disclosure and secrecy before and after the advent of the Constitution. The Committee of Secret Correspondence of the Continental Congress was created on November 29, 1775, Congress resolving to provide for expenses incurred by the Committee in sending out its "agents". When the Committee received information from Arthur Lee, one of its agents, regarding French plans to send arms and ammunition to the Continental Army, it determined to maintain strict secrecy, even from Congress, because of the nature and importance of this information. The court notes that the Congress appears to have exerted greater direct control over the Committee after the Declaration of Independence. The camouflaging of the actual recipient and intended use of intelligence funds also appears to have had early usage under George Washington, commander-in-chief of the colonial armies, as reflected in a letter to him from Robert Morris, a member of the Committee of Secret Correspondence, from January 21, 1783. The letter reflects both the provision of a cash account in anticipation of needs which might arise for contingencies and secret service. Drafts drawn from that account appear to have been drawn in favor of member's of Washington's family on account of secret services, seemingly a means of concealing the identity of the actual recipients. The court also noted a series of statutes creating contingent funds or secret service funds giving the President a means of providing secret funding for foreign intelligence activities. For example, in the Act of July 1, 1790, 1 Stat. 128 (10), the Congress created such a fund, appropriating such monies for "persons to serve the United States in foreign parts." In this act, the President was required to provide a regular statement and account of his expenditures from the fund, but permitted him to not disclose "such expenditures as he may think it advisable not to specify." By the Act of February 9, 1793, 1 Stat. 299, 300 (1793), Congress re-enacted the 1790 statute, but modified its language to allow the President to make secret expenditures without specification by making a certificate or by directing the Secretary of State to make a certificate for the amount. It might be noted that although the specific expenditures from these funds do not appear to have been expected to be disclosed, the statutes did include aggregate numbers for the appropriations for the funds created. In Aftergood v. Central Intelligence Agency , 355 F. Supp. 2d 557 (D.D.C. 2005), the plaintiff sought historical intelligence budget information for the years 1947 through 1970, as well as subsidiary agency budget totals, from the Central Intelligence Agency (CIA) under FOIA. The CIA responded that the by asserting that the information sought was exempt from disclosure under exemption 3, 5 U.S.C. § 552(b)(3), based upon 50 U.S.C. § 403-3(c)(7), which provided that the Director of Central Intelligence shall "protect intelligence sources and methods." Both parties filed for summary judgment. The court granted the CIA's motion and denied Mr. Aftergood's motion. The plaintiff argued, in part, that the Statement and Account Clause required publication of the information he requested. Based upon the "unequivocal[]" holding of the U.S. Court of Appeals for the D.C. Circuit in Halperin , which, in turn, relied on Richardson , Judge Urbina rejected plaintiff Aftergood's contention and held that "a FOIA plaintiff does not have standing under the Statement and Account [C]lause to challenge the constitutionality of CIA budget secrecy." The Statement and Account Clause appears to impose an affirmative duty upon the Congress to periodically make a statement and account of its disposition of the public funds. The questions that arose during the debates upon this clause at the Constitutional Convention and the ratifying conventions went largely to the timing and scope rather than the fact of that obligation. The debates suggest that at least some of the delegates to the Constitutional Convention and the participants in the debates on ratification anticipated that some secrecy might be expected or needed in dealing with military and foreign affairs, and that the language of the clause might be broad enough to permit the Congress to determine what expenditures should be kept secret. Historically, both before and after the Constitution's advent, some provision in practice or statute appears to have been made to keep the substance of some intelligence information or activities closely-held, as well as the nature and recipients of funds for intelligence activities. The early statutes creating funds for contingent expenses or secret service do seem to include aggregate figures as to the money appropriated, but permit circumspection as to the documentation of expenses from the funds so created. The judicial interpretation of the statement and account clause appears to lay the power to define the sweep of the language in the hands of the Congress. The courts have been consistent in denying standing to those who have sought to challenge the constitutionality of the funding structure of the Central Intelligence Agency Act of 1949 under the Statement and Account Clause to try to access information not disclosed because of the strictures of the 1949 Act. The Richardson Court and its progeny have indicated that the Congress possesses plenary authority to give substance to the language of the Clause and to require such reporting of expenditures as it deems in the public interest. The vehicle by which Congress gives substance to the Clause's obligations is by statutory mandate. The courts seem to suggest that secrecy as to some expenditures particularly in the area of foreign or military affairs appears to have been anticipated in the crafting of the clause and reflected in contemporaneous practice. Since the early years of the nation, Congress has from time to time, by statute, created funds for expenditures for foreign intelligence activities, and has permitted expenditures from those funds to be made by certificate. Many of the statutes do specify aggregate amounts to be appropriated for the contingent or secret funds in question, but do not require detailed reporting on the nature of the expenditures therefrom. The Central Intelligence Agency Act of 1949 permits transfer of funds for intelligence purposes from funds appropriated for other agencies, thereby facilitating concealment of the actual intelligence funding levels. It appears that there was some uncertainty among the Framers of the Constitution as to the scope of the obligation the clause imposed upon the Congress. From our review of the constitutional language, its history, and the sparse judicial interpretation of its import, it seems that the courts regard the Congress as having the power to define the meaning of the clause. The courts have not had occasion to address the issue on the merits, and, indeed, might refuse to do so on political question grounds if the issue were presented; however, the judicial interpretation of the Statement and Account Clause to date suggests that a court would be unlikely to find the disclosure of the aggregate intelligence budget constitutionally compelled. The end of the Cold War had a significant effect on intelligence budgets. Since the country does not face the relentless challenge of an enemy superpower with its own hostile intelligence services, significant reductions in intelligence spending were enacted and criticisms of the continued need for budgetary secrecy were raised anew. Senator Robert Kerrey stated in November 1993: "Openness is the order of the day, and unless a threat as formidable and as lethal as the old Soviet Union comes along, our society and Government will steadily become more open. Our task is to make intelligence more useful to more Americans, not hoard it." Some also maintained that the alleged failures of intelligence agencies to appreciate the essential fragility of the Soviet system or to collect intelligence on the Iraqi nuclear capabilities, warrant a significant overhaul and downsizing of collection and analytical efforts. Reductions in defense spending across the board affected intelligence spending in two ways. First, it was assumed that a smaller military force structure reduced requirements for intelligence infrastructure; fewer forces would likely require fewer intelligence support personnel. This argument was countered by some who argued that leaner force structures actually required stronger intelligence support to ensure their most effective and efficient use. Secondly, as the bulk of intelligence funding continued to be "hidden" within the DOD budget, reductions in overall defense spending required either proportional reductions in intelligence programs or disproportionate reductions in non-intelligence programs to compensate for maintaining intelligence spending at existing levels. The latter alternative engendered strong resistance among defense planners already hard pressed to maintain other priority programs. In short, as defense spending contracted, it became more difficult to launch new intelligence efforts or even to maintain intelligence programs. This debate over future requirements for intelligence programs was related to (albeit not identical with) the continuing controversy over the desirability of public disclosure of intelligence spending levels. Some opposed to existing or higher levels of intelligence spending consider that public knowledge of the high costs of intelligence spending would lead to demands that they be drastically reduced. Efforts to reduce funding levels in intelligence authorization bills are complicated by the question of shared oversight. In 1991, there was concern that reductions in FY1992 intelligence programs were reallocated to other defense programs rather than being used to reduce the deficit. With the end of the Cold War, the question of the desirability of making public the extent of the intelligence budget re-emerged in congressional debates and floor votes for the first time since 1975. In the consideration of the FY1992 intelligence authorization bill, the SSCI reported a bill ( S. 1539 ) that would have mandated disclosure of three different versions of the total intelligence and intelligence-related budget figure: the aggregate amount requested by the President; the aggregate amount authorized to be appropriated by the conference committee on the Intelligence Authorization Act; and the aggregate amount actually obligated by the executive branch. (The SSCI eschewed publication of the amount appropriated because it doubted "that such a figure could be tallied ... by the time a conference committee issued its report, due to the large number of line-items in which the intelligence appropriation is found.)" The Senate Armed Services Committee, which received the bill by sequential referral, noted that these requirements represent major departures from past practices of both Congress and the executive branch that have "profound implications for the conduct of United States intelligence activities and the formulation of intelligence policy which have not been considered in detail by all of the committees of jurisdiction." The Armed Services Committee proposed that the effective date of these provisions be postponed until FY1993 to allow for detailed consideration. The HPSCI version of the bill ( H.R. 2038 ) had no provision relating to public disclosure of the intelligence spending. The conference committee "while agreeing with the objective of the Senate provisions" chose to avoid mandating disclosure by law and stated its hope that the "[Intelligence] Committees, working with the President, will, in 1993, be able to make such information available to the American people, whose tax dollars fund these activities, in a manner that does not jeopardize U.S. national security interests." Section 701 of the final version of the legislation as enacted ( P.L. 102-183 ) stated: It is the sense of Congress that, beginning in 1993, and in each year thereafter, the aggregate amount requested and authorized for, and spent on, intelligence and intelligence-related activities should be disclosed to the public in an appropriate manner. Opposition by the George H.W. Bush Administration may have exerted an important influence on the dropping of mandatory disclosures. Bush, himself a former DCI who had argued against public disclosure in 1977, stated upon signing the final version, "Because secrecy is indispensable if intelligence activities are to succeed, the funding levels authorized by the Act are classified and should remain so." This was the Administration position, despite the statement by Robert Gates at his confirmation hearing for the DCI position in September 1991 that " ... from my personal perspective—and it's not ultimately my decision, I suppose, but the President's—I don't have any problem with releasing the top line number of the Intelligence Community budget. I think we have to think about some other areas as well. But, as I say, it's controversial." The following year, the two Intelligence Committees were focused on proposals to reorganize the Intelligence Community and held extensive hearings on the question. The Senate version of the FY1993 intelligence authorization bill ( S. 2991 ) included the same "sense of Congress" provision that had previously appeared in the FY1992 legislation. Although the House version ( H.R. 5095 ) again did not contain a similar provision, the conference committee included the Senate provision (as Section 303 in the final version) and there was no dissent among conferees who "reiterate[d] their hope that the intelligence committees, working with the President, will, in 1993, be able to make available to the American people, in a manner that does not jeopardize U.S. national security interests, the total amounts of funding for intelligence and intelligence-related activities." In the midst of the election campaign President Bush signed the legislation ( P.L. 102-496 ) on October 24, 1992, without comment. With the advent of the Clinton Administration in January 1993, some observers believed that the question would be revisited with a different conclusion. Senator Howard Metzenbaum, a member of the SSCI, wrote to the President on February 24, 1993, urging the public disclosure of the intelligence budget. Woolsey, the newly appointed DCI, testified to HPSCI on March 9, 1993, of his concerns regarding making the intelligence budget public: There is no electronic or data fence around the United States or around American citizens. Disclosing that [intelligence spending levels] and the ensuing debate publicly means disclosing it to the people overseas who [ sic ] we target our intelligence assets on. My real sense of skepticism about this derives principally from the fact that coming forth with a single number communicates really nothing until one knows what goes into the number; and, therefore, proposals either to reduce or to increase that number would require a public debate. In such a debate, it is inconceivable to me that we wouldn't release information and details as the public and the Congress debated these issues in public and that would be damaging. Clinton himself responded to Metzenbaum on March 27 asking for the opportunity to "evaluate both the benefits and legitimate concerns which are associated such public disclosure." The House version of the FY1994 Intelligence Authorization bill ( H.R. 2330 ) contained no provision regarding public disclosure, but for the first time in three years the Senate version ( S. 1301 ) also lacked such a provision. According to Senator Arlen Specter, the provision was not included "on the expectation that there would be a stronger resolution compelling disclosure." On August 4, 1993, the House, considering H.R. 2330 under an open rule, debated an amendment offered by Representative Barney Frank mandating disclosure of "the aggregate amounts requested and authorized for, and spent on, intelligence and intelligence-related activities" beginning in 1995. The amendment failed on a vote of 169-264. Many of those who voted for the Frank amendment supported other amendments aimed at reducing the size of the intelligence budget and many observers hoped or feared, depending on their point of view, that making the budget public would lead to public demands for spending cuts. This view was not, however, universal. In the Senate an amendment to the FY1994 Defense Appropriation bill ( H.R. 3116 ) was introduced on October 18, 1993, by Senator Daniel P. Moynihan to require "a separate, unclassified statement of the aggregate amount of budget outlays for the prior fiscal year for national and tactical intelligence activities. This figure shall include, without limitation, outlays for activities carried out under the Department of Defense budget to collect, analyze, produce, disseminate or support the collection of intelligence." Although Senator Moynihan, a critic of the Intelligence Community who had also introduced legislation ( S. 1682 ) to transfer the functions of the CIA to the State Department, withdrew the amendment shortly after introducing it, the proposal drew support from Senator Daniel Inouye, then the Chairman of the Appropriations Committee Subcommittee on Defense. Three weeks later, on November 10, 1993, the Senate debated an amendment to the FY1994 Intelligence Authorization bill offered by Senator Metzenbaum to include essentially the same "sense of Congress" language as included in the two previously enacted intelligence authorization bills. Although the provision had not been controversial in the Senate on the two earlier occasions, in 1993, the incoming Republican vice chairman of the SSCI, Senator John Warner, spoke out against the proposal. After lengthy debate, the Senate first voted not to table the Metzenbaum amendment by a vote of 49-51 and then voted 52-48 to incorporate it into the FY1994 Intelligence Authorization bill ( S. 1301 ). The amendment passed with the support of Senator DeConcini, the new SSCI chairman. The Committee of Conference on the two intelligence authorization bills subsequently met, but it did not include the provision regarding public disclosure of the intelligence budget in the final version. The conference report stated: "House conferees were of the view that, in light of the House vote [on the Frank amendment], they could not agree to the inclusion in the conference report of the Senate's 'sense of the Congress' provisions and therefore voted to insist on the House position." Thus, the FY1994 Intelligence Authorization Act ( P.L. 103-178 ) that was signed by President Clinton on December 3, 1993, did not address the question of public disclosure of the intelligence budget. Along with the strong opposition to public disclosure by Senator Warner, the vice chairman of the SSCI (unlike his predecessor, Senator Frank Murkowski, who supported disclosure), an important factor was opposition from the Clinton Administration. During the November 10, 1993, debate, Senator Warner inserted into the Congressional Record sections of a letter from the Office of Management and Budget, dated October 18, 1993, that stated, "... the Administration opposes any change to S. 1301 [the Senate version of the FY1994 intelligence authorization bill] that would disclose, or require the disclosure of, the aggregate amount of funds authorized for intelligence activities. The current procedure that provides for the authorization of appropriations in a classified annex continues to be appropriate." The issue did not disappear. The conference committee had indicated that both intelligence committees had agreed to hold hearings on the question of disclosure in early 1994 "in preparation for thoroughly evaluating a provision to require disclosure of the aggregate intelligence budget figure which may be considered during preparation of the Intelligence Authorization Act for Fiscal Year 1995." Shortly after final passage of the FY1994 authorization bill on November 20, 1993, a group of senior congressional leaders, including Speaker of the House Foley, Senate Majority Leader Mitchell, and other present and former leaders of committees having intelligence oversight responsibilities, signed a letter to the President urging a change in Administration policy to permit public disclosure of intelligence spending. The Members stated that, "The level of intelligence spending (although not the details) must be open to the public." Further, "[t]he norms of our democratic system require that the public be informed." The President, replying in a December 27, 1993 letter to Representative Glickman, noted his opposition to the proposal in 1993 "because I believed that the cost of disclosure outweighed the benefits." He added, however, that he had asked Anthony Lake, the National Security Adviser, in concert with the DCI and others, to "look carefully at our position in light of your arguments and in consultation with Congress." By January 1994, both the executive and legislative branches were committed to review the advisability of making intelligence spending levels public. Congressional hearings were scheduled for 1994 and an NSC-level review was underway. At the HPSCI hearings conducted on February 22-23, 1994, DCI Woolsey repeated his opposition to budgetary disclosure. He emphasized the difficulty of conducting a debate on intelligence programs and priorities in public and his concern that it would be impossible to avoid moving from one aggregate number to disaggregated details that would educate "the rulers of North Korea, Iran, Iraq, Libya, terrorist groups, and others about our plans and programs." The 1994-1995 debate took place in the context of declining budgets and an intelligence community grappling with a world that, in the oft-quoted phrase used by DCI Woolsey in his confirmation hearings, has seen the slaying of the Soviet dragon, but still contained jungles "filled with a bewildering variety of poisonous snakes." Nevertheless, on July 19, 1994, the House voted (in the Committee of the Whole) 194-221-24 to reject an amendment to the intelligence authorization bill ( H.R. 4299 ) proposed by Representative Glickman, Chairman of the Permanent Select Committee on Intelligence, to amend the National Security Act of 1947 to require annual reports of amounts expended and amounts requested for intelligence and intelligence-related activities. The Senate version did not address the question of making intelligence spending levels public. A similar scenario unfolded in subsequent years. On September 13, 1995 the House voted (in the Committee of the Whole) 154-271-9 to reject an amendment to the intelligence authorization bill ( H.R. 1655 ) proposed by Representative Frank to disclose aggregate amounts requested and authorized for intelligence and intelligence-related activities. Again, the Senate bill had no provision relating to the question. The Senate did support disclosure in 1996, when it passed its version of the FY1997 intelligence authorization bill ( S. 1718 ) with a provision requiring the President to include with the annual budget submission the aggregate amount appropriated for the current year for intelligence and intelligence-related activities and the amount requested for the next year. On May 22, 1996, however, the House voted (in the Committee of the Whole) 176-248-9 to reject an amendment to the intelligence authorization bill ( H.R. 3259 ) proposed by Representative Conyers to require the President to submit a separate, unclassified statement of the appropriations and proposed appropriations for national and tactical intelligence activities. The subsequent Conference Committee acceded to the House and dropped the provision. On July 9, 1997 the House voted 192-237-5 (in the Committee of the Whole) to reject an amendment to the FY1998 Intelligence Authorization bill ( H.R. 1775 ) offered by Representatives Conyers that would require the President to submit a separate, unclassified statement of the appropriations and proposed appropriations for the current fiscal year, and the amount of appropriations requested for the fiscal year for which the budget is submitted for national and tactical intelligence activities. The Senate voted shortly thereafter, on June 19, 1997, 43-56-1, to reject an amendment to the FY1998 intelligence authorization bill ( S. 858 ) proposed by Senator Torricelli to require the President to submit annual aggregate figures on amounts requested and amounts appropriated for intelligence and intelligence-related activities. Despite these congressional votes interest in and pressure for public release of intelligence spending levels persisted. The Commission on the Roles and Capabilities of the U.S. Intelligence Community, known as the Aspin-Brown Commission, established pursuant to the FY1995 Intelligence Authorization Act ( P.L. 103-359 ), recommended in 1996: ... that at the beginning of each congressional budget cycle, the President or a designee disclose the total amount of money appropriated for intelligence activities for the current fiscal year (to include NFIP, JMIP, and TIARA) and the total amount being requested for the next fiscal year. Such disclosures could either be made as part of the President's annual budget submission or, separately, in unclassified letters to the congressional intelligence committees. No further disclosures should be authorized. Responding to the Commission's recommendations, on April 23, 1996 President Clinton authorized Congress to make public the total appropriation for intelligence at the time the appropriations conference report was approved. Such action was not, however, taken by the Legislative Branch. In October 1997, DCI Tenet announced that President Clinton had authorized him to release the aggregate amount appropriated for intelligence and intelligence-related activities for FY1997 ($26.6 billion). His press release indicated that the decision was based on two important points: First, disclosure of future aggregate figures will be considered only after determining whether such disclosures could cause harm to the national security by showing trends over time. Second, we will continue to protect from disclosure any and all subsidiary information concerning the intelligence budget: whether the information concerns particular intelligence agencies or particular intelligence programs. In other words, the Administration intends to draw a firm line at this top-line, aggregate figure. Beyond this figure, there will be no other disclosures of currently classified budget information because such disclosures could harm national security. The press release took note of the lawsuit filed earlier under the Freedom of Information Act and indicated that the President had preferred to take action concerning the declassification of the intelligence budget "in concert with the Congress," but "the present circumstances related to this lawsuit do not allow for joint action." The following March, Tenet announced that the aggregate amount appropriated for intelligence and intelligence-related activities for FY1998 was $26.7 billion. In the announcement Tenet stated that the determination that "this release will not harm national security or otherwise harm intelligence sources and methods." The release of the figure for FY1998 was, however, the final such release. After litigants had sought to require the release of the amount requested for intelligence (in addition to the amount appropriated which had been made public), Tenet declined to make public the amount appropriated for FY1999. Some observers speculate Tenet may have been reluctant to address the substantial additional intelligence funds that were reportedly incorporated in the Supplemental Appropriation Act ( P.L. 105-277 ), enacted on October 21, 1998. In any event, no such releases have been made subsequently. The attacks of September 11, 2001, had a profound affect on intelligence issues. No longer was there a concern to reduce intelligence spending; the goal was to determine why there had been no tactical warning of the attacks that shattered thousands of American lives. A series of investigations was launched to fix the blame and to make recommendations for improved intelligence performance. There was a clear disposition in the Executive Branch and in Congress to increase intelligence spending significantly in support of the counterterrorism effort. Many of the recommendations for intelligence reorganization lie beyond the scope of this Report, but some addressed issues of intelligence acquisition and budgeting. Ultimately, a new position, the Director of National Intelligence (DNI) was established. The DNI has been given statutory authorities for developing and determining the national intelligence budget and for ensuring the effective execution of the budget for intelligence and intelligence-related activities. In addition, the National Commission on Terrorist Attacks Upon the United States, known as the 9/11 Commission, recommended that the "overall amounts of money being appropriated for national intelligence and to its component agencies should no longer be kept secret." This would be different from the Clinton Administration's practice in FY1997 and FY1998 when the total appropriated amount for all intelligence and intelligence-related activities was released. The Senate bill introduced in response to the recommendations of the 9/11 Commission ( S. 2845 ) provided that the NFIP would be renamed the National Intelligence Program (NIP) and that the President disclose for each fiscal year the aggregate amount of appropriations requested for the NIP. Furthermore, Congress would be required to make public the aggregate amounts authorized and appropriated for the NIP. (The House bill dealing with intelligence reorganization ( H.R. 10 ) contained no similar provision.) An amendment to remove this provision in the Senate bill was tabled on October 4, 2004 by a vote of 55 to 37. Ultimately, the legislation that was enacted largely in response to the recommendations of the 9/11 Commission, the Intelligence Reform and Terrorism Prevention Act of 2004, P.L. 108-458 , did not include the Senate's provision to make intelligence spending figures public. The issue resurfaced in 2006 when the Senate Intelligence Committee reported its version of authorization legislation for FY2007, S. 3237 . Section 107 of the bill would require that the President disclose to the public the aggregate amount of appropriations requested annually for the NIP. The bill would further require that Congress make public the aggregate amount authorized and appropriated by Congress on an annual basis which would presumably include funds provided by supplemental appropriations bills. The bill further mandates a study by the DNI of the advisability of making such information public for each of the 16 elements of the Intelligence Community. No similar provision exists in the House version of FY2007 intelligence authorization legislation ( H.R. 5020 ). An identical provision was included in the FY2007 intelligence authorization bill ( S. 372 ) reported in the Senate in January 2007. In approaching the provision in S. 3237 , Congress will likely weigh a number of factors. Some Members believe that not only the spirit of constitutional provisions but also the interests of democracy have always required that intelligence budgets be identified. Even some of those who believed that Cold War conditions necessitated that intelligence budgets be kept secret now argue that conditions have changed and that current enemies would not be able to make use of information on overall levels of intelligence budgets. This view is opposed by others, especially in the House, who believe that the declassification of the intelligence budget could inevitably lead to the compromise of important information on sources and methods. There are, in addition, other factors that Members may wish to take into consideration. First, making the NIP public might lead to the need for a separate intelligence appropriations bill. This, in turn, could prevent the possibility of easy trade-offs between intelligence and non-intelligence defense programs, arguably to the detriment of the intelligence effort. Second, is the fact that actions taken in regard to national intelligence efforts in supplemental appropriations bills would have to be reflected in accounts of intelligence spending arguably with more public justification than would be desirable in some circumstances. In addition, providing information on the NIP but not the MIP could give a false sense of the dimensions of the intelligence effort. Most observers argue that in operational terms, intelligence and intelligence-related activities are mutually supportive, even intertwined, and that considering them separately does not permit an understanding of intelligence capabilities. This could affect both those who want to reduce intelligence spending across the board as well as those who argue that intelligence spending has not kept up with the growth of the threats facing the country. If the intelligence-related activities were to be included, as was the case when FY1997 and 1998 budget levels were made public by DCI Tenet, there would have to be a recognition of the subtle and porous dividing lines between intelligence-related activities and other targeting and information-gathering and processing efforts. It would be possible to play "budget games" to demonstrate greater or lesser levels of commitment to intelligence by moving individual programs into or out of intelligence-related categories. After decades of debate, the issues surrounding the question of public disclosure of the intelligence budget have not changed. There is a question of the degree to which the Constitution requires such budgetary information to be made public. Another question centers on whether limited budgetary data can be made public without leading to detailed revelations of properly classified programs and whether information might be made available to adversaries who will use it against the U.S. Beyond these questions, there is an issue of how to frame an informed public debate on the extent of intelligence spending. How do you provide a sense of how the complex and disparate U.S. Intelligence Community fits together without revealing the extensive detail that almost all observers would consider unwise. Even sophisticated outside analysts are unlikely to appreciate some of the finer (and, in some cases, arbitrary) distinctions among military and national programs and the relationship of non-intelligence communications and reconnaissance programs to the overall intelligence effort. Funding for intelligence-related activities presents special difficulties; budgetary totals can fluctuate from year to year solely because certain DOD programs are transferred into or out of intelligence accounts. Making public only the figure for national intelligence programs would simplify the task, but would not give the public an accurate understanding of the extent of the whole intelligence effort. There will continue to be philosophical and political disagreements concerning how much, if any, information regarding the intelligence budget should be provided. The disagreements may in some cases mask policy objectives. Some argue for as inclusive a number as possible, pointing to the size of the total as the basis for urging its reduction in order to transfer funds to what they consider more important governmental functions or to reduce the federal deficit. Others will seek to show bare-bones intelligence spending and urge more rather than less intelligence spending to cope with the uncertainties of the current international environment. Ultimately, the fundamental issue is whether adequate resources are being devoted to intelligence given the extent of requirements by policymakers, military commanders, and other government officials. The more immediate issue for Congress is how to ensure that there is enough information available to inform this public debate without placing intelligence sources and methods at risk. | Although the United States Intelligence Community encompasses large Federal agencies—the Central Intelligence Agency (CIA), the Defense Intelligence Agency (DIA), the National Reconnaissance Office, the National Geospatial-Intelligence Agency (NGA), and the National Security Agency (NSA)—among others—neither Congress nor the executive branch has regularly made public the total extent of intelligence spending. Rather, intelligence programs and personnel are largely contained, but not identified, within the capacious budget of the Department of Defense (DOD). This practice has long been criticized by proponents of open government and many argue that the end of the Cold War has long since removed any justification for secret budgets. In 2004, the 9/11 Commission recommended that "the overall amounts of money being appropriated for national intelligence and to its component agencies should no longer be kept secret." The Constitution mandates regular statements and accounts of expenditures, but the courts have regarded the Congress as having the power to define the meaning of the clause. From the creation of the modern U.S. Intelligence Community in the late 1940s, Congress and the executive branch shared a determination to keep intelligence spending secret. Proponents of this practice have argued that disclosures of major changes in intelligence spending from one year to the next would provide hostile parties with information on new program or cutbacks that could be exploited to U.S. disadvantage. Secondly, they believe that it would be practically impossible to limit disclosure to total figures and that explanations of what is included or excluded would lead to damaging revelations. On the other hand, some Members dispute these arguments, stressing the positive effects of open government and the distortions of budget information that occur when the budgets of large agencies are classified. Legislation has been twice enacted expressing the "sense of the Congress" that total intelligence spending figures should be made public, but on several separate occasions both the House and the Senate have voted against making such information public. The Clinton Administration released total appropriations figures for intelligence and intelligence-related activities for fiscal years 1997 and 1998, but subsequently such numbers have not been made public. Legal efforts to force release of intelligence spending figures have been unsuccessful. Central to consideration of the issue is the composition of the "intelligence budget." Intelligence authorization bills have included not just the "National Intelligence Program"—the budgets for CIA, DIA, NSA et al., but also a wide variety of other intelligence and intelligence-related efforts conducted by the Defense Department. Shifts of tactical programs into or out of the total intelligence budgets have hitherto been important only to budget analysts; disclosing total intelligence budgets could make such transfers matters of concern to a far larger audience. Legislation reported by the Senate Intelligence Committee in January 2007 (S. 372) would require that funding for the National Intelligence Program be made public but it does not address other intelligence activities. Earlier versions of this Report were entitled Intelligence Spending: Should Total Amounts Be Made Public? This report will be updated as circumstances change. |
Attention to environmental issues in the 110 th Congress focused early and heavily on climate change. The shift of control from Republicans to Democrats in the new Congress altered the political dynamic concerning this issue, although it did not result in enacted legislation. Hearings were held by at least 10 committees, and 17 bills to cap emissions of greenhouse gases (GHGs) were introduced. One of the bills, S. 2191 , was reported, May 20, 2008, by the Environment and Public Works Committee, and Senate debate on a modified version ( S. 3036 ) began June 2, 2008. A motion to invoke cloture failed June 6, on a vote of 48-36. On the House side, the Speaker urged quick action on legislation, and established a Select Committee on Energy Independence and Global Warming to highlight the issue, but no bills proceeded to markup. Ten of the 17 GHG cap-and-trade bills would have amended the Clean Air Act, generally establishing a new Title VII to address the issue. (For additional information on climate change legislation, see CRS Report RL33846, Greenhouse Gas Reduction: Cap-and-Trade Bills in the 110 th Congress , by [author name scrubbed], [author name scrubbed], and [author name scrubbed].) Whether or not climate change legislation would amend the Clean Air Act, climate change hearings and markup were among the highest priorities for the committees that have jurisdiction over air issues (principally the Senate Environment and Public Works and House Energy and Commerce Committees). Other clean air issues were not the main focus of attention, but they were addressed, primarily through oversight of Administration actions. This report provides a brief overview of the climate change issue as well as other Clean Air Act issues that were of interest in the 110 th Congress. Climate change (often referred to as global warming) has been of interest to the Congress on some level for more than 30 years. Hearings on the topic occurred as early as 1975, with as many as 250 additional hearings since that time. In 1992, the United States ratified the U.N. Framework Convention on Climate Change (UNFCCC), which established a goal of reducing developed countries' greenhouse gas emissions to 1990 levels by the year 2000. In 1997, the parties to the UNFCCC, as a first step to advance stronger measures, negotiated binding emission reductions for developed countries in the Kyoto Protocol. The United States subsequently rejected the Protocol, focusing instead on research and on voluntary emission reduction programs. Despite these programs, U.S. emissions of greenhouse gases have continued to climb: in 2005, U.S. emissions were 16% higher than in 1990. In recent years, Congress has expressed renewed interest in climate issues for several reasons. Perhaps the most important factor has been the continued strengthening of the science supporting the connection between emissions of greenhouse gases and climate changes, including mounting evidence that glaciers and polar ice caps are shrinking, global average temperatures are rising, and other climate-related phenomena are occurring. (For a summary of the science, see CRS Report RL33849, Climate Change: Science and Policy Implications , by [author name scrubbed].) In response, about two dozen states have entered into regional agreements to address the issue. (For a summary of state actions, see CRS Report RL33812, Climate Change: Action by States to Address Greenhouse Gas Emissions , by [author name scrubbed].) There has also been a shift in attitude on the part of some in industry, prompted in part by the growing patchwork of state-level and foreign requirements. New business coalitions have formed to urge Congress to address the problem, or to influence any legislation that Congress might consider. Congress was already beginning to respond to these changes before the 2006 elections. In the 109 th Congress, the Senate passed a Sense of the Senate resolution that acknowledged a "growing scientific consensus" that human activity is a substantial cause of greenhouse gas accumulation in the atmosphere, causing average temperatures to rise, and called for a mandatory, market-based program to limit greenhouse gas emissions. On a complicated issue such as greenhouse gas limits, the devil is in the details: agreement on general principles does not necessarily presage agreement on detailed legislative proposals. One detailed proposal reached the Senate floor before the 110 th Congress: the McCain-Lieberman bill ( S. 1151 in the 109 th Congress, S. 139 in the 108 th ) would have established a mandatory, market-based greenhouse gas reduction program. It was debated in the 109 th Congress as an amendment to the Energy Policy Act of 2005 ( S.Amdt. 826 ) and defeated by a 38-60 vote; as stand-alone legislation, it was defeated 43-55 in the 108 th Congress. In the 110 th Congress, there was new impetus. In the Senate, the Chairs of both the Environment and Public Works Committee and the Energy and Natural Resources Committee announced their intentions to move legislation; the Environment and Public Works Committee approved S. 2191 , amended, December 5, 2007, by a vote of 11-8. The bill was reported ( S.Rept. 110-337 ) May 20, 2008, and Senate debate on a modified version of the bill ( S. 3036 ) began June 2. A motion to invoke cloture failed, however, June 6, on a vote of 48-36. In the House, the Speaker urged quick action, but markup of legislation did not occur. The Energy and Commerce Committee, which has jurisdiction, held a number of hearings and posted four white papers describing a possible cap-and-trade program on its website, before producing a discussion draft of climate change legislation, October 7, 2008. The same committee has jurisdiction over the related issue of energy policy and focused its efforts in the first session on the passage of landmark energy legislation ( P.L. 110-140 ), which was signed by the President December 19, 2007. There was further attention to climate change bills in the second session of the Congress, but a significant number of questions, both procedural and substantive, remain. The relationship of climate change legislation to the more traditional air pollution programs of the Environmental Protection Agency (EPA) is one such question. In brief, should greenhouse gases (particularly carbon dioxide) be considered air pollutants subject to regulation under the Clean Air Act, or are they more properly considered a side-effect of the use of fossil fuels to produce energy? The answer to this question affects jurisdiction over a climate change program (particularly in the Senate, where both the Energy and Natural Resources Committee and the Environment and Public Works Committee have considered greenhouse gas legislation). It could determine whether EPA, the Department of Energy, or some other agency would administer an enacted climate change program. And it might affect whether states have authority independent of the federal government to control certain greenhouse gas emissions. Over the years, EPA has taken both sides of this issue. Under the Clinton Administration, the agency's General Counsel argued that CO 2 is an air pollutant, and thus could be regulated under the existing authority of the Clean Air Act. The agency did not actually propose such regulation; it simply maintained that it would have the authority to do so if it chose. Under the Bush Administration, a new General Counsel argued the opposite, maintaining that Congress had clearly distinguished CO 2 from other air pollutants and, while authorizing research and data collection under the existing Clean Air Act, had expressly decided not to regulate the pollutant. (For a further discussion of these issues, see CRS Report RL32764, Climate Change Litigation: A Growing Phenomenon , by [author name scrubbed].) The Bush Administration has also intervened in court to argue that controlling CO 2 and other greenhouse gas emissions from automobiles is equivalent to setting fuel economy standards (a regulatory authority that Congress reserved for the federal government), not controlling air pollution (where states have a regulatory role). In its April 2, 2007 decision in Massachusetts v. EPA , the Supreme Court resolved the issue of the Clean Air Act's authority, finding: The Clean Air Act's sweeping definition of "air pollutant" includes " any air pollution agent or combination of such agents, including any physical, chemical ... substance or matter which is emitted into or otherwise enters the ambient air...." ... Carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons are without a doubt "physical [and] chemical ... substances[s] which [are] emitted into ... the ambient air." The statute is unambiguous. Thus, the Court found no doubt that the Clean Air Act gives EPA the authority to regulate greenhouse gases (in this case, from new motor vehicles), although the specifics of such regulation might be subject to agency discretion. (For further discussion of the Court's decision, see CRS Report RS22665, The Supreme Court ' s Climate Change Decision: Massachusetts v. EPA , by [author name scrubbed].) As noted, 10 of the 17 bills introduced in the 110 th Congress to cap greenhouse gas emissions would have amended the Clean Air Act, as would the Energy and Commerce Committee's discussion draft. In order to sidestep the complexities of treating GHGs as traditional pollutants, they generally would have created a new Title VII to establish a separate program for greenhouse gas emissions. In this respect, the bills emulated the 1990 Clean Air Act Amendments, which created separate titles to deal with acid precipitation (Title IV) and stratospheric ozone depletion (Title VI). Most of the bills dubbed "climate change" bills would establish economy-wide programs to reduce greenhouse gas emissions. But recent Congresses, including the current one, have also seen dozens of bills aimed at the emissions of individual sectors, notably electric utilities, cars and trucks, electrical appliances, and commercial or government buildings. Together, these sectors account for the lion's share of energy use and GHG emissions. Electric utilities account for about 40% of U.S. emissions of CO 2 . Transportation (of which the dominant portion is cars and trucks) accounts for about one-third. Appliances, other electrical equipment, and buildings all play important roles as consumers of energy; thus, reducing their energy use through efficiency standards, better insulation, etc., can be important means of reducing GHG emissions. If the focus is on individual sectors rather than the economy as a whole, the likelihood is that new legislation to reduce GHGs would not amend the Clean Air Act, and the resulting regulatory programs would be implemented and administered by agencies other than EPA. For example, the Corporate Average Fuel Economy (CAFE) standards, which have regulated the fuel economy of automobiles and light trucks since the mid-1970s, are set and administered by the National Highway Traffic Safety Administration of the Department of Transportation. P.L. 110-140 , signed by the President December 19, 2007, strengthened these standards for the first time since 1975. The new standards require that new vehicles achieve about a 40% improvement in fuel economy by 2020. The law also requires the Secretary of Transportation to establish standards for each model year, beginning with MY 2011. Appliance efficiency standards are set by the Department of Energy (DOE). These standards were also strengthened in P.L. 110-140 . Other potential elements of a GHG reduction program, such as building codes, are administered by state and local governments, although DOE provides input to commercial building codes under provisions of the Energy Policy Act of 1992. Power plants represent a particularly complicated sector, which, depending on the source of power, may be regulated by the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission, or EPA, with a major role also for state governments. (For a discussion of federal programs and policies, see CRS Report RL31931, Climate Change: Federal Laws and Policies Related to Greenhouse Gas Reductions , by [author name scrubbed] and [author name scrubbed].) The complexity and sheer number of measures that might need to be taken in order to have a significant impact on GHG emissions in sector-specific approaches leads many to suggest an economy-wide approach, in which a decreasing annual emissions cap is established, and emission allowances are distributed or sold to major emitters. As the cap (and hence, the number of allowances) is gradually ratcheted down, markets would determine who reduces emissions: companies that could do so at low cost would have incentives to take action; companies with fewer or more costly options could buy allowances to cover excess emissions. (For a more complete discussion of these issues see CRS Report RL33799, Climate Change: Design Approaches for a Greenhouse Gas Reduction Program , by [author name scrubbed].) Such cap-and-trade programs have an enviable reputation, largely based on the success of the Clean Air Act's acid rain program. That program imposed a cap on sulfur dioxide emissions for a limited number of electric power plants in 1995, and in 2000 lowered the cap and expanded coverage to more plants. It met its emission reduction goals at low cost, with virtually 100% compliance, and with minimal administrative oversight. The success of the program was at least partly the result of the favorable circumstances in which it was implemented: the reduction targets were easily met because of an abundant supply of cheap low-sulfur coal; there were only about 1,000 entities (power plants) covered by the trading program, making it simple and inexpensive to monitor and administer; and most of the regulated entities were allowed 10 years to achieve compliance, by which time, early reductions had generated an enormous number of extra allowances that helped lubricate the trading system. Some other trading programs have not been as successful. Southern California's Regional Clean Air Incentives Market (RECLAIM), for example, which was implemented in 1994 to reduce emissions of nitrogen oxides (NOx) and sulfur dioxide (SO 2 ) in the Los Angeles area, saw a 50-fold increase in NOx allowance prices during the 2000-2001 California energy crisis. To permit its continued functioning and allow utilities to use backup power generators, electric utilities were removed from the RECLAIM system, charged a flat fee of $15,000 per ton for excess emissions, and subjected to new command and control requirements (i.e., the type of regulation the trading system was designed to avoid). The European GHG trading system (EU-ETS), established to help European Union countries meet their Kyoto Protocol targets, has also seen wild swings in short-term allowance prices during its start-up years, making planning and decision-making difficult for participating entities. A U.S. cap-and-trade system for GHG emissions would face a number of challenges. First, with the exception of electric utilities, sources of GHGs have not been generally required to monitor or report their GHG emissions; what we know about sources is based, for the most part, on estimates. Thus, a monitoring requirement would need to be established to serve as a basis for any future reduction scheme, whether cap-and-trade or not. P.L. 110-161 , the Consolidated Appropriations Act, 2008, directs EPA to develop regulations that establish a mandatory GHG reporting program that will apply "above appropriate thresholds in all sectors of the economy," but a registry does not yet exist. Second, decisions would need to be made regarding the comprehensiveness of any program: what economic sectors to include, what to establish as a small emitter exemption, etc. Again, this problem is not unique to cap-and-trade, but it assumes increasing importance if one is designing any economy-wide approach. Third, there is a wide array of issues related to the distribution or sale of allowances, including what year to choose as the base year against which to measure emission reductions; what criteria or method to use to allocate allowances; whether to auction allowances to existing sources of emissions or give them away; whether to establish reserves for new sources; etc. Fourth, in order to prevent wild swings in allowance prices, a variety of flexibility mechanisms have been suggested, including a "safety valve" (a price at which the regulatory authority would sell additional allowances if the market cost rose above predicted levels); the banking of excess allowances (achieved through early reductions) for later use; borrowing authority; etc. Others have proposed a floor below which prices would not be allowed to fall, to reduce risk for sources that make GHG reductions. If a safety valve or floor were established, the price of additional allowances and/or the floor price would be key determinants of the stringency of the program. Fifth, there are a number of issues related to whether and how to permit international trading of allowances. Many of the least cost GHG reduction options may be in developing countries, but verification of the baseline emissions and of the continued application of emission controls could pose challenges to the regulatory authority in such cases. Similar questions are raised by potential domestic or international offsets to emissions, in the form of sequestration activities. The complications of establishing a viable cap-and-trade program suggest to some (especially to those trained in economics) that the simplest approach to controlling emissions would be to impose a carbon or GHG tax. From the point of view of economic efficiency, administrative ease, and comprehensiveness, a carbon tax has many advantages, but Congress has found it difficult to impose new taxes, limiting support for this option. It is worth noting that the "safety valve" discussed in the cap-and-trade section above would function to some extent like a carbon tax, and might represent a compromise between these two options. Finally, as noted earlier, a number of states have begun programs to reduce GHG emissions. Although the federal government is challenging some of these, particularly those affecting mobile sources, states do have clear authority to regulate emissions from power plants, landfills, residential and commercial buildings, and other sources of GHGs. The extent to which such state programs might serve as national models is one issue; another is the degree to which a federal program might preempt state measures affecting similar sources. The question of federal preemption has already arisen under current law. California has adopted regulations requiring new motor vehicles to reduce GHG emissions, beginning in model year 2009. The standards require gradual reductions of GHG emissions until they are about 30% below the emissions of the 2002 fleet in 2016. Compliance would be determined by fleet averages, rather than by the emissions of individual vehicles, and the regulations provide additional flexibility, including averaging, banking, and trading of credits within and among manufacturers. Although California finalized its regulations in 2005, the standards have not gone into effect because the state first needed to obtain a waiver of federal preemption from U.S. EPA. The Clean Air Act generally preempts states from adopting their own emission standards for mobile sources of air pollution, but it makes a conditional exception for California—whose air pollution problems have been more severe than those of other states, and whose emission control program pre-dated federal requirements. To obtain this exception, the state must be granted a waiver by the EPA Administrator. The act also permits other states to adopt standards identical to California's, if California is granted a waiver: 14 states have adopted identical standards. Together, the states that have adopted the California standards represent nearly half the U.S. auto market, so there is broad interest in EPA's decision and a great deal at stake. To obtain a waiver, California must meet four conditions laid out in CAA Section 209(b): the state must determine that its standards will be at least as protective of public health and welfare as applicable federal standards; and the EPA Administrator must weigh whether the state's determination in this regard is arbitrary and capricious; whether the state needs such standards to meet compelling and extraordinary conditions; and whether the standards and accompanying enforcement procedures are consistent with Section 202(a) of the Clean Air Act. California appears to have a sound argument that it meets these tests. No federal standards address greenhouse gas emissions from mobile sources, so the requirement that the state's standards be at least as protective as federal standards would appear to be met. The state identified several compelling and extraordinary conditions that the standards are designed to address, and the state provided information describing technologies available to meet the standards, many of which are already available on vehicles, and addressed consistency with Section 202(a). The legislative history of the waiver provision would also seem to support California's case. In the most recent amendment of Section 209(b), the House committee report stated: "The Administrator is not to overturn California's judgment lightly. Nor is he to substitute his judgment for that of the State." (For a further discussion, see CRS Report RL34099, California ' s Waiver Request Under the Clean Air Act to Control Greenhouse Gases From Motor Vehicles , by [author name scrubbed] and [author name scrubbed].) Nevertheless, the EPA Administrator announced on December 19, 2007, that he would deny the waiver request. According to press reports, the decision to deny the waiver was taken against the unanimous advice of the agency's technical and legal staffs. In a letter to California's Governor Schwarzenegger on that date, the Administrator cited the signing earlier the same day of the Energy Independence and Security Act ( P.L. 110-140 ), which established new fuel efficiency standards for motor vehicles, as providing a national approach to greenhouse gas emissions, a problem that, ne noted, is "fundamentally global in nature." He also contrasted the problems caused by GHGs to the local and regional air quality problems addressed by previous California waiver requests, more than 50 of which have been granted by EPA since the late 1960s. On February 29, 2008, the Administrator signed a formal decision document denying the waiver. (The decision document appeared in the March 6 Federal Register. ) In it, he based his denial on a finding that Section 209(b) was intended to allow California "to address problems that are local or regional," not global climate change. He also held that the effects of climate change in California are not compelling and extraordinary, as the statute requires, compared to the effects in the rest of the country. On January 2, 2008, California and 15 other states filed suit challenging the Administrator's decision. The auto industry, in addition to the Bush Administration, is opposed to the granting of a waiver. The industry maintains that there is effectively no difference between California and federal emission standards in their impact on criteria air pollutants, that the benefits of the GHG regulations are "zero", and that emissions will actually increase as a result of the regulations as consumers keep older, higher-emitting cars longer. If California were granted a waiver, there might be other impediments to the implementation of its standards, as industry opponents challenge EPA's authority in court. Already, in several court cases, the issue has been raised whether EPA and California are prohibited from regulating greenhouse gases by the Corporate Average Fuel Economy (CAFE) requirements of the Energy Policy and Conservation Act of 1975 (EPCA). Under EPCA, the authority to set fuel economy standards is reserved for the federal government, and specifically, the National Highway Traffic Safety Administration. The auto industry maintains that the regulation of greenhouse gases is simply another method of regulating fuel economy, and, therefore, that California's GHG standards are preempted by EPCA. In the first of the cases to be tried, Green Mountain Chrysler Plymouth Dodge Jeep v. Crombie , and Association of International Automobile Manufacturers v. Crombie , now consolidated, the federal district court in Vermont ruled September 12, 2007, that the Clean Air Act/EPCA relationship is one of overlap, not conflict, and concluded that California and other states are not preempted by EPCA from setting mobile source GHG standards. In a second decision, Central Valley Chrysler Jeep, Inc. v. Goldstene , a district court in the Ninth Circuit similarly rejected claims that California's regulation of GHG emissions from cars and trucks was precluded or preempted by EPCA. Both of these decisions have been appealed. Following the Administrator's decision, legislation was introduced in both the Senate ( S. 2555 ) and the House ( H.R. 5560 ) to overturn the Administrator's denial. The Senate bill was reported, June 27 ( S.Rept. 110-407 ), but no further action was taken. The bills would consider California's application for a waiver to be approved, notwithstanding any other provision of law. As a result of the Supreme Court's decision in Massachusetts v. EPA , EPA was ordered to decide whether to regulate mobile source GHGs nationally under Section 202 of the CAA. The issue here is whether GHGs are pollutants that, in the words of Section 202, "cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare." The Court's decision left EPA three options: (a) make a finding that motor vehicle GHG emissions may endanger public health or welfare, and issue emissions standards; (b) make a finding that such emissions do not endanger public health or welfare; or (c) decide that climate change science is so uncertain as to preclude making a finding either way (or cite some other "reasonable explanation" why EPA will not exercise its discretion either way). EPA has not spoken definitively on whether climate change endangers public health, but the agency appears to have already concluded that GHGs do affect welfare. Under the Clean Air Act, welfare is defined to include effects on soils, water, crops, vegetation, wildlife, weather, and climate. In his decision document on the California waiver request, which appeared in the Federal Register , March 6, 2008, the Administrator stated: "It is widely recognized that greenhouse gases have a climatic warming effect by trapping heat in the atmosphere that would otherwise escape to space." He went on to enumerate impacts on temperature, precipitation, sea level rise, water resources, coastal communities, habitats, invasive species, air quality, and other factors. Given these statements, it is hard to see how the agency can do other than issue an affirmative endangerment finding for welfare. After the Supreme Court's decision, the Administrator (and the President, as well) gave every indication that they were on the way to making such a finding. The President, on May 14, 2007, said: Last month, the Supreme Court ruled that the EPA must take action under the Clean Air Act regarding greenhouse gas emissions from motor vehicles. So today, I'm directing the EPA and the Department of Transportation, Energy, and Agriculture to take the first steps toward regulations that would cut gasoline consumption and greenhouse gas emissions from motor vehicles...." In a briefing after the President's statement and at several Congressional hearings, the Administrator stated his intention to propose regulating GHGs from automobiles before the end of 2007. EPA's Semiannual Regulatory Agenda, issued in December 2007, said the agency would "issue a notice of proposed rulemaking by the end of 2007 and a final rule by the end of October 2008." According to EPA staff, an endangerment of welfare finding was prepared and a proposed GHG emission standard was approved by the Administrator. The endangerment finding was sent to the White House Office of Management and Budget (OMB) somewhere between December 5 and December 8, 2007, and a proposed GHG emission standard was sent to the Department of Transportation. The endangerment finding and the proposed standards have not been issued, however, and the Administrator has recently begun the process all over with a request for information from the public (termed an "Advance Notice of Proposed Rulemaking," or ANPR). The ANPR was released July 11, 2008, and appeared in the Federal Register, July 30, 2008. EPA staff have apparently been told that work was discontinued so that the agency's activities could be reassessed given enactment of the Energy Independence and Security Act (EISA, P.L. 110-140 ), which set new Corporate Average Fuel Economy (CAFE) standards for motor vehicles, which will reduce their GHG emissions. In the months after the bill's enactment, however, EPA staff were not asked to analyze whether passage of the law changed the analysis of the costs and benefits of the proposed GHG regulations. Furthermore, as numerous commentators have noted, the passage of the new CAFE requirements does not affect EPA's obligation to issue a finding as to whether or not GHG emissions from mobile sources contribute to air pollution that endangers public health or welfare. In fact, Section 3 of EISA specifically states that nothing in the act supersedes the provisions of existing environmental law. If the agency does eventually make an endangerment finding, it would still have substantial discretion in promulgating the actual standards to control GHGs. CAA section 202 does not explicitly impose any stringency or other criteria on GHG emission standards under the section. It says only that the Administrator "shall by regulation prescribe (and from time to time revise) ... standards applicable to the emission of any air pollutant...." Reflecting the apparently wide latitude EPA has in setting section 202 standards, commentators have suggested that EPA, following an endangerment finding, could set voluntary standards, or standards pegged to the CAFE standards for fuel economy. Presumably such standards would be subject to further review by the courts. Congressional committees, especially the House Oversight and Government Reform Committee and the Senate Environment and Public Works Committee, have expressed substantial interest in this issue, which has been addressed in several oversight hearings and in a continuing investigation. Senator Feinstein's S. 2806 would have required the Administrator to issue a finding within 60 days of the bill's enactment, but no action was taken on the bill. In addition to climate change, there are a number of clean air issues in which Congress has expressed an interest. The rest of this report discusses seven of these issues, some of which have been the subject of oversight hearings. Despite steady improvements in air quality in many of the United States' most polluted cities, the goal of clean air continues to elude many areas. The most widespread problems involve ozone and fine particles. As of June 2008, 132 million people lived in areas classified "nonattainment" for the ozone National Ambient Air Quality Standard; 88 million lived in areas that were nonattainment for fine particles (PM 2.5 ). Air quality has improved substantially since the passage of the Clean Air Act in 1970: annual emissions of the six most widespread ("criteria") air pollutants have declined 160 million tons (53%), despite major increases in population, motor vehicle miles traveled, and economic activity. Meanwhile, however, scientific understanding of the health effects of air pollution has caused EPA to tighten standards for ozone and fine particles. (Fine particles, as defined by EPA, consist of particulate matter 2.5 micrometers or less in diameter, abbreviated as PM 2.5 .) The agency attributes at least 33,000 premature deaths and millions of lost work days annually to exceedances of the PM 2.5 standard. Recent research has tied ozone pollution to premature mortality as well. Thus, there is continuing pressure to tighten air quality standards: a tightening of the standard for fine particles was promulgated October 17, 2006. The ozone standards were strengthened March 12, 2008. In addition to the standards themselves, attention has focused on the major sources of ozone and particulate pollution, such as coal-fired power plants and mobile sources. With this background in mind, the remainder of this report provides a discussion of several interrelated air issues of interest in the 110 th Congress, including revision of the ozone, particulate, and lead standards, the role of independent scientific review in the setting of air quality standards, multi-pollutant legislation and the Clean Air Interstate Rule (CAIR) for electric power plants, mercury from power plants, and New Source Review. This report provides an overview of these issues; CRS reports that contain additional information and detailed sources are referenced in the appropriate sections. EPA Administrator Stephen Johnson signed final changes to the National Ambient Air Quality Standard (NAAQS) for ozone on March 12, 2008; the proposal appeared in the Federal Register on March 27. NAAQS are standards for outdoor (ambient) air that are intended to protect public health and welfare from harmful concentrations of pollution. By changing the standard, EPA has concluded that protecting public health and welfare requires lower concentrations of ozone pollution than it previously judged to be safe. The ozone standard affects a larger percentage of the population than any other NAAQS: about 45% of the U.S. population currently lives in ozone "nonattainment" areas (the term EPA uses for areas that violate the standard), 132 million people in all. As a result of the standard's strengthening, more areas will be affected, and those already considered nonattainment may have to impose more stringent emission controls. The revision lowers the primary (health-based) and secondary (welfare-based) standards from 0.08 parts per million (ppm) averaged over 8 hours to 0.075 ppm averaged over the same time. Using the most recent three years of monitoring data, 345 counties (54% of all counties with ozone monitors) would violate the new standards. Only 85 counties exceeded the pre-existing standards. Thus, the change in standards will have widespread impacts in areas across the country. The revision follows a multi-year review of the science regarding ozone's effects on public health and welfare. The review found evidence of health effects, including mortality, at levels of exposure below the previous standard. As a result, both EPA staff and EPA's independent Clean Air Scientific Advisory Committee (CASAC) recommended strengthening it. CASAC concluded, "There is no scientific justification for retaining the current primary 8-hr NAAQS...." CASAC's 22-member panel unanimously recommended a range of 0.060 to 0.070 ppm for the primary (health-based) 8-hour standard. The new standards will set in motion a long and complicated implementation process that has far-reaching impacts for public health, for sources of pollution in numerous economic sectors, and for state and local governments. The first step, designation of nonattainment areas, will not take place until 2010 at the earliest, but areas that exceed the new standards (based on current monitoring data) are already expressing concern about the potential impacts. A number of issues arise as a result of the standards' adoption, including whether the Administrator's choices for the primary and secondary standards are backed by the available science. Not only are the Administrator's choices weaker than those proposed by CASAC, but the administrative record makes clear that, in part, they were dictated by the White House over the objections of EPA. Whether the standards should lead to stronger federal controls on the sources of ozone pollution precursors is another likely issue. Current federal standards for cars, trucks, power plants, and other pollution sources are not strong enough to bring all areas into attainment, thus requiring local pollution control measures in many cases. EPA, the states, and Congress may also wish to consider whether the current monitoring network is adequate to detect violations of a more stringent standard. Only 639 of the nation's 3,000 counties have ozone monitors in place. With half of those monitors showing violations of the new standards, questions arise as to air quality in unmonitored counties. The Clean Air and Nuclear Safety subcommittee of the Senate Environment and Public Works Committee held a hearing on proposed changes to the standards, July 11, 2007, and the committee's Subcommittee on Public Sector Solutions to Global Warming, Oversight, and Children's Health Protection discussed the final, promulgated version at a May 7, 2008 hearing on science and environmental regulatory decisions. For additional information on the ozone NAAQS proposal, see CRS Report RL34057, Ozone Air Quality Standards: EPA ' s March 2008 Revision , by [author name scrubbed]. The ozone review followed closely on the heels of a revision to the NAAQS for particulate matter. EPA Administrator Stephen Johnson signed those revisions on September 21, 2006, and the standards appeared in the Federal Register on October 17, 2006. In arriving at these revisions, EPA reviewed 2,000 scientific studies on particulates and found associations between particulates and numerous significant health problems, including aggravated asthma, chronic bronchitis, reduced lung function, irregular heart beat, heart attacks, and premature death in people with heart or lung disease. The revisions strengthened the preexisting standard for PM 2.5 , but the standard was not strengthened to the degree recommended by the agency's staff or scientific advisors. As shown in Table 1 , the new standard cuts the allowable concentration of PM 2.5 in the air averaged over 24-hour periods from 65 micrograms per cubic meter (µg/m 3 ) to 35 µg/m 3 ; the annual standard, set at 15 µg/m 3 , does not change. EPA's professional staff and CASAC had recommended more stringent standards. CASAC endorsed a 24-hour standard in the range of 30 to 35 µg/m 3 and an annual standard in the range of 13 to 14 µg/m 3 . Of the 22 CASAC panel members, 20 concurred in the recommendation. In the Administrator's judgment, the science underlying this recommendation was not sufficient, relying primarily on two studies, neither of which "provide[s] a clear basis for selecting a level lower than the current standard...." The Administrator agreed with CASAC that the science showed a relationship between higher levels of PM 2.5 and an array of adverse health effects, but he believed there was too much uncertainty in the analysis to justify lowering the annual standard. He also noted that EPA is undertaking substantial research to clarify which aspects of PM-related pollution are responsible for elevated risks of mortality and morbidity, including a multi-million-dollar research program whose timeline should permit the results to inform the Agency's next periodic reevaluation of the PM 2.5 standard, required by statute within five years. Thus, he concluded, "it would be wiser to consider modification of the annual standard with a fuller body of information in hand than initiate a change in the annual standard at this time." The PM NAAQS also addresses slightly larger, but still inhalable, particles in the range of 10 to 2.5 micrometers. These are referred to as thoracic coarse particles , or PM 10-2.5 . In its last review of the particulate standards (in 1997), the EPA had regulated these as particles 10 microns or smaller (PM 10 ), a category that overlapped the PM 2.5 category. Challenged in the D.C. Circuit Court of Appeals, the PM 10 standard was remanded to EPA, the court having concluded that PM 10 is a "poorly matched indicator" for thoracic coarse particles because it includes the smaller PM 2.5 category as well as the larger particles. In response, in January 2006, the EPA proposed a 24-hour standard for PM 10-2.5 . The standard would have been set at a level of 70 µg/m 3 , compared with the current 24-hour PM 10 standard of 150 µg/m 3 . The final standards promulgated in October 2006 reversed course, leaving in place both the form of the standard (i.e., PM 10 ) and the 24-hour level (150 µg/m 3 ). The only change to the PM 10 standard was the revocation of its annual component. The agency argues that it has provided more thorough reasoning in support of the use of PM 10 as its coarse particle indicator, and believes that its explanation will satisfy the court. The Administrator's decisions on particulate matter represented the first time in CASAC's nearly 30-year history that the promulgated standards fell outside of the range of the scientific panel's recommendations. (The ozone standard promulgated in March 2008 now provides a second instance.) In a letter dated September 29, 2006, the seven members of CASAC objected to the Administrator's actions, both as regards PM 10 and PM 2.5 . With regard to PM 2.5 , the letter stated: "CASAC is concerned that EPA did not accept our finding that the annual PM 2.5 standard was not protective of human health and did not follow our recommendation for a change in that standard." The letter noted that "there is clear and convincing scientific evidence that significant adverse human-health effects occur in response to short-term and chronic particulate matter exposures at and below 15 µg/m 3 ," and noted that 20 of the 22 Particulate Matter Review Panel members, including all 7 members of the statutory committee, were in "complete agreement" regarding the recommended reduction: " It is the CASAC ' s consensus scientific opinion that the decision to retain without change the annual PM 2.5 standard does not provide an ' adequate margin of safety ... requisite to protect the public health ' (as required by the Clean Air Act) ...." With regard to PM 10 , the letter stated that CASAC was "completely surprised" at the decision to revert to the use of PM 10 as the indicator for coarse particles, noting that the option of retaining the existing daily PM 10 standard was not discussed during the advisory process and that CASAC views this decision as "highly problematic." The Administrator is not required by statute to follow CASAC's recommendations; the act (Section 307(d)(3)) requires only that the Administrator set forth any pertinent findings, recommendations, and comments by CASAC (and the National Academy of Sciences) and, if his proposal differs in an important respect from any of their recommendations, provide an explanation of the reasons for such differences. Courts, in reviewing EPA regulations, generally defer to the Administrator's judgment on scientific matters, focusing more on issues of procedure, jurisdiction, and standing. Nevertheless, CASAC's detailed objections to the Administrator's decisions and its description of the process as having failed to meet statutory and procedural requirements could play a role during judicial review. A NAAQS does not directly limit emissions; rather, it represents the EPA Administrator's formal judgment regarding the level of ambient pollution that will protect public health with an adequate margin of safety. Promulgation of a NAAQS sets in motion a process under which states and the EPA first identify nonattainment areas. After these areas are formally designated (a process the EPA estimates will take until April 2010 for the revised PM 2.5 standard), the states have three years to submit State Implementation Plans (SIPs) that identify specific regulations and emission control requirements that will bring the area into attainment. Attainment of the revised standard is to be achieved by 2015, according to the EPA, with a possible extension to 2020. (For a more detailed discussion of the PM NAAQS, see CRS Report RL33254, Air Quality: EPA ' s 2006 Changes to the Particulate Matter (PM) Standard , by [author name scrubbed] and [author name scrubbed].) The completion of the PM NAAQS review was followed by an EPA announcement, on December 7, 2006, that it will modify the process for setting and reviewing NAAQS. Sections 108 and 109 of the Clean Air Act establish statutory requirements for the identification of NAAQS (or "criteria") air pollutants and the setting and periodic review of the NAAQS standards. However, the process used by the agency is as much the result of 38 years of agency practice as it is of statutory requirements. In Section 109, for example, the statute establishes a Clean Air Scientific Advisory Committee to make recommendations to the Administrator regarding new NAAQS and, at five-year intervals, to make reviews of existing NAAQS with recommendations for revisions. In practice, EPA staff, not CASAC, have prepared these reviews, drafting "criteria documents," which review the science and health effects of criteria air pollutants, and "staff papers," which make policy recommendations. CASAC's role has been to review and approve these EPA documents before they went to the agency's political appointees and the Administrator for final decisions. Under the new procedures, the EPA's political appointees will have a role early in the process, helping to choose the scientific studies to be reviewed, and CASAC will no longer have a role in approving the policy staff paper with its recommendations to the Administrator. CASAC will be relegated to commenting on the policy paper after it appears in the Federal Register , during a public comment period. The goal, according to agency officials, is to speed up the review process, which has consistently taken longer than the five years allowed by statute. "These improvements will help the agency meet the goal of reviewing each NAAQS on a five-year cycle as required by the Clean Air Act, without compromising the scientific integrity of the process," according to the memorandum that finalized the changes. The changes concern environmental groups and some in the scientific community, however, because they appear to give a larger role to the agency's political appointees and a smaller role to EPA staff and CASAC. Although the new NAAQS review procedures will change the role that CASAC has historically played, CASAC, at first, appeared less concerned with the changes than some who have advocated on its behalf. When the December 2006 decision memorandum was released, the committee's Chair said CASAC did not plan to issue a formal response. In response to a draft of the changes, the committee had made a number of suggestions, some of which, such as the convening of a science workshop at the outset of the process to better focus the review, were incorporated into the decision memorandum. The memorandum also addressed another of CASAC's major concerns, that the old process spent too much time compiling an encyclopedic review of the literature, much of which had little relevance to the policy questions that needed to be addressed. With respect to EPA taking comments from CASAC at the same time that it considers comments from the public, CASAC's Chair was reported to say, "[S]ome of the members were concerned but most are not, because it doesn't change CASAC's ability to comment." In early February 2007, however, reports circulated that CASAC had changed its mind. After its first experience with the new NAAQS review process (at a meeting to consider the NAAQS for lead), it was reported that the committee would compose a letter to the EPA Administrator critical of the new process: Henderson [CASAC Chair, Dr. Rogene Henderson] said that when EPA first proposed the NAAQS process changes in response to a memo by Deputy Administrator Marcus Peacock, CASAC had "misunderstood how it would be implemented." However, "the full consequences became apparent in the lead meeting," she said, with panel members concerned about not being able to review staff recommendations. The new process "does not allow CASAC time for appropriate input to evaluate the science," she said. Negotiations between CASAC and EPA management followed the February 2007 public meeting, with the result that EPA modified its schedule to allow the CASAC Lead Review Panel to review a second draft of EPA's risk and exposure assessment before the agency's Policy Assessment was published in the Federal Register . This appeared to mollify some of CASAC's concerns, but CASAC continued to express "serious concerns" about other aspects of the Lead NAAQS review. Reaction elsewhere has been stronger. Responding to the changes at the time of their announcement, the incoming Chair of the Environment and Public Works Committee, Senator Boxer, called them "unacceptable," and said the committee planned to make them a top priority for oversight in the 110 th Congress. (The committee included them among the topics it considered February 6, 2007, in a hearing on "Oversight of Recent EPA Decisions.") Seven Democratic members of the committee, including Senator Boxer, wrote EPA Administrator Johnson, December 21, 2006, to express their strong opposition to the changes and to ask him to "abandon" them. Thus, the role of CASAC in NAAQS reviews could be the subject of further scrutiny in Congress. On October 16, 2008, EPA Administrator Johnson announced his final approval of a more stringent National Ambient Air Quality Standard for lead, reducing the standard 90%, from 1.5 µg/m 3 to 0.15 µg/m 3 . The publication of the revised standard in the Federal Register , expected within a few weeks, is the final step in a multi-year review process that began as the result of a suit filed by the Missouri Coalition for the Environment and others in May 2004. The current lead NAAQS was promulgated in 1978. The Clean Air Act requires that NAAQS be reviewed every five years, but a review of the standard has not been completed since that time. Despite this, regulation of airborne lead is often described as one of the key successes of the Clean Air Act and of the Environmental Protection Agency. The success occurred largely because EPA and other federal agencies used authorities other than NAAQS to order the removal of lead from a wide variety of products. In 1970, lead was widely used as a gasoline additive, and emissions of lead nationwide totaled 224,100 tons. Lead was also present then in many consumer products, and thus was emitted to the air in industrial processes and from waste incinerators. The phasing out of lead from gasoline, paint, packaging materials, and consumer products, as well as stricter controls on industrial emissions, reduced lead emissions more than 99%, to 1,300 tons in 2007. As a result, there are now only two nonattainment areas for lead under the 1978 standard: East Helena, MT, and Herculaneum, MO, with a combined population of 4,664 people. Both of these towns were sites of lead smelters that operated for more than 100 years, contaminating air, water, and soil nearby. Most of the emission reductions were motivated by concerns other than the effects of lead concentrations in ambient air. Lead was removed from gasoline in large part because it ruined the catalytic converters placed on vehicle exhaust systems, which were needed to control smog. Lead was removed from paint primarily to avoid its ingestion by children. Airborne lead continues to cause negative effects, despite the reduction in emissions. In the current NAAQS review, EPA identified more than 6,000 studies on lead health effects, environmental effects, and lead in the air published since the previous review. These studies have found evidence of health effects at the levels of exposure currently experienced by much of the U.S. population. Lead particles can be inhaled or ingested, and, once in the body, can cause lower IQ and effects on learning, memory, and behavior in children. In adults, lead exposure is linked to increased blood pressure, cardiovascular disease, and decreased kidney function. Thus, EPA staff and CASAC, the independent panel of scientists who advise the EPA Administrator, concluded that the NAAQS established in 1978 was far too lenient, that lead in ambient air still poses a threat to public health, and that the NAAQS should be significantly strengthened. CASAC and EPA staff recommended that the standard be reduced from 1.5 µg/m 3 to no higher than 0.2 µg/m 3 . In promulgating a more stringent NAAQS, the Administrator agreed with the scientists' recommendations, rejecting arguments that a NAAQS is no longer needed and concluding that the NAAQS needed to be substantially strengthened. To implement the new standard, nonattainment areas will have to be identified (which may take until January 2012), following which there will be a 5- to 10-year-long implementation process in which states and local governments will identify and implement measures to reduce lead in the air. Besides finding that the 1978 NAAQS was inadequate to protect public health and welfare, EPA's review concluded that "[t]he current monitoring network is inadequate to assess national compliance with the proposed revised lead standards." Only 70 of the roughly 3,000 counties in the United States (about 2.3%) currently have lead monitors, leaving many areas of the country without any means of determining whether they are in violation of the lead NAAQS. In fact, according to EPA's Office of Air Quality Planning and Standards, at least 24 states have no monitors at all. To address this shortfall, EPA proposed—in addition to the revised lead NAAQS—to require monitors near all sources of lead that exceed a threshold of between 200 and 600 kilograms (441 to 1,323 pounds) of emissions per year. The agency also proposed to require a small network of monitors to be placed in urban areas with populations greater than one million to gather information on the general population's exposure to lead in the air. In the final rule, the Administrator chose thresholds different than proposed: he set the source threshold at one ton of emissions rather than 200-600 kilograms, and required monitors in urban areas with populations of 500,000 or more rather than one million. The final choice appears to have reflected concerns by industry groups, including the Battery Council International, who argued that emphasis should be placed more on exposure-oriented monitoring than on specific sources of emissions. According to press reports, the White House Office of Management and Budget weighed in at the last minute in support of the change in emphasis. The states remain free to install more monitors than EPA requires, if they believe that the effects of industrial sources with less than one ton of emissions should be monitored; but finding the money to do so may be difficult at a time when many of the states are experiencing a shortage of revenues. (For additional information, see CRS Report RL34479, Revising the National Ambient Air Quality Standard for Lead , by [author name scrubbed].) Besides air quality standards, the major focus of interest among members of Congress and other policy makers concerned with air quality in recent years has been the regulation of electric power plants. The centerpiece of the Bush Administration's approach to regulating power plants has been the Clean Air Interstate Rule (CAIR), a cap-and-trade regulation designed to reduce emissions of sulfur dioxide and nitrogen oxides, reducing the downwind effects of these pollutants on attainment of the ozone and PM 2.5 air quality standards. CAIR was vacated by the U.S. Court of Appeals for the D.C. Circuit July 11, 2008, in North Carolina v. EPA , dealing a serious setback to the Administration's approach to controlling power plant pollution. The decision has since been appealed. Coal-fired power plants are among the largest sources of air pollution in the United States; however, under the Clean Air Act, they are not necessarily subject to stringent requirements. Emissions and the required control equipment can vary depending on the location of the plant, when it was constructed, whether it has undergone major modifications, the specific type of fuel it burns, and, to some extent, the vagaries of EPA enforcement policies. More than half a dozen separate Clean Air Act programs could potentially be used to control emissions, which makes compliance strategy complicated for utilities and difficult for regulators. Because the cost of the most stringent available controls, for the entire industry, could range into the tens of billions of dollars, utilities have fought hard and rather successfully to limit or delay regulations affecting them, particularly with respect to plants constructed before the Clean Air Act of 1970 was passed. As a result, emissions from power plants have not been reduced as much as those from some other sources. Many plants built in the 1950s and 1960s (generally referred to as "grandfathered" plants) have little emission control equipment. Collectively, these plants are large sources of pollution. In 2003, power plants accounted for 10.2 million tons of sulfur dioxide (SO 2 ) emissions (70% of the U.S. total), about 45 tons of mercury emissions (more than 40% of the U.S. total), and 3.6 million tons of nitrogen oxides (19% of the U.S. total). Power plants are also considered major sources of fine particles (PM 2.5 ), many of which form in the atmosphere from emissions from a wide range of stationary and mobile sources. In addition, power plants account for about 40% of U.S. anthropogenic emissions of the greenhouse gas carbon dioxide; these emissions are not subject to federal regulation but have been the focus of much debate in recent years. With new ambient air quality standards for ozone and fine particles taking effect, emissions of NOx (which contributes to the formation of ozone and fine particles) and SO 2 (which is also among the sources of fine particles) would necessarily have to be reduced to meet standards. Mercury emissions have also been a focus of concern: 48 states have issued fish consumption advisories due to mercury pollution, covering 14 million acres of lakes, 882,000 river miles, and the coastal waters of 13 entire states. The continuing controversy over the interpretation of New Source Review requirements for existing power plants (discussed below) is also exerting pressure for a more predictable regulatory structure. Thus, many in industry, environmental groups, Congress, and the Administration have said, for several years now, that the time is ripe for legislation that addresses power plant pollution in a comprehensive (multi-pollutant) fashion. Such legislation (the Administration version of which was entitled the Clear Skies Act) would address the major pollutants on a coordinated schedule and would rely, to a large extent, on a system such as the one used in the acid rain program, where national or regional caps on emissions are implemented through a system of tradeable allowances. The key questions have been how stringent the caps should be and whether carbon dioxide (CO 2 ), the major gas of concern with regard to climate change, would be among the emissions subject to a cap. It now seems unlikely that the 110 th Congress will take action regarding multi-pollutant legislation. Four bills have been introduced in the Senate and one in the House— S. 1168 , S. 1177 , S. 1201 , S. 1554 , and H.R. 3989 —but no action has been scheduled, and little time remains. The focus of power plant regulation seems to have shifted toward broader climate change bills. The Senate Environment and Public Works Committee has voted twice on a multi-pollutant bill, but none of the bills has progressed to the House or Senate floor. On March 10, 2005, however, EPA announced that it would use existing Clean Air Act authority to promulgate final regulations similar to the Administration's multi-pollutant bill (the "Clear Skies" bill) for utility emissions of SO 2 and NOx in 28 eastern states and the District of Columbia. The Clean Air Interstate Rule (CAIR) established cap-and-trade provisions that mimicked those of Clear Skies, but the regulations covered only the eastern half of the country. Also, as a regulation, CAIR had no authority to allow EPA to remove existing Clean Air Act requirements, as Clear Skies would have done. Under CAIR, the EPA projected that nationwide emissions of SO 2 would decline 53% by 2015 and NOx emissions 48%. The agency also projected that the rule would result in $85-$100 billion in health benefits annually by 2015, including the prevention of 17,000 premature deaths annually. CAIR's health and environmental benefits would be more than 25 times greater than its costs, according to EPA. CAIR was one of the few Bush Administration environmental initiatives that was generally supported by environmentalists. It also had broad support among the regulated community. But a variety of petitioners, including the State of North Carolina, which argued that the rule was not strong enough to address pollution from upwind sources, and some individual utilities that felt they were unfairly treated by the rule's emission budgets, challenged the rule in the D.C. Circuit, and the court vacated it July 11, 2008. A unanimous court found, in general, that EPA lacked authority to promulgate a regional cap-and-trade rule under Section 110 of the Clean Air Act unless it could show a link between the pollution emitted in specific states and nonattainment of standards or failure to maintain standards in downwind states. The court found that EPA had established a significant contribution made by power plants to pollution levels in other states as required by Section 110, but that its methodology for establishing emission budgets was unrelated to that link. The court also found the fuel adjustment factors in the rule to be arbitrary and capricious. It concluded "CAIR's flaws are deep. No amount of tinkering will transform CAIR, as written, into an acceptable rule." Despite the seemingly high hurdle set by the language the court used, EPA, environmental groups, and the utility and mining industries have asked the court to review its decision. The court responded by asking appelants for briefs addressing two issues: first, whether any party wants the decision to vacate the rule to stand, and second, whether the court should stay a mandate implementing the decision until EPA issues a revised rule. From a policy standpoint, the court's decision seriously undermines the Bush Administration approach to clean air over the past eight years. CAIR was the lynchpin that held together the Administration's strategy for attainment of the ozone and fine particulate National Ambient Air Quality Standards (NAAQS), for achieving reductions in mercury emissions from coal-fired powerplants (as discussed further below), for addressing regional haze impacts from powerplants, and for responding to state petitions to control upwind sources of ozone and fine particulate pollution under Section 126 of the Clean Air Act. (For additional information on the CAIR rule, see CRS Report RL34589, Clean Air After the CAIR Decision: Back to Square One? , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]; and CRS Report RL32927, Clean Air Interstate Rule: Review and Analysis , by [author name scrubbed]. For a discussion of the costs and benefits of the principal multi-pollutant approaches, see CRS Report RL33165, Costs and Benefits of Clear Skies: EPA ' s Analysis of Multi-Pollutant Clean Air Bills , by [author name scrubbed] and [author name scrubbed].) At the same time that EPA promulgated CAIR, the agency finalized through regulation a cap-and-trade program for mercury emissions from electric utilities. On February 8, 2008, the U.S. Court of Appeals for the D.C. Circuit vacated these regulations as well and remanded them to EPA for reconsideration. EPA was required by the terms of the 1990 Clean Air Act Amendments and a 1998 consent agreement to determine whether regulation of mercury from power plants under Section 112 of the Clean Air Act was appropriate and necessary. It concluded that it was, in a December 2000 regulatory finding. The finding added coal- and oil-fired electric generating units to the list of categories of sources of hazardous air pollutants, and triggered other provisions of the consent agreement: that the agency propose Maximum Achievable Control Technology (MACT) standards for them by December 15, 2003, and finalize the standards by March 15, 2005. Rather than promulgate MACT standards, however, which would have required controls on each coal-fired power plant by 2008, EPA reversed its December 2000 finding in March 2005, and established through regulations a national cap-and-trade system for power plant emissions of mercury. The final cap would have been 15 tons of emissions nationwide in 2018 (about a 70% reduction from 1999 levels, when achieved). There would also have been an intermediate cap of 38 tons in 2010. This intermediate cap would not have actually limited emissions, however, since the agency projected emissions at 31 tons in 2010 even if 99% of the generating units installed no mercury control equipment. The caps would have been implemented through an allowance system similar to that used in the acid rain and CAIR programs, through which utilities can either control the pollutant directly or purchase excess allowances from other plants that have instituted controls more stringently or sooner than required. As with the acid rain and CAIR programs, early reductions could have been banked for later use, which the agency said would result in utilities delaying compliance with the full 70% reduction until well beyond 2018, as they used up banked allowances rather than installing further controls. The agency's analysis projected actual emissions to be 24.3 tons (less than a 50% reduction) as late as 2020. Full compliance with the 70% reduction would have been delayed until after 2025. (For additional information on the mercury rule, see CRS Report RL32868, Mercury Emissions from Electric Power Plants: An Analysis of EPA ' s Cap-and-Trade Regulations , by [author name scrubbed].) The D.C. Circuit, in a 3-0 decision handed down February 8, 2008, found that once the agency had listed electric generating units (EGUs) as a source of hazardous air pollutants, it had to proceed with MACT regulations under Section 112 of the act unless it "delisted" the source category, under procedures the act sets forth in Section 112(c)(9). Delisting would have required the agency to find that no EGU's emissions exceeded a level adequate to protect public health with an ample margin of safety, and that no adverse environmental effect would result from any source—a difficult test to meet, given the agency's estimate that EGUs are responsible for more than 40% of mercury emissions from all U.S. sources. Rather than delist the EGU source category, therefore, the agency maintained that it could simply reverse its December 2000 "appropriate and necessary" finding, a decision that was much simpler because there were no statutory criteria to meet. The court found this approach unlawful. "This explanation deploys the logic of the Queen of Hearts, substituting EPA's desires for the plain text of Section 112(c)(9)," the court said in its unanimous opinion. Besides the question of whether EPA complied with the law's requirements, critics have found other flaws in EPA's cap-and-trade approach to controlling mercury. One of the main criticisms has been that it would not address "hot spots," areas where mercury emissions and/or concentrations in water bodies are greater than elsewhere. It would have allowed a facility to purchase allowances and avoid any emission controls, if that compliance approach made the most sense to the plant's owners and operators. If plants near hot spots did so, the cap-and-trade system might not have reduced mercury concentrations in the most contaminated areas. By contrast, a MACT standard would require reductions at all plants, and would therefore be expected to improve conditions at hot spots. Many also argue that the mercury regulations should be more stringent or implemented more quickly than the cap-and-trade regulations would have required. To a large extent, these arguments, and EPA's counter-arguments, rest on assumptions concerning the availability of control technologies. Controlling SO 2 , NOx, and mercury simultaneously, as the agency prefers, would allow utilities to maximize "co-benefits" of emission controls. Controls such as scrubbers and fabric filters, both of which are widely used today to control SO 2 and particulates, have the side effect of reducing mercury emissions to some extent. Under EPA's cap-and-trade regulations, both the 2010 and 2018 mercury emission standards were set to maximize use of these co-benefits, which would have resulted from controls installed to comply with CAIR. As a result, few controls would have been required to specifically address mercury emissions before the 2020s, the costs specific to controlling mercury would be minimal, and emissions would decline to about 50% of the 1999 level in 2020. Besides citing the cost advantage of relying on co-benefits, EPA has claimed that technology specifically designed to control mercury emissions (such as activated carbon injection, ACI) would not be generally available until after 2010. This assertion has been widely disputed. ACI and fabric filters have been in use on municipal waste and medical waste incinerators for more than a decade, and have been successfully demonstrated in at least 16 full-scale tests at coal-fired power plants, for periods as long as a year. Manufacturers of pollution controls and many others maintain that if the agency required the use of ACI and fabric filters at power plants, reductions in mercury emissions as great as 90% could be achieved at reasonable cost in the near future. Relying on these assertions, about 20 states have promulgated requirements stricter than the federal program, with several requiring 80% to 90% mercury reductions before 2010. (For additional information, see CRS Report RL33535, Mercury Emissions from Electric Power Plants: States Are Setting Stricter Limits , by [author name scrubbed].) Under the D.C. Circuit's ruling, unless EPA delists the power plant category, it would appear that the agency does not have the legislative authority to establish a cap-and-trade program for their mercury emissions: the agency appears to be required by the statute to impose MACT standards on each individual plant once it has listed the category. The agency can, of course, appeal the court's ruling: on March 24, it did so, filing a petition for reconsideration by the full "en banc" Court of Appeals. The court denied the petition, May 20. The agency then petitioned for certiorari to the Supreme Court, October 17. If this petition is denied or if the agency loses its appeal, it will need to proceed with the development of MACT standards. To speed this process, Senator Carper introduced S. 2643 , which would have required the Administrator to propose MACT standards no later than October 1, 2008, and would have required new and existing power plants to achieve a reduction in mercury emissions of not less than 90%. The bill joined six earlier bills that would have set deadlines and generally would have required reductions of at least 90%. (For additional information, see CRS Report RS22817, The D.C. Circuit Rejects EPA ' s Mercury Rules: New Jersey v. EPA , by [author name scrubbed] and [author name scrubbed].) In the meantime, while the agency considers its options and develops any new regulations in response to the remand, new coal-fired electric generating units and modifications of existing units will be required to obtain permits under a provisions of the law known as the "MACT hammer" (Section 112(g)(2)). Under this provision, if no applicable emission limits have been established, no person may construct a new major source or modify an existing major source in the category unless the Administrator or the state determine on a case-by-case basis that they meet the maximum achievable emission controls. On February 28, 2008, the Natural Resources Defense Council (NRDC) released a list of 32 coal-fired power plants in 13 states that it believes must now adopt MACT mercury controls under this provision. A related issue that has driven some of the debate over the regulation of power plant emissions is whether the EPA has adequately enforced existing regulations, using a process called New Source Review (NSR). The New Source Review debate has occurred largely in the courts. The EPA took a more aggressive stance on NSR under the Clinton Administration, filing lawsuits against 13 utilities for violations at 51 plants in 13 states. The Bush Administration has taken action against an additional half a dozen utilities and, after years of negotiation, has settled many of the original suits. In the meantime, however, it has proposed major changes in the NSR regulations that critics argue will weaken or eliminate New Source Review as it pertains to modifications of existing plants. The controversy over the NSR process stems from the EPA's use of it to require the installation of best available pollution controls on existing stationary sources of air pollution that have been modified. The Clean Air Act requires that plants undergoing modifications meet these NSR requirements, but industry has often avoided the NSR process by claiming that changes to existing sources were "routine maintenance" rather than modifications. In the 1990s, the EPA began reviewing records of electric utilities, petroleum refineries, and other industries to determine whether the changes were, in fact, routine. As a result of these reviews, since late 1999, EPA and the Department of Justice have filed suit or administrative actions against numerous large sources of pollution, alleging that they made major modifications to their plants, extending plant life and increasing output, without undergoing required New Source Reviews and without installing best available pollution controls. Of the utilities charged with NSR violations, at least 13 have settled with the EPA, generally without going to trial. Under the settlements, they have agreed to spend about $10 billion on pollution controls or fuel switching to reduce emissions at their affected units. Combined, these companies will reduce pollution by 1.65 million tons annually. Since July 25, 2000, the agency has also reached 17 agreements with petroleum refiners representing three-fourths of industry capacity. The refiners agreed to settle potential charges of NSR violations by paying fines and installing equipment to eliminate 315,000 tons of pollution. Those utilities charged with NSR violations that have not settled with the EPA claim that the EPA has reinvented the NSR rules, and that the agency's stricter interpretation of what constitutes routine maintenance will prevent them from making changes that would have previously been allowed without a commitment of time and money for permit reviews and the installation of expensive pollution control equipment. This provides disincentives for power producers, refiners, and others to expand output at existing facilities, they maintain. The first case involving one of the nonsettling utilities went to trial in February 2003. In an August 7, 2003, decision, the U.S. District Court for the Southern District of Ohio found that Ohio Edison had violated the Clean Air Act 11 times in modifying its W. H. Sammis power plant. The company subsequently settled the case, agreeing to spend $1.1 billion to install controls that are expected to reduce pollution by 212,000 tons annually. In a second case, decided in April 2004 but appealed all the way to the U.S. Supreme Court, Duke Energy was found not to have violated the act despite undertaking modifications that increased total emissions without undergoing New Source Review. The U.S. District Court for the Middle District of North Carolina, in a decision upheld by the Fourth Circuit Court of Appeals, held that since the maximum hourly emissions rate did not increase as a result of the modifications, even if annual emissions did increase, the company was not required to undergo NSR and install more stringent pollution controls. On April 2, 2007, the Supreme Court overturned the lower court rulings in a unanimous decision, finding that EPA's regulations, promulgated in 1980, clearly specified an increase in actual annual emissions as the measure of whether a permit for a modification was required. To argue otherwise now would be to challenge the validity of the regulations, the Court concluded; such a challenge needs to be filed with the D.C. Circuit Court of Appeals within 60 days of a regulation's promulgation—it cannot be done more than 20 years later in the Fourth Circuit. While pursuing these enforcement actions, the Bush Administration has promulgated a number of changes to the NSR regulations that would make future enforcement of NSR less likely. In December 2002 and October 2003, the agency promulgated five sets of changes to the NSR rules. The most controversial were new regulations defining what constitutes routine maintenance. The new regulations would have exempted industrial facilities from undergoing NSR (and thus from installing new emission controls) if they were replacing safety, reliability, and efficiency-rated components with new, functionally equivalent equipment, and if the cost of the replacement components was less than 20% of the replacement value of the process unit. Using this benchmark, few, if any, plant modifications would trigger new pollution controls. These changes were highly controversial. The Administration and its supporters characterized them as streamlining or improving the program; others saw them as permanently "grandfathering" older, more polluting facilities from ever having to meet the clean air standards required of newer plants. Fifteen states, three municipalities, and several environmental groups filed suit to block the "equipment replacement / routine maintenance" rule. The rule was stayed by the U.S. Court of Appeals for the D.C. Circuit on December 24, 2003. On March 17, 2006, a three-judge panel of the court unanimously struck the rule down. In its decision, the court held that the EPA's attempt to change the NSR regulations was "contrary to the plain language" of the Clean Air Act. The EPA proposed further changes to the NSR regulations on October 20, 2005, and September 14, 2006 ; these regulations have yet to be promulgated. Under the October 2005 proposal, power plants could modify existing facilities without triggering NSR, provided that the facility's "maximum hourly emissions achievable" after the changes were no greater than the same measure at any point during the past five years. By focusing on the hourly rate, rather than the previous measure (annual emissions), the new rule would effectively allow increases in annual emissions any time a modification led to an increase in the hours of operation of a facility. The agency's proposal stated that this change would establish a uniform national emissions test, in conformance with the Fourth Circuit's decision in the Duke Energy case, and it downplayed the significance of the change in light of "substantial emissions reductions from other CAA [Clean Air Act] requirements that are more efficient." Since that time, both of these justifications have disappeared—the Fourth Circuit decision being overturned by the Supreme Court, and the "more efficient" reduction requirements (an allusion to CAIR) now being vacated by the D.C. Circuit. Internal EPA documents released by an environmental group have also indicated that the proposed rule was strongly opposed by the Air Enforcement Division, whose Director concluded that it would adversely affect the agency's NSR enforcement cases and is largely unenforceable as written. Throughout the NSR debate, there appears to have been a conflict between the EPA's regulatory actions and its enforcement stance. While the agency stated in promulgating the equipment replacement rule that "we do not intend our actions today to create retroactive applicability for today's rule," continued pursuit of the enforcement actions filed during the Clinton Administration created a double standard for utilities, with one set of rules applicable to those utilities unlucky enough to have been cited for violations prior to promulgation of the new rule, and a different standard applicable afterward. Despite earlier agency denials that the rule would affect ongoing investigations, in early November 2003, the EPA's enforcement chief, J. P. Suarez, and another EPA official were reported to have indicated that the agency would drop enforcement actions against 47 facilities that had already received notices of violation, and would drop investigations of possible violations at an additional 70 power companies. Agency staff who were involved in the enforcement actions note that the prospect of NSR rollbacks has caused utilities already charged with violations to withdraw from settlement negotiations over the pending lawsuits, delaying emission reductions that could have been achieved. (For additional information, see CRS Report RS21608, Clean Air and New Source Review: Defining Routine Maintenance , by [author name scrubbed], and CRS Report RL31757, Clean Air: New Source Review Policies and Proposals , by [author name scrubbed].) At Congress's direction, the National Academy of Sciences began a review of the NSR program in May 2004. An interim report, released in January 2005, said the committee had not reached final conclusions, but it also said, "In general, NSR provides more stringent emission limits for new and modified major sources than EPA provides in other existing programs" and "It is ... unlikely that Clear Skies would result in emission limits at individual sources that are tighter than those achieved when NSR is triggered at the same sources." The final report, issued July 21, 2006, found that [m]ore than 60% of all coal-fired electricity-generation capacity in the United States currently lacks the kinds of controls for SO 2 and NO x emissions that have been required under NSR. Also, the older facilities are more likely than newer facilities to undergo maintenance, repair, and replacement of key components, so a substantial portion of emissions from the electricity-generating sector is potentially affected by the NSR rule changes. Nevertheless, the report reached ambivalent conclusions. On the one hand, the report stated, "It is reasonable to conclude that the implementation of the ERP [the proposed Equipment Replacement Provision] could lead to SO 2 and NO x emission increases in some locations and decreases in others." On the other hand, the committee concluded overall that, because of a lack of data and the limitations of current models, it is not possible at this time to quantify with a reasonable degree of certainty the potential effects of the NSR rule changes on emissions, human health, energy efficiency, or on other relevant activities at facilities subject to the revised NSR program. Besides the NAS study, on April 21, 2003, the National Academy of Public Administration released a report commissioned by Congress that made sweeping recommendations to modify NSR. The study panel recommended that Congress end the "grandfathering" of major air emission sources by requiring all major sources that have not obtained an NSR permit since 1977 to install Best Available Control Technology or Lowest Achievable Emissions Rate control equipment. In the interim, the NAPA panel concluded, the EPA and the Department of Justice should continue to enforce NSR vigorously, especially for changes at existing facilities. | Attention to environmental issues in the 110th Congress focused early and heavily on climate change—the state of the science, and whether (and, if so, how) to address greenhouse gas (GHG) emissions. Seventeen bills were introduced to establish GHG emission caps, and hearings on climate change were held by at least 10 committees. The Lieberman-Warner bill to establish a cap-and-trade system for GHG emissions (S. 2191) was reported by the Senate Environment and Public Works Committee, May 20, 2008. Senate debate began on a modified version of the bill (S. 3036) June 2 but ended June 6, as the Senate failed to muster sufficient votes to invoke cloture. Climate change hearings and markup were among the highest priorities for the committees that have jurisdiction over air issues (principally Senate Environment and Public Works and House Energy and Commerce). Other clean air issues were addressed largely through oversight of Administration actions. Oversight issues included how best to control emissions of mercury and other pollutants from electric power plants; whether EPA's new standards for ambient air concentrations of fine particulates, ozone, and lead adequately reflect the state of the science; and whether EPA's new process for setting ambient air quality standards politicized what traditionally have been scientific judgments. In addition to EPA, state governments and the courts have taken action on air issues that has stirred congressional interest. On April 2, 2007, the Supreme Court decided Massachusetts v. EPA, finding that EPA has authority under the Clean Air Act to regulate greenhouse gas emissions from new motor vehicles and requiring EPA to make a finding as to whether such emissions endanger public health or welfare. On February 8, 2008, the D.C. Circuit Court of Appeals, in New Jersey v. EPA, found EPA's approach to the regulation of power plant mercury emissions to be unlawful. On July 11, 2008, in North Carolina v. EPA, the D.C. Circuit vacated the Clean Air Interstate Rule (CAIR), which would have controlled emissions from power plants affecting air quality in downwind states. Other cases involving climate change, clean air standards, and the regulation of power plants are pending at the D.C. Circuit Court of Appeals and in a number of federal and state courts. Decisions in these cases may prompt hearings or legislation. States interested in setting more stringent environmental standards are continuing to develop and implement regulations that go well beyond the requirements of federal law. Of particular interest is California's request for a waiver of federal preemption to control greenhouse gas emissions from cars and light trucks. On December 19, 2007, EPA announced that it would deny the waiver request, and the agency's Administrator signed a decision document formalizing his denial, February 29, 2008. California and more than a dozen other states are challenging the denial in court. Legislation was introduced in both the Senate (S. 2555) and the House (H.R. 5560) to overturn the Administrator's decision. The Senate bill was reported June 27, 2008, but no further action was taken. |
The U.S. Food and Drug Administration (FDA) released two recent documents that renewed public and congressional interest in animal biotechnology in general and animal cloning in particular. On January 15, 2009, the agency released final guidance representing its current thinking on the regulation of genetically engineered (GE) animals for food or drugs. FDA did so under its existing statutory authority and regulations. A year earlier, on January 15, 2008, FDA had unveiled its final risk assessment and industry guidance on the safety of milk and meat from cloned animals and their offspring. FDA found that, generally, meat and milk products from cattle, pigs, and goats are as safe as products from their non-cloned counterparts. Still, some in the United States remain concerned about the safety and other impacts of GE animals and of animal cloning, and they continue to advocate a cautious approach to commercialization of such products. Outside of the United States, animal biotechnology, including both GE and cloning, is the focus of ongoing regulatory, policy and scientific discussions within the European Union (EU) as well as within the international organization for animal health, known by its French acronym, the OIE. (Cloning by itself is not considered to be genetic engineering; see discussion later in this report.) Biotechnology is a broadly defined term of relatively recent origin describing the range of modern knowledge, applications, and techniques underlying advances in many fields, notably health care and agriculture. Animal biotechnology has been defined as "that set of techniques by which living creatures are modified for the benefit of humans and other animals." By its very nature, agricultural development is the history of humans modifying plants and animals to maximize desirable traits. For example, domestication and selective breeding of animals date back many thousands of years. Artificial insemination of livestock, notably dairy cattle, is a more recent technology, first finding wide commercial acceptance in the 1950s. Discovery of the genetic code in the 1950s gave birth to modern techniques of biotechnology. One of the first commercial products of this new biotechnology in animal agriculture was bovine somatotropin (bST), a naturally occurring metabolic modifier that is now being manufactured in larger quantities through the use of recombinant DNA technology. Manufactured bST came onto the market in 1994 and is now administered to as many as half of all U.S. dairy cattle to increase per-cow milk output. Although bST is being used commercially in approximately 20 countries, it is banned in the European Union (EU). The first U.S. approval of a commercial product from a GE animal is for the drug ATryn, an anticoagulant agent being produced in the milk of transgenic goats. FDA announced its approval on February 6, 2009. The goats were genetically engineered by introducing a segment of DNA into their genes that coded for the goat to produce human antithrombin in its milk. Antithrombin is a naturally occurring protein in healthy humans that helps keep blood from clotting in blood vessels. Other developments include pigs that have been engineered for increased sow milk output to produce faster-growing piglets. Chinese researchers announced in April 2011 that they had produced a herd of dairy cattle whose milk contains human breast milk proteins (lysozyme, lactoferrin, and alpha-lactalbumin). The researchers used cloning technology to introduce human genes into the DNA of Holstein dairy cows before the genetically modified embryos were implanted into surrogate cows. Cloned cattle also have been developed to resist mastitis, an infectious disease of the udder. A genetically engineered salmon—AquAdvantage salmon—with enhanced growth characteristics is currently under review by FDA for commercialization. If approved, it would be the first GE animal approved for human consumption. The company that developed the salmon, AquaBounty Technologies, Inc., has artificially combined growth hormone genes from an unrelated Pacific salmon with DNA from the anti-freeze genes of an eelpout. This modification causes production of growth hormone year-round, creating a fish the company claims grows at twice the normal rate. Output traits such as drugs recovered from animal milk ("pharming"), milk that lacks allergenic proteins, and animal organs for human transplant (xenotransplantation) that resist rejection are other contemporary objectives of animal biotechnology research. In March 2006, researchers at the University of Missouri announced the creation of transgenic pigs whose tissue contains omega-3 fatty acids. The consumption of omega-3 fatty acids, found primarily in fish, has been linked to lowered incidence of heart disease in humans. Similar research is also under way to produce omega-3 fatty acids in cow's milk and in chicken eggs. This report describes several scientifically emerging animal biotechnologies that are raising a variety of questions concerning risks to humans, animals, and the environment, as well as ethical concerns. The report examines applications of the technologies and discusses major issues that may arise. Consumers, agricultural producers, the biotechnology industry, and federal regulatory bodies are debating the relative costs and benefits of these technologies. As technologies move toward commercialization, Congress is being asked to examine these issues and possibly to refine the current federal regulatory structure governing the technologies and their agricultural products. Given the breadth of the term "animal biotechnology," one might reasonably define it to include thousands of years of humans selectively breeding animals: observing desirable animal traits and attempting to breed those traits into successive lines of animals. One of the first modern forms of assisted reproductive technology (ART) was artificial insemination (AI). AI has been long established as a technological advance in traditional selective breeding and an important adjunct to the development of modern industrial animal production, especially in dairy and poultry. AI was adopted by producers and accepted by the public with virtually no controversy. For example, more than 70% of all U.S.-bred Holstein cows, by far the most widely used milk producers, are artificially inseminated. Estrus synchronization, which improves the efficiency of AI by more accurately controlling when a female is in heat, is also an important animal biotechnology. With the development in the 1970s and patenting in the 1980s of recombinant DNA techniques, and the subsequent analysis of genes, their resulting proteins, and the role played by the proteins in animal biochemical processes (functional genomics), modern biotechnology is increasingly equipped with a set of sophisticated tools holding the promise of transforming the selective breeding of animals. The range of new techniques and technologies could transform animal biotechnology in ways that plant biotechnology was transformed in the 1980s and 1990s. Modern animal biotechnology is developing against the background of public experience with plant biotechnology, and controversy over the technologies may be a continuing feature of animal biotechnology development, not least because of the closer connection between humans and some animals and the belief that techniques developed for animals are only a step away from application to humans. Some of the better known animal biotechnologies follow. A number of them are types of assisted reproductive technology (ART). After AI and estrus synchronization, embryo transfer (ET) is the third-most commonly used animal biotechnology technique. In ET, a donor cow of superior breeding is chemically induced to superovulate. The eggs are then fertilized within the donor, the embryo develops and is then removed and implanted in a recipient cow. Between removal and implantation, embryos may be frozen for safekeeping. Because of the relatively high costs, ET is used mostly within registered cowherds. A prominent area of contemporary animal biotechnology research is the development of transgenic animals through genetic engineering (GE) technology. Transgenic animals are produced by introducing an isolated DNA fragment into an embryo so that the resulting animal will express a desired trait. Transgenic animals may be generated by the introduction of foreign DNA obtained through animals of the same species, animals of different species, microbes, humans, cells, and in vitro nucleic acid synthesis. The only currently routine use of transgenic animals, primarily mice, is in the area of human disease research. The anti-clotting agent in goat milk is the first such application to be approved by FDA (March 2009). As noted above, a herd of GE dairy cattle has been created that produces human breast milk proteins in the cow's milk. That innovation could be 10 years or more away from any commercialization efforts. Potential agricultural applications from genetically engineering animals could include improved feed use and faster growth; more resistance to disease; meat that is leaner or that has more of some other desirable quality; and possibly even animal waste that is more environmentally benign. Table 1 provides examples of various objectives of animal biotechnology involving genetic modification. With in vitro fertilization (IVF), a technician removes unfertilized eggs (oocytes) from the donor cow's ovaries, usually recovering 6-8 useable oocytes. The oocytes mature in an incubator and are fertilized with sperm. The resulting zygotes incubate and develop in the laboratory before being placed into the recipient cow. While IVF can produce many fertilized embryos, the added expense of ET makes the procedure prohibitive in most cases. The dairy industry prefers heifers and the beef industry prefers bulls. Embryo sexing methods in cattle have been developed using a bovine Y-chromosome probe. Technicians remove a few cells from the embryo and assess the DNA in these cells for the presence of a Y-chromosome. Presence of a Y-chromosome determines the embryo is male. Research is also developing in sperm sexing technology. Cloning, discussed at greater length below, is a biotechnology technique developing rapidly and with significant public controversy. Most people think of cloning as the creation of an organism that is genetically identical to another one. However, scientists use the term more broadly, to refer to production not only of such organisms but also of genetically identical cells, and to replication of DNA and other molecules. It also refers to a form of reproduction found naturally in many single-celled organisms, as well as plants and animals. These differences in meaning and usage have caused some confusion in public debate about cloning, where the main area of controversy relates to artificial cloning involving higher organisms, including humans. This is a technique where researchers inactivate, or "knock out," a gene by replacing it or disrupting it with an artificial piece of DNA in order to determine what that particular gene does—for example, cause or protect against some disease, alter metabolism, and so forth. A knockout mouse is a laboratory mouse subjected to this technology. The basic federal guidance for regulating the products of agricultural biotechnology 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 principle has been that GE products should continue to be regulated according to their characteristics and unique features, not their methods of production, 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 policy experience. Some newer applications of biotechnology did not exist when the current regulatory framework was enunciated. The NRC animal biotechnology report concluded that this regulatory regime "might not be adequate to address unique problems and characteristics associated with animal biotechnologies" and that federal agency responsibilities are not clear. Within the Department of Health and Human Services (HHS), FDA regulates food, animal feed ingredients, and human and animal drugs, primarily under the Federal Food, Drug, and Cosmetic Act (FFDCA; 21 U.S.C. §301 et seq. ). FDA has stated that most—although probably not all—gene-based modifications of animals for production or therapeutic claims fall within the purview of the agency's Center for Veterinary Medicine (CVM), which regulates them under the FFDCA as new animal drugs. A new animal drug (NAD) must be approved by the agency after it is demonstrated to be safe to man and animals, as well as being effective. Regulation of transgenic animals as NADs, however, suggests to some observers (e.g., the Center for Food Safety, Union of Concerned Scientists) the inherent weakness of existing regulatory structures to respond adequately to the complexities that arise with animal biotechnology innovations. The NAD review process is at the center of concern over FDA's potential approval of GE salmon for commercialization. Primarily under the FFDCA, FDA's Center for Food Safety and Applied Nutrition (CFSAN) is responsible for assuring that domestic and imported foods are safe and properly labeled. Generally, FDA does not review new foods themselves for safety before they enter commerce but does have enforcement authority to act if it finds foods that are adulterated under the act. All food additives , whether or not introduced through biotechnology, must receive FDA safety approval before they can be sold; the exception to pre-market approval are those on a list FDA has determined to be "generally recognized as safe" (GRAS). In the approval of GE sugar beets, which was primarily a USDA Animal and Plant Health Inspection Service action, FDA also reviewed the application and concluded that the sugar from GE beets posed no dangers to human health. Sections of the FFDCA and of the Public Health Service Act (42 U.S.C. §262 et seq .) provide the authorities for FDA's Center for Drug Evaluation and Research and Center for Biologics Evaluation and Research to regulate the safety and effectiveness of human drugs and other medical products, including those produced by GM animals. Under these laws, FDA requires pre-market review and licensing of such products, and requires that their production conditions ensure purity and potency. On January 15, 2009, FDA's CVM released its industry guidance on how it plans to regulate GE animals. This final document hews closely (with a few modifications) to the draft version that FDA published on September 18, 2008. The final document asserts that FDA's authority to regulate GE animals comes under the new animal drug provisions of the FFDCA. A drug is defined by the act, in part, as "intended to affect the structure or any function in the body of man or other animals." Also, part of the FFDCA definition of "new animal drug" is one intended for use in animals that is not generally recognized as safe and effective for use under the conditions prescribed or recommended, and that has not been used to a material extent or for a material time. "The rDNA construct in a GE animal that is intended to affect the structure or function of the body of the GE animal, regardless of the intended use of products that may be produced by the GE animal, meets the FFDCA drug definition," the guidance states (on page 5). A new animal drug is considered "unsafe" unless FDA has approved an application for that particular use, or it is for investigational use and subject to an exemption from the drug approval requirement (among a few other specified exemptions). Therefore, most developers will have to submit to the "Investigational New Animal Drug" (INAD) process at FDA prior to shipping any GE animals or to marketing any food or feed derived from GE animals. In other words, it is illegal to introduce food from a GE animal into the food supply that has not been approved by FDA. The guidance lays out the pre-market approval process including the information to be required of developers. Under the guidance, FDA will examine both the direct toxicity (including allergenicity) potential of food from a GE animal as well as any indirect toxicity. Generally, food and feed will be considered safe if the composition of edible materials from the GE animal can be shown to be as safe as from a non-GE animal. The labeling requirements for GE-derived foods would be the same as for other foods: FDA has oversight over the labeling of seafood, dairy products, and whole shell eggs, and USDA over the labeling of most meat, poultry, and egg products (see below). More specifically, food from GE animals would not have to be so labeled, except when it takes on a different character from its non-GE counterpart. On August 25, 2010, 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 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 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 is also moving through the environmental review process as required by the National Environmental Policy Act. While there is no timeline for making a decision, the VMAC will advise officials whether to approve the salmon and make recommendations regarding the need to label the fish, although FDA has indicated that it 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, a bill requiring the labeling of all GE salmon entering or sold in the state. FDA is evaluating the GE salmon under its authority to regulate new veterinary drugs 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 the 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 could 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. In February 2011, the House introduced H.R. 521 , a companion to S. 230 , which would prevent FDA from approving the GE salmon. The bills would amend the Federal Food, Drug, and Cosmetic Act to state that GE fish "shall be deemed unsafe." The House and Senate bills have been referred to the Energy and Commerce Committee's Subcommittee on Health and the Committee on Health, Education, Labor, and Pensions, respectively. Several USDA agencies, operating under a number of statutory authorities, also have at least potential roles in the regulation of transgenic and cloned animals and their products. As several critical reviews have indicated, USDA has not had a clearly spelled out policy in this area, including whether it intends to exercise these authorities to regulate GE animals. USDA's Animal and Plant Health Inspection Service (APHIS) earlier had expressed its intention to publish an advance notice of proposed rulemaking (ANPR) on GE animals, possibly in 2008. Instead, in concert with FDA's notice on its draft guidance, APHIS published, in the September 19, 2008, Federal Register , a request for information from the public and scientists on how GE animals might affect U.S. animal health. Over 670 comments were received by November 18, 2008, as they had been for the FDA draft guidance. Most of the comments were outside APHIS's authority under the Animal Health Protection Act. FDA issued its final guidance for developers of GE animals on January 15, 2009. APHIS will work with FDA to determine its role in the comprehensive oversight of GE animals. APHIS has broad authority, under the Animal Health Protection Act (AHPA; 7 U.S.C. §8301 et seq. ) to regulate animals and their movement to control the spread of diseases and pests to farm-raised animals. APHIS also administers the Viruses, Serums, Toxins, Antitoxins, and Analogous Products Act (21 U.S.C. §151-159), aimed at assuring the safety and effectiveness of animal vaccines and other biological products, including those of GM origin, and the Animal Welfare Act (7 U.S.C. §2131 et seq. ), portions of which govern the humane treatment of several kinds of warm-blooded animals used in research (but generally not agricultural animals). Elsewhere at USDA, the Food Safety and Inspection Service (FSIS) is responsible for ensuring the safety and proper labeling of most food animals and meat and related products derived from them under the Federal Meat Inspection Act (21 U.S.C. §601 et seq. ) and Poultry Products Inspection Act (21 U.S.C. §451 et seq. ). Reports and studies have cited a number of other authorities and federal agencies that are or could be relevant for the regulation of GE animals. The National Environmental Policy Act (NEPA; 42 U.S.C. §4321 et seq. ) requires federal agencies to consider the environmental impacts of their actions. The Environmental Protection Agency derives its authority from, among other laws, the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA; 21 U.S.C. §301 et seq. ); pesticides derived from living organisms, including those of biotechnology, are within its purview. The Interior Department's Fish and Wildlife Service and the Commerce Department's National Marine Fisheries Service have also been cited. In 1997, scientists at the Roslyn Institute in Scotland used nuclei from the mammary cells of an adult sheep to clone "Dolly." Such nuclear transfer (NT) techniques were first developed in amphibians in the 1950s. They were first used in sheep in 1986, with the production of clones using nuclei taken from sheep embryos. The significance of Dolly was that she was cloned from differentiated cell types obtained from an adult (called "somatic cell nuclear transfer" or SCNT), rather than undifferentiated cells from an embryo ("embryonic NT"). Cloning in animal agriculture is generally not applied in isolation from other biotechnologies such as genetic engineering. Scientists note that cloning does not require fertilization and is not, by itself, a form of genetic engineering, that is, altering, removing, or inserting genes into an animal's existing DNA. However, cloning can involve transgenic as well as non-transgenic cells. SCNT is not yet a notably efficient technique ready for widespread commercial adoption. For example, only about 6% of the embryos transferred to recipient cows resulted in healthy, long-term surviving clones, according to a 2005 report. The European Food Safety Authority (EFSA) recently reported that overall success rates vary by species, ranging from 0.5% to 5%. Success rates are said to be improving, however. As more efficient cloning technologies, which can overcome the range of cloning abnormalities that have resulted from SCNT, are introduced, they could provide new opportunities in human medicine, agriculture, and animal welfare. This is the focus of much of the current international animal biotechnology research. The EFSA draft scientific opinion estimated the number of live clones worldwide in 2007 to be less than 4,000 cattle and 1,500 pigs, of which about 750 cattle and 10 pig clones were in the United States. EFSA reported that life span data were limited, with only a few reports on cattle of six to seven years of age and no data available in 2007 on the full natural life span of livestock clones generally. FDA in July 2001 began asking companies to refrain voluntarily from marketing the products of cloned animals and their offspring until it could fully assess the scientific information on their safety. It subsequently issued two draft risk assessments on the matter, culminating in the release of a final risk assessment—and industry guidance that effectively lifted its voluntary moratorium—on January 15, 2008. Some stakeholders, including several Members of Congress, wanted a continuation of the moratorium until more studies are completed on safety and other aspects of animal cloning. Their views were reflected in nonbinding language to accompany the omnibus spending measure for FY2008, which passed in late 2007, and binding language in the Senate version of the pending farm bill ( H.R. 2419 ); see " Congressional Activity ," at the end of this report, for details. In an October 2003 draft risk assessment, FDA had concluded that "the current weight of evidence suggests that there are no biological reasons ... to indicate that consumption of edible products from clones of cattle, pigs, sheep or goats poses a greater risk than consumption of those products from their non-clone counterparts." However, shortly after the assessment's publication, many members of FDA's Veterinary Medicine Advisory Committee stated that there were not enough data to fully understand any potential risks from this relatively new technology. On December 28, 2006, FDA's CVM released another long-awaited risk assessment—also in draft form, along with a proposed risk management plan and draft guidance for industry—on the safety of animal clones and their offspring. The lengthy risk assessment examined two important questions: the safety of food from cloned animals and their progeny, and the effects of the process on the health of these animals. FDA officials stressed that the risk assessment did not address any other issues, such as the social and ethical aspects of cloning or consumer acceptance of cloned animal products. The risk assessment also focused only on cloning from non-transgenic cells. This risk assessment is now final. The final risk assessment concluded—as had the December 26, 2006, draft—that the meat and milk of clones of adult cattle, pigs, and goats, and the meat and milk from the offspring of these clones, were as safe for human consumption as the food from conventionally bred animals. FDA added that not enough data were available to reach the same conclusions about sheep clones (or other species) and recommended that they not yet be used for human food. The risk assessment arrived at these conclusions after analyzing physiological, anatomical, health, and behavioral data on the animals and evaluating available information on the chemical composition of their milk and meat. FDA said its final assessment was peer-reviewed by an independent panel of experts, who agreed with the findings. The final assessment also took into account many thousands of public comments and additional data that became available since the draft was prepared, the agency said. The agency said it would not require any special measures (including labeling) relating to the use of food products or animal feed derived from cloned cattle, goats, and pigs because they are "no different from food derived from conventionally bred animals. Should a producer express a desire for voluntary labeling (e.g., 'this product is clone-free'), it will be considered on a case-by-case basis to ensure compliance with statutory requirements that labeling be truthful and not misleading." The industry guidance states that products from the offspring of cloned animals of any species are suitable for food or feed consumption. Upon release of the 2006 proposed assessment, FDA officials said they were continuing to ask livestock breeders and producers to keep food products from cloned animals and their offspring out of commerce. This moratorium was announced in July 2001 and remained in effect until the final guidance was released in January 2008. Although the FDA moratorium is no longer in effect, USDA has since been encouraging technology providers to maintain the voluntary moratorium, but for products from cloned animals only. Food products from cloned animals' offspring would not be similarly constrained. During a continuation of this moratorium, USDA said it would "work closely with stakeholders to ensure a smooth and seamless transition into the marketplace for these products." Officials emphasized that, at least initially, almost all cloning-related foods will come not from the clones themselves but rather from their sexually reproduced offspring. Cloned animals—like other "elite" breeding animals such as a prized bull—are too valuable to use for food production, except possibly when they reach the end of their productive lives. FDA observed that it can cost $20,000 or more to produce one such animal. One ongoing question has been whether, in fact, milk and meat from the offspring of clones are entering the food supply. Several press accounts have quoted farmers and others who say they have sold such offspring to be slaughtered for food, and that the total number nationwide may be in the hundreds or even thousands. On the other hand, those numbers would amount to a small fraction of the total number of U.S. livestock slaughtered (e.g., 34 million cattle and 109 million hogs in 2007). FDA's January 2008 risk assessment did conclude that some animals involved in cloning (notably cattle and sheep surrogate dams) and some clones are at greater health risk than conventional animals. While the types of animal health problems observed in cloned animals are no different than those found with other assisted reproductive technologies, these problems appear more frequently in cloning than in the other technologies. Such problems include late gestational complications in the surrogate mothers, and increased risk of mortality and morbidity in calf and lamb clones that are apparently caused mainly by large offspring syndrome (LOS). Swine and goat clones and their mothers do not appear to experience any additional cloning-related problems, FDA reported. FDA found that livestock clones as a group tend to have more health problems and death rates at or right after birth. However, the risk assessment added that most animals surviving the neonatal period appear to grow and develop normally, and that no increased risk of adverse health effects have been reported in clones approaching reproductive maturity. The agency said that the technology was too new to draw any conclusions on the relative longevity of livestock clones. Cloning currently is not in commercial use in Europe, nor is there any specific authorization procedure in the European Union for products from cloned animals. The European Food Safety Authority (EFSA) on July 24, 2008, released its scientific opinion on the food safety, animal health and welfare, and environmental impacts of animals derived from cloning. The EFSA opinion was limited to cattle and pigs, but its findings generally do not appear to be substantially different from those in the FDA assessment. According to EFSA, "Based on current knowledge, and considering the fact that the primary DNA sequence is unchanged in clones, there is no indication that differences exist in terms of food safety between food products from healthy cattle and pig clones and their progeny, compared with those from healthy conventionally-bred animals." As with FDA, the EFSA conclusion is based on an examination of compositional and nutritional data, the probability for the presence of novel constituents, the health status of the animal, and available data on toxicity, allergenicity, and microbiology. EFSA agreed that SCNT can be a successful reproductive technique, although death and disease rates of clones are significantly higher than those of conventionally reproduced animals. EFSA noted that surrogate dams have higher rates of failed pregnancies and other problems. "A significant proportion of clones, mainly within the juvenile period for bovines and perinatal period for pigs, has been found to be adversely affected, often severely and with fatal outcome. Most clones that survive the perinatal period are normal and healthy," however. Adverse health effects were not observed in the offspring of clones, although studies have not been conducted for their entire lifespans. EFSA also found no indication of new or additional environmental risks compared with conventionally bred animals. The EFSA report findings are being used by the European Commission (EC), the European Parliament, and member states as they discuss their policies regarding animal cloning. There is disagreement over the issue among officials in the various European bodies. This was illustrated when the European Parliament in early September 2008 approved a resolution asking the EC to propose a comprehensive ban on cloning animals for food, out of animal health and welfare and ethical concerns. However, at an initial discussion of the issue in early January 2009, EC commissioners indicated that there was time to consider a science-based risk assessment before deciding whether or not to ban cloning. In April 2009, Members of the European Parliament (MEPs) called for the EU to introduce a ban on the marketing of meat and milk from cloned animals. The EC wanted meat and milk from cloned animals to be included under "novel foods." A ban could be difficult to impose because an EFSA Opinion does not find a food safety risk in the meat or milk of cloned animals. To counter a possible challenge in the WTO, some MEPs have argued that the EU should use ethical grounds to justify a ban on food from cloned animals and their offspring. Some observers allege that WTO regulations could permit member-states to impose bans on ethical grounds. In October 2010, the European Commission released a report to the European Parliament that proposed a five-year suspension of animal cloning for food production in the EU. A decision was expected at the end of March 2011, but that is pending. Critics, including a number of consumer advocacy and animal rights groups, oppose the use of cloned animals and their offspring for food. In October 2006, a coalition formally petitioned FDA to impose a moratorium on producing foods from cloned animals, and to establish rules for mandatory pre-market review and approval of cloned foods by regulating clones as new drugs under the food and drug act. These consumer and animal welfare groups contend that FDA has ignored or minimized a number of food safety and animal welfare problems. These include the treatment of surrogate mothers with high doses of hormones and their clone offspring, who often have severely compromised immune systems, with large doses of antibiotics, which could enter the human food supply; imbalances in clones' hormone, protein, or fat levels that could compromise meat and milk safety and quality; the possibility of increased foodborne illnesses; and a wide variety of health problems and abnormalities in the animals themselves. Consumer advocates continue to assert that there are no consumer benefits from cloning. FDA disagrees, citing the potential to breed livestock that meet consumers' changing tastes for traits like leanness, tenderness, color, size of meat cuts, and so forth. These would be in addition to potential producer-related benefits such as disease resistance, climate suitability, fertility, and improved physical qualities, FDA states. Opinion polls have suggested that the general public may not yet be ready for widespread animal cloning. A 2006 poll commissioned by the Pew Initiative on Food and Biotechnology, for example, found that Americans generally were not well informed about animal cloning, but 64% of those questioned are "uncomfortable" with it. Forty-three percent of Americans believed that foods from clones are unsafe, the survey found. Cloning opponents cite these types of findings to argue that products from cloned animals should be labeled so that consumers could avoid them if they wanted to. Some critics have urged the President to halt all FDA actions on cloning until a national panel that includes ethicists and religious leaders can consider the ethical and other social issues that they believe the technology has raised. Polls have also shown that a significant portion of the public would not eat GE salmon and believe that if FDA does approve the fish for sale, it should be labeled. The NRC animal biotechnology report had stated that embryonic splitting and nuclear transfer using embryonic (not adult) cells were performed with some dairy cows to successfully produce genetically valuable offspring that were milked commercially and whose milk and meat did enter the food supply. Few concerns were raised by NRC authors about using these types of cloned animals for food, since they are generally believed to pose a low level of food safety concern. However, evaluating cloned-animal food composition "would be prudent to minimize any food safety concerns. The products of offspring of cloned animals were regarded as posing no food safety concern because they are the result of natural matings." Other issues, notably consumer acceptance, social values, and animal welfare, could eventually overshadow any lingering questions about human health. In August 2009, the Council for Agricultural Science and Technology (CAST), an international consortium of 33 professional and scientific societies based in Ames, IA, published a paper discussing issues surrounding animal cloning and transgenic animal research. The report acknowledges that biotechnology proponents "have not convinced consumers that including these technologies in food production systems is in the consumer's best interest." The report also criticizes both FDA and USDA for failing to explain to the public the criteria for evaluating transgenic animals. Because FDA has taken a nontraditional approach to regulating transgenic animals by defining the transgene as a drug, the CAST authors argue that this "establishes an unusually high hurdle for the approval of a food product." The report further argues that a regulatory process in which consumers have confidence and with which companies can afford to comply must be in place for transgenic technologies to be applied to livestock. The following are among the policy concerns that have arisen along with the development of new biotechnologies in animal agriculture. Some may be more applicable to GE-related technologies than to cloning per se , although others, like social acceptance and animal welfare concerns, may apply to both. Environmental concerns arising from emerging animal biotechnologies are largely speculative at this time because few products have been commercialized. For example, although the EFSA draft scientific opinion foresaw no environmental impact, it also noted that limited data were available on this aspect of animal cloning. Industrial developers of agricultural biotechnology might argue that more efficient production of animal-based feeds could reduce the resources necessary to produce food and, thereby, reduce the environmental burden of animal production. Should the development and widespread adoption of the "EnviroPig" (tm), which produces less phosphorus in its waste, occur, it might be considered by some to be a positive environmental benefit of agricultural biotechnology. The 2002 NRC animal biotechnology report noted potential negative environmental impacts of genetically altered animals. Escape, survival, and gene flow into wild populations were identified as major concerns. Of most concern to the NRC committee was the escape into the environment of GE salmon that have been genetically modified for rapid growth, and the likelihood that they could then breed with wild populations in the environment. FDA is currently discussing this and other environmental issues as they consider approving GE salmon. Other genetically altered animals such as fish, insects, and shellfish could also potentially escape into natural environments and become feral, disrupt ecosystems, or introduce novel genes in a natural population. The FDA guidance on GE animals notes that the agency will comply with requirements of the National Environmental Policy Act (NEPA). Environmental risks are likely to differ depending upon the animal and application. For example, the types of environmental concerns arising from a GE cow bred for resistance to mastitis will differ greatly from the concerns raised by a GE fresh-water fish engineered to grow more rapidly. Material to accompany FDA's final guidance notes that "although the agency has extensive experience in environmental assessment, including for fish, other federal and state agencies have overlapping or complementary authority and expertise" that FDA intends to tap. It also promised to make the results of environmental reviews public. Unexpected and unintended compositional changes arise with all forms of plant and animal genetic modification, including GE, concluded the IOM-NRC report on genetically engineered foods. The report added that, so far, no GE-related adverse human health effects have been documented. However, the report's authors cited "sizeable gaps" in the ability to identify compositional changes caused by all forms of genetic modification—whether GE or conventional—and their relevance for human health, and they recommended new approaches for assessing the safety of new foods both before and after they enter the market. Previous research and experience with commercializing transgenic plants suggested that negative effects on human health were virtually nonexistent. While not asserting that genetically modified organisms necessarily generate health problems, more recently reported research in peer-reviewed scientific journals has suggested that GMOs may raise food safety concerns: Australian researchers have published an article explaining that the transfer from a bean to a pea gene that expresses an insecticide protein has resulted in antibody production in mice fed the transgenic pea. The antibody reaction is a marker of allergic reaction. Italian researchers at the University of Urbino had previously shown that absorption of transgenic soy by mice induced modifications in the nuclei of their liver cells. Recent research showed that a return to non-transgenic soy made the observed differences disappear. Norwegian scientists at the University of Tromso demonstrated that the catalyst 35S CaMV, an element of the genetic structures used to modify a plant, can provoke gene expression in cultured human cells. This catalyst was previously believed to operate in this way only in plants. In the NRC animal biotechnology report, experts observed that the scientific principles for assessing the safety of GE animals are "qualitatively the same" as for non-GE animals. However, because GE can introduce new proteins into foods, the potential for allergenicity, bioactivity, and/or toxicity responses should be considered, they said. Others have remarked that animals genetically engineered for nonfood products like pharmaceuticals or replacement organs might be of concern if such animals entered or affected the food supply. Criteria for selecting desirable traits to be produced through transgenic animals will likely be based on the demand for specific commercial characteristics. Even if scientific evidence is convincing that GE and cloned animal products are safe and beneficial for human consumption or economically valuable to producers, other concerns may limit marketplace and consumer acceptance. Polls in recent years in the United States indicate that public knowledge about food and biotechnology generally remains limited. In two 2005 surveys, approximately half of those surveyed expressed opposition to the use of biotechnology in the food supply. More than half of those in a 2005 Pew-sponsored poll said they opposed research into genetically modified animals, although opposition declined with increased knowledge. Many Americans have heard about animal cloning; two-thirds expressed discomfort with it—more of them out of religious or ethical concerns than food safety concerns. A majority of respondents to the Pew survey believe that regulators should take into account ethical and moral considerations. (See also the 2006 Pew findings on cloning, under " Cloning Policy Developments ," section on " Other Views .") Consumers may be less willing to accept the practice of genetically modifying animals than plants, some have argued, observing that people relate differently to animals, which many recognize as sentient beings. Some observers have expressed the concern that cloning farm animals might lead more quickly to human and pet cloning, which those observers oppose. Others believe that modifying animals, for example, to save human lives through xenotransplantation or the production of some important drug, might be more acceptable than doing so simply to produce more or cheaper food. Further, science alone cannot resolve ethical views that appear to vary widely: Some people, irrespective of the application of technology, consider genetic engineering of animals fundamentally unethical. Others, however, hold that the ethical significance of animal biotechnologies must derive from the risk and benefits to people, the animals, and/or the environment. Yet another view focuses on the right of humans to know what they are eating or how their food or pharmaceuticals are being produced and therefore labeling becomes an issue to be addressed. Food industry leaders appear sensitive to consumer unease with animal biotechnology in general and cloning in particular. Many companies are not yet ready to process and sell meat and milk from transgenic and cloned animals because, they believe, consumers may view the products as less safe than more conventionally produced food products. The food industry also does not want to be portrayed as overstepping any widely held ethical or moral concerns about the new technologies. Such observations led some skeptics of animal biotechnology to propose that FDA not only consider the science and safety issues, but also these broader concerns. In the area of human reproductive health, for example, FDA and other federal agencies have invoked particular moral arguments either to reinforce scientific arguments or to counterbalance scientific evidence. Others believe that FDA should base its decisions only on scientific evidence, and perhaps some other body should be established to consider the ethical and cultural questions. As the NRC animal biotechnology report observed, regulatory decisions and enforcement involving animal biotechnology "are difficult in the absence of an ethical framework." Some believe that segregating and labeling the products of biotechnology in agriculture, including meat and milk, would enable the consumer to choose whether or not to buy such products. Either segregating and labeling biotechnology products or failing to do so could contribute to public suspicion that these products are flawed or different in some negative way, which may lead to contradictory policy decisions. As noted, the FDA guidance on GE animals does not require their products to be so labeled. Opponents of labeling argue that biotechnology products essentially are the same as more conventional products—and are subjected to the same rigorous safety standards—and therefore should be treated no differently in the marketplace. A study by USDA's Economic Research Service reported that consumers' willingness to pay for a food item declines when the food label indicates that it was produced with the aid of biotechnology. In December 2007, two leading U.S. livestock cloning companies announced they were creating a voluntary system for tracking cloned animals. The program, which they asserted "is designed to facilitate marketing claims," is to involve a national registry providing for the individual identification of each cloned animal, affidavits that owners will sign committing to proper marketing and disposal of such animals, and monetary deposits to be returned when such commitments are fulfilled. Consumer organizations immediately criticized the initiative, noting that it would not track the offspring of cloned animals and was not mandatory. However, fierce debate continues regarding even the voluntary labeling of products to denote that they are not derived from biotechnology—notably the use of so-called "rBST-free" labels on dairy products. Although FDA cleared rBST as safe for commercial use in 1994, and it has been widely adopted by U.S. dairy farmers, the substance continues to be viewed skeptically by some consumer advocates. They have convinced a number of dairy processors and retailers to label their products as free of added BST manufactured through the use of recombinant DNA technology. FDA guidance permits such labeling so long as it is not misleading, is presented in the proper context, and is adequately substantiated. For example, a firm cannot state that its product is "BST-free" because the substance occurs naturally in milk, or even simply that it is "rBST-free" because that could imply a compositional difference between naturally occurring and rBST, which there is not, FDA has ruled. But certain claims that no rBST was used could be acceptable, the agency stated. FDA has looked to the states to evaluate the acceptability of such labels, and a number of these states have challenged processors' use of them. Battles over such restrictions have been notable in Pennsylvania, Ohio, Utah, Kansas, and elsewhere. The California Assembly passed a bill in May 2011 that would require labeling of GE salmon should FDA issue an approval to the AquaBounty company. Meanwhile, USDA has reminded stakeholders that products from cloned animals are not eligible to be labeled as organic, under its National Organic Program (NOP). While cautioning that the organics program is a marketing, not a food safety, program, USDA also noted: "Cloning as a production method is incompatible with the Organic Foods Production Act and is prohibited under the NOP regulations." However, the status of products from clone offspring is less clear. The department noted that USDA's Agricultural Marketing Service, where the NOP is located, was preparing rulemaking to address the organic status of such offspring. Some aspects of gene transfer, and of cloning, have the potential to create infectious disease hazards and/or impaired reproduction. Looming large in the ethical debate are questions about whether genetic modifications, cloning, and other technologies stress animals unnecessarily, subject them to higher rates of disease and injury, and hasten death. The NRC animal agriculture report noted, for example, that ruminants produced by in vitro culture or nuclear cell transfer methods tend to have higher birth weights and longer gestation periods than those produced by artificial insemination, creating potential calving problems. Nuclear transfer techniques to propagate genetic modifications may increase risks to the reproductive health and welfare of both the surrogate female animals and their transgenic offspring. The report cited other evidence of problems such as anatomical, physiological, or behavioral abnormalities in many transgenic animals. Some scientists have countered that animal welfare problems have been exaggerated and tend to recede, particularly as the technologies are perfected. Most appear to agree, however, that animals originating from some forms of genetic modification or from cloning may require closer observation and care. (See also the section of this report on " Cloning Policy Developments .") In Europe, officials continue to consider the ethical dimensions of animal welfare in formulating their own cloning policies. The EC charged a separate panel, the European Group on Ethics in Science and New Technologies, with drafting an opinion. This group released an opinion on January 16, 2008, stating, in part: Considering the current level of suffering and health problems of surrogate dams and animal clones, the EGE has doubts as to whether cloning animals for food supply is ethically justified. Whether this applies also to progeny is open to further scientific research. At present, the EGE does not see convincing arguments to justify the production of food from clones and their offspring. If such products were to be allowed into the market, certain requirements regarding food safety, animal welfare and traceability should be met, the group added. Could the introduction of a few genetically altered or cloned "superspecies" bring too much genetic uniformity to herds? As genetic diversity declines, herds could be more susceptible to diseases, leading to large production losses and/or much heavier use of antibiotics and other animal drugs to treat them, some have argued. A related concern is that a relative handful of "elite" producers or breeders might hold the proprietary rights to these species, to the disadvantage of many farmers and ranchers. Some animal biotechnology researchers have pointed to the potential importance of preserving unaltered germlines in domestic animals because they could prove to be an invaluable "gene bank" in the event that novel infectious diseases or inheritable genetic defects were inadvertently introduced into modified subpopulations as a consequence of genetic modification. If the United States were to be the first country to approve food products from cloned animals, how might the decision affect U.S. exports? Any exports of the products of animal biotechnology would presumably encounter a wide spectrum of foreign regulatory regimes, some more restrictive than the U.S. system. For example, the current European Union restriction on new biotechnology products is likely to encompass various restrictions on animal biotechnology as it does on plant biotechnology. On the other hand, researchers in a number of other countries, including some EU members, have been producing clones, and one—France—has published its own risk assessment on clones that, FDA has observed, generally agrees with the U.S. assessment. International guidelines pertaining to exports of animal products derived from biotechnology are being considered. The Codex Ad Hoc Intergovernmental Task Force on Foods Derived from Biotechnology held an initial meeting in September 2005 in Chiba, Japan, to determine the new work projects. Almost every country, except for the United States, proposed an animal biotechnology project. The task force agreed to move forward with a recombinant DNA (r-DNA) animal project, specifically to develop guidelines for how countries would assess the safety of foods derived from r-DNA animals. At a meeting in November-December 2006 in Chiba, the task force, among other things, reviewed the developing guidelines, agreeing to limit their scope to food safety and nutritional issues (while recognizing the importance of others like animal welfare, environmental, and ethical concerns). USDA has said it would consider "discussion with industry on possible verification of its supply chain management plan to ensure that trading partners are aware of whether or not they receive cloned or non-cloned products." Imports of GE animals and their products into the United States also are of concern to some. In a December 2008 audit report, USDA's Office of Inspector General (OIG) concluded that the department has not established an import control policy for such imports but needs to do so. "To mitigate any risks to the U.S. environment, agriculture, and commerce from unapproved transgenic plants and animals entering the U.S. food supply, USDA will need to monitor" foreign developments in such technologies more closely, OIG also noted. Members of Congress in the past have proposed various bills aimed at more closely regulating the plant and animal products of agricultural biotechnology generally, requiring such products to be labeled, and providing a means to recover any damages caused by the technology. As with human cloning, ethical issues concerning animal clones and other animal biotechnologies also may continue to be visible public issues. As before, the 112 th Congress could be asked to play a larger role in weighing the benefits and costs of these evolving technologies, and to refine existing government oversight. In the 110 th Congress, the Senate-passed version of the 2007-2008 farm bill ( H.R. 2419 , in Section 7507) contained statutory language that would have required FDA both to postpone publication of its final risk assessment until the completion of several newly mandated studies, and also to maintain the voluntary marketing moratorium until then. However, conferees deleted the Senate language from the final measure (signed into law as P.L. 110-234 ). More specifically, the Senate bill would have directed the HHS Secretary to contract with the National Academy of Sciences to conduct a study on the safety of food products from cloned animals and the health effects and costs attributable to milk from cloned animals, with a report to Congress due within one year of enactment. The study was to address whether there were a sufficient number of studies to support the FDA draft assessment, and whether there were other pertinent ones that were not taken into account. It would have included an evaluation of potential public health effects and associated health care costs, and an evaluation of any consumer behavior and negative health and nutrition impacts resulting from a decrease in dairy consumption if milk from cloned animals and their offspring is commercialized. Animal cloning-related bills ( S. 414 and H.R. 992 ) were introduced in early 2007, both of which would have amended federal food safety laws to require that foods from cloned animals and their offspring be so labeled. Also introduced in early 2007 was S. 536 / H.R. 1396 , which would have prohibited the use of the "organic" label on food products from cloned livestock or their offspring. Another ( H.R. 4855 ), introduced in late 2007, would have required studies like those in the Senate farm bill on the impacts of food products from cloned animals entering the food supply. In late July 2008, three related bills were introduced that, their sponsor said, were to create a comprehensive framework for regulating GMOs. H.R. 6636 would have required the labeling of all foods produced with GE material. H.R. 6635 would have prescribed relatively stringent new regulations for FDA approval and oversight of GE crops. H.R. 6637 would have regulated business dealings between agricultural producers and the developers of genetically engineered plants and animals, and sought to hold biotechnology companies liable for any adverse on-farm impacts from their products. These bills were not enacted, nor were they reintroduced in the 111 th or 112 th Congresses to date. As discussed above in the section on GE salmon, bills introduced in the 112 th Congress ( H.R. 521 / S. 230 ) would prevent FDA from approving the GE salmon. The bills would amend the Federal Food, Drug, and Cosmetic Act to state that GE fish "shall be deemed unsafe." The House and Senate bills have been referred to the Energy and Commerce Committee's Subcommittee on Health and the Committee on Health, Education, Labor, and Pensions, respectively. | Animal agriculture is being transformed by rapid advances in biotechnology—a term that encompasses a variety of technologies, including genetic engineering (GE), genetic modification, transgenics, recombinant DNA techniques, and cloning, among others. Producers are interested in the application of biotechnology to improve productivity, consistency, and quality; to introduce new food, fiber, and medical products; and to protect the environment. Potential human health applications of transgenic animals include producing biopharmaceuticals and generating organs, tissues, and cells for xenotransplantation. Criticisms of such applications involve issues ranging from food safety and social resistance to potential negative impacts on animal welfare and on ecosystems. Questions also have arisen about the adequacy of the current regulatory structure to assess and manage any risks created by these technologies. 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. Consistent with the Coordinated Framework for Regulation of Biotechnology, FDA will do so under its existing statutory authority and regulations. Generally, GE-derived foods, for example, will be regulated like non-GE foods; if their 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. On February 6, 2009, FDA announced the first approval of a drug from a GE animal. The drug is a human anti-clotting agent produced in the milk of transgenic goats. FDA is also currently considering approval of the first genetically modified animal for human consumption, having declared in August 2010 that a GE salmon—AquaAdvantage Salmon—is safe to eat and poses no threat to the environment. FDA is considering environmental and labeling issues, and has not issued a final decision on the commercialization of the GE salmon. In letters from both houses, 40 Members have asked the FDA Commissioner to halt the approval process for the GE salmon, citing serious concerns with FDA's review and approval process. The congressional letters have been endorsed by over 50 consumer and environmental groups. 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 January 15, 2008, by FDA. The documents generally echoed FDA's December 28, 2006, draft risk assessment, which found that such products are as safe to eat as those of conventionally bred animals. 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 the U.S. Department of Agriculture (USDA) did ask that it be continued for products from clones (but not from the offspring of clones). Bills on animal cloning introduced in the 110th and 111th Congresses would have required all food from cloned animals or their offspring to be labeled, and prohibited food from cloned animals from being labeled as organic. The bills have not been reintroduced in the 112th Congress. A bill that would amend the Food, Drug, and Cosmetic Act to prevent the approval of genetically engineered fish (H.R. 521/S. 230) was introduced in the 112th Congress. |
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, P.L. 107-204 . This law has been described by some as the most important and far-reaching securities legislation since passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, both of which were passed in the wake of the Stock Market Crash of 1929. Sarbanes-Oxley had its genesis early in 2002 after the declared bankruptcy of the Enron Corporation, but for some time it appeared as though its impetus had slowed. However, when the WorldCom scandal became known in late June, the Congress showed renewed interest in enacting stiffer corporate responsibility legislation, and Sarbanes-Oxley quickly became law. The act established the Public Company Accounting Oversight Board (PCAOB or Board), which is supervised by the Securities and Exchange Commission (SEC or Commission). The act restricts accounting firms from performing a number of other services for the companies which they audit. The act also requires new disclosures for public companies and the officers and directors of those companies. Among the other issues affected by the legislation are securities fraud, criminal and civil penalties for violating the securities laws and other laws, blackouts for insider trades of pension fund shares, and protections for corporate whistleblowers. Currently, one of the most controversial provisions of the act is Section 404, Management Assessment of Internal Controls. The provision states: (a) Rules Required—The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal control report, which shall— (1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting. (b) Internal Control Evaluation and Reporting—With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement. The provision's controversy stems from charges that some aspects of Sarbanes-Oxley, particularly Section 404, are overly burdensome and costly for small and medium-sized companies. For example, one critic has stated that the costs of Section 404 are "extreme." "As one of our members testified before the House Small Business Committee, his company's efforts to comply with Section 404 in preparation to go public were simply too excessive to justify the effort—10% to 15% of gross revenues.... Well-published studies and hard data demonstrate similar cost percentages for small firms." The SEC over the years has taken various steps to delay compliance with Section 404 by defined small companies. For example, on May 17, 2006, the SEC issued a press release which, among other actions, announced that it would briefly postpone application of Section 404 to the smallest companies but that ultimately all public companies would be required to comply with the internal control reporting requirements of Section 404. This view taken by the Commission conflicted with several recommendations in a report issued by the Commission's Advisory Committee on Smaller Public Companies on April 23, 2006, which would exempt small companies from many of the internal reporting requirements of Section 404. On December 15, 2006, the SEC adopted rule changes which give smaller firms, referred to as non-accelerated filers, more time to comply with Section 404's internal controls reporting requirements. Under the extension, a non-accelerated filer must provide management's assessment concerning internal control over financial reporting in its annual reports for fiscal years ending on or after December 15, 2007. On April 4, 2007, the SEC's commissioners endorsed the recommendations of its staff to work closely with the PCAOB to issue auditing standards intended to ease the burden on small companies in complying with Section 404. Additionally, on May 23, 2007, the SEC commissioners voted unanimously to approve a relaxed set of guidelines for the internal accounting controls required by Section 404 for smaller public companies, defined in most cases as those with a public float below $75 million. The perceived problem of compliance with Section 404 reporting requirements faced by small and medium-sized companies was an issue in both the 109 th and 110 th Congresses and continued to be an issue in the 111 th Congress. Virtually identical bills addressing this issue were introduced in both houses of the 109 th Congress: H.R. 5405 in the House and S. 2824 in the Senate. Each bill was titled the Competitive and Open Markets that Protect and Enhance the Treatment of Entrepreneurs (COMPETE) Act. The bills would have permitted an issuer to elect voluntarily not to be subject to much of Section 404 of Sarbanes-Oxley if the issuer has a total market capitalization for the relevant reporting period of less than $700 million; has total product revenue for that reporting period of less than $125 million; has fewer than 1,500 record beneficial holders; has been subject to the various reporting requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 for a period of less than 12 calendar months; or has not filed and was not required to file an annual report under Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The bills would have set forth a de minimus standard for implementing the requirements of Section 404. The bills would also have required the SEC and the PCAOB to conduct a study assessing the principles-based Turnbull Guidance under the securities laws of Great Britain to the implementation of Section 404 of Sarbanes-Oxley and to submit the report to Congress within one year of enactment of the COMPETE Act. Bills introduced in the 110 th Congress continued the attempt to correct the perceived problems created by Section 404. H.R. 1049 , referred to the Committee on Financial Services, was titled the Amend Misinterpreted Excessive Regulation in Corporate America Act (AMERICA). The bill would have created an ombudsman for the Public Company Accounting Oversight Board (PCAOB or Board). The ombudsman would have been appointed by the Board and would have acted as a liaison between the PCAOB and any registered public accounting firm or issuer concerning issues or disputes related to the preparation or issuance of any audit report of that issuer, especially with respect to the implementation of Section 404; assured that safeguards existed to encourage complainants to come forward and to preserve confidentiality; and carried out other activities in accordance with guidelines prescribed by the Board. The bill would have required the SEC and the PCAOB to adopt revisions to their rules or standards under Section 404 of Sarbanes-Oxley so that the costs of implementation of Section 404 would not significantly increase the costs of complying with the annual audits required by the Securities Exchange Act. Further, the bill would have prohibited a private right of action to be brought against any registered public accounting firm in any federal or state court on the basis of a violation or alleged violation of the requirements of Section 404 or of the standards issued by the Board for the purposes of implementing the provisions of Section 404. H.R. 1508 , referred to the Committee on Financial Services, and S. 869 , referred to the Committee on Banking, Housing, and Urban Affairs, were titled the COMPETE Act of 2007 and were comparable. They were similar to H.R. 5405 and S. 2824 , introduced in the 109 th Congress. They would have amended Section 404 so that each registered public accounting firm preparing or issuing an audit report for an issuer would have been required to attest to and report on the management assessment of the issuer. The attestation and report on the assessment made by the management of the issuer would not have included a separate opinion on the outcome of the assessment. This attestation and report would have been required to be performed at three-year intervals. The attestation would have been required to be made in accordance with standards adopted by the Board. The SEC would have had to develop a standard of materiality for the conduct of the assessment and report on an internal control based upon whether the internal control had a material affect on the company's financial statements and was significant to the issuer's overall financial status. The bills would have permitted a smaller public company not to be subject to Section 404. A "smaller public company" was defined as having a total market capitalization for the relevant reporting period of less than $700 million and total product and services revenue for the reporting period of less than $125 million or at the beginning of the reporting period fewer than 1,500 record beneficial owners. The SEC and the Board would have had to conduct a study examining the lack of and impediments to robust competition for the performance of audits for issuers. The SEC and the Board would have also been required to conduct a study comparing and contrasting the principles-based Turnbull Guidance under the securities laws of Great Britain to the implementation of Section 404 of Sarbanes-Oxley. Several other bills affecting compliance with Section 404 were introduced in the 110 th Congress. Bills introduced in the 111 th Congress to provide an exemption for small companies from the requirements of Section 404 included H.R. 1797 and H.R. 3775 . On November 4, 2009, the House Financial Services Committee recommended H.R. 3817 , the Investor Protection Act, which contained a clause, inserted as a bipartisan amendment, permanently exempting businesses with a market capitalization up to $75 million from complying with the auditing requirements of Section 404. The SEC and others would study how the burden of compliance with Section 404 could be reduced for companies valued between $75 million and $250 million and whether reducing or eliminating their compliance with Section 404 would encourage these companies to offer their shares to the public on United States exchanges. This bill was included in H.R. 4173 , the Wall Street Reform and Consumer Protection Act of 2009, as Section 7606, passed by the House on December 11, 2009. The Senate-passed bill on financial regulatory reform, S. 3217 , did not have a comparable provision. House and Senate conferees on Wall Street reform approved a conference report, H.Rept. 111-517 , which has a provision exempting businesses with a market capitalization of $75 million or less from complying with the auditing requirements of Section 404. The provision also requires the Securities and Exchange Commission to determine how it can reduce the burden of complying with Section 404 for companies whose market capitalization is between $75 million and $250 million while maintaining investor protections. Both the House and the Senate agreed to the conference report. The President signed the bill, known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law as P.L. 111-203 on July 21, 2010. Bills were introduced in the 112 th Congress which would allow, at least temporarily, certain companies capitalized at more than $75 million to have an exemption from complying with parts of Section 404 of Sarbanes-Oxley and other provisions of the federal securities laws. One of these bills, H.R. 3606 , eventually a combination of several House bills, passed both the House and the Senate and is titled the Jumpstart Our Business Startups Act (JOBS Act). The bill's Section 103 exempts certain companies with annual gross revenues of less than $1 billion, called emerging growth companies, from complying with the auditing requirements of Section 404(b) for up to five years. The President signed the bill on April 5, 2012. | Section 404 of the Sarbanes-Oxley Act of 2002 requires the Securities and Exchange Commission (SEC) to issue rules requiring annual reports filed by reporting issuers to state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting and for each accounting firm auditing the issuer's annual report to attest to the assessment made of the internal accounting procedures made by the issuer's management. There have been criticisms that this provision is overly burdensome and costly for small and medium-sized companies. On December 15, 2006, the SEC adopted rule changes giving smaller firms more time to comply with Section 404's reporting requirements. Compliance with Section 404 by small and medium-sized companies was an issue in both the 109th and 110th Congresses and continued as an issue in the 111th Congress. On November 4, 2009, the House Financial Services Committee recommended H.R. 3817, the Investor Protection Act, which contained a clause, inserted as a bipartisan amendment, permanently exempting businesses with a market capitalization up to $75 million from complying with the auditing requirements of Section 404. This bill was included in H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, as Section 7606, passed by the House on December 11, 2009. The Senate-passed bill on financial regulatory reform, S. 3217, did not have a comparable provision. House and Senate conferees on Wall Street reform approved a conference report, H.Rept. 111-517, which had a provision exempting businesses with a market capitalization of $75 million or less from complying with the auditing requirements of Section 404. Both the House and the Senate agreed to the conference report. The President signed the bill, known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law as P.L. 111-203 on July 21, 2010. Bills were introduced in the 112th Congress which would allow, at least temporarily, certain companies capitalized at more than $75 million to have an exemption from complying with parts of Section 404 of Sarbanes-Oxley and other provisions of the federal securities laws. One of these bills, H.R. 3606, eventually a combination of several House bills, passed both the House and the Senate and is titled the Jumpstart Our Business Startups Act (JOBS Act). The bill has a provision which would exempt certain companies with annual gross revenues of less than $1 billion from complying with the auditing requirements of Section 404(b) for up to five years. The President signed the bill on April 5, 2012. |
The Fourth Amendment to the U.S. Constitution governs all searches and seizures conducted by government agents. The Amendment contains two separate clauses: a prohibition against unreasonable searches and seizures, and a requirement that probable cause support each warrant issued. The issue of "reasonableness" is generally determined by a balancing test that weighs the degree to which the search intrudes on an individual's legitimate expectation of privacy and the degree to which it is needed for the promotion of legitimate governmental interests, such as crime prevention. In United States v. Katz , the U.S. Supreme Court adopted a two-part test to determine whether a person's expectation of privacy is legitimate. First, the court will determine whether the individual has an actual subjective expectation of privacy. Second, society must be prepared to recognize that expectation as objectively reasonable. The Court has found warrantless searches to be "reasonable" under some circumstances, including those in which consent was given and in which exigent circumstances existed. During the October 2005 term, the Court addressed some of the lingering questions regarding the "reasonableness" of warrantless searches. In Georgia v. Randolph , the Court held that the warrantless search of a defendant's residence based on his wife's consent to the police was unreasonable and invalid as to the defendant, who was physically present and expressly refused to consent. In Brigham City Utah v. Stuart , the Court clarified the appropriate Fourth Amendment standard governing warrantless entry by law enforcement in an emergency situation by holding that police officers may enter a home without a warrant when they have an objectively reasonable basis for believing that an occupant is seriously injured or imminently threatened with such an injury. In Samson v. California , the Court found that a parolee has a reduced expectation of privacy, which fails to outweigh the State's interests in protecting the community. Finally, in United States v. Grubbs , the Court addressed the issue of anticipatory search warrants when it found that an anticipatory search warrant authorizing the search of the defendant's residence on the basis of an affidavit stating that the warrant would be executed upon delivery of a videotape containing child pornography was supported by probable cause. In Katz v. United States , the Supreme Court stated that warrantless searches "are per se unreasonable under the Fourth Amendment subject only to a few specifically established and well-delineated exceptions." One of these exceptions occurs when police obtain voluntary consent of an occupant who shares, or is reasonably believed to share, authority over an area. Generally, anyone who has a reasonable expectation of privacy in the place being searched can consent to a warrantless search, and any person with common authority over, or other sufficient relationship to, the place or effects being searched can give valid consent. The Court has concluded that an individual "assumes a risk" when he or she shares authority over an area. In both United States v. Matlock and Illinois v. Rodriguez , the Court ruled that consent by co-occupants eliminated subsequent Fourth Amendment objections to the admission of seized evidence by an occupant who was not immediately present and therefore did not object at the time to the search. In assessing the "reasonableness" of such searches, the Court looked to the widely shared social expectations, which are generally influenced by property law. However, in Georgia v. Randolph , the Supreme Court found such a search unreasonable as it applies to a physically present occupant who expressly objects to the search. After a domestic dispute, the wife complained to the police that her husband took their son away. When police arrived at the house, she told them that her husband was a cocaine user and there was drug evidence in the home. One officer asked the defendant for permission to search the house, which the defendant expressly refused. That officer then went to the wife for consent to search, which she readily gave. The wife led the officer to an upstairs bedroom, where the officer noticed a drinking straw with a powdery residue, which ultimately proved to be cocaine. The police took the straw to the police station, along with the couple. After getting a search warrant, the police returned to the house and seized further evidence of drug use, which was used to indict the defendant for possession of cocaine. The defendant moved to suppress the evidence as the product of a warrantless search of his house, unauthorized by his wife's consent over his expressed refusal. The trial court denied the motion, ruling that his wife had common authority to consent to the search as established in Matlock . The Georgia appellate court reversed, and the Georgia Supreme Court affirmed, finding that the consent was invalid because, at the time of the warrantless search the defendant was physically present and had clearly refused to consent to the search. The U.S. Supreme Court decided to take the case to resolve a split of authority on whether one occupant may give law enforcement effective consent to search shared premises, as against a co-tenant who is present, but refuses to permit the search. In its 5-3 decision, written by Justice Souter, the Court held that the warrantless search of a defendant's residence based on his wife's consent to the police was unreasonable as to a physically present defendant who expressly refused to consent. The Court built on its previous decision in Minnesota v. Olson , wherein it found that overnight houseguests have a legitimate expectation of privacy in their temporary quarters. The Court concluded that if, as was found in Olson , the "customary expectation of courtesy or deference is a foundation of Fourth Amendment rights of a houseguest," it should follow that a co-inhabitant should have even a stronger claim. The Court found that there is no societal or common understanding that one co-tenant generally has a right or authority to prevail over the express wishes of another. In reaching its decision, the Court noted that there were alternatives available to bring the criminal activity to light. For example, the co-tenant could bring evidence to the police on her own initiative. Or, exigent circumstances could justify immediate action on the police's part, if the objecting tenant cannot be incapacitated from destroying easily disposable evidence during the time required to get a warrant. The majority distinguished Randolph from Matlock/Rodriguez based on the fact that in Randolph the defendant expressly denied consent to search, whereas in Matlock/Rodriguez the defendants were silent. The Court stated: "In sum, there is no common understanding that one co-tenant generally has a right or authority to prevail over the express wishes of another, whether the issue is the color of the curtains or invitations to outsiders." The Court acknowledged that the line drawn between Matlock and Illinois v. Rodriguez , where the defendants in both cases were nearby but simply not asked for their permission, and Randolph was a fine one. Nevertheless, the Court refused to require police who have obtained consent from one resident to take "affirmative steps" to find out whether another resident objects. Instead, the Court adopted a simpler rule that "a physically present inhabitant's express refusal of consent to a police search is dispositive as to him, regardless of the consent of a fellow occupant." In a dissenting opinion, Chief Justice Roberts, joined by Justice Scalia, criticized the Court's reliance on its understanding of social expectations and argued that a straightforward application of Matlock ' s "assumption-of-the-risk" principle should allow police to rely on one resident's consent over another resident's objection. The dissenters argued that the majority ruling "provides protection on a random and happenstance basis," which may protect the occupant at the door, but not one "napping or watching television in the next room." It is a general rule that searches and seizures inside a home without a warrant are presumptively unreasonable for Fourth Amendment purposes. However, this search warrant requirement is subject to certain exceptions, such as in cases where the exigencies of the situation make the needs of the law enforcement so compelling that a warrantless search is objectively reasonable under the Fourth Amendment. The Supreme Court addressed such a circumstance in Brigham City v. Stuart where, in reversing the Utah Supreme Court's decision, the Court held that police may enter a home without a warrant when they have an objectively reasonable basis for believing that an occupant is seriously injured or imminently threatened with such injury. This case arose when police officers responded to a call regarding a loud party at a residence. Upon arriving on the scene, the officers observed two juveniles drinking beer in the backyard. They entered the backyard, looked into the window and saw an altercation taking place in the kitchen. The officers testified that they saw four adults attempting to restrain a juvenile, and that the juvenile struck one of the adults, who was then spitting blood. The officers announced their presence and the altercation ceased. The officers subsequently arrested each of the adults for contributing to the delinquency of a minor, disorderly conduct, and intoxication. The adults argued that the warrantless entry violated the Fourth Amendment, and the Utah courts agreed. Writing for a unanimous Court, Chief Justice Roberts noted that one exigency obviating the warrant requirement is the need to assist individuals who are seriously injured or threatened with such injury. The petitioners did not take issue with this principle, but instead advanced two reasons why the officers' entry was unreasonable. First, they argued that the officers were more interested in making arrests than quelling violence. The Court noted that the officers' subjective motivation was irrelevant. Relying on the Court's previous ruling in Welsh v. Wisconsin , the petitioners further contended that their conduct was not serious enough to justify the warrantless intrusion. Distinguishing the facts in Welsh , the Court responded that the officers were confronted by ongoing violence occurring within the home, as opposed to a mere potential emergency, such as the need to preserve evidence. The Court concluded that the officers' entry to the home was reasonable under the totality of the circumstances. Given the tumult at the house upon their arrival, it was obvious that a knock on the front door would have been futile. Moreover, in light of the chaos they observed in the kitchen, the officers had an objectively reasonable basis for believing both that the injured adult might need help and that the violence could escalate. The Court concluded that "nothing in the Fourth Amendment required the officers to wait until the altercation escalated to the point that another blow rendered someone unconscious, semiconscious, or worse before entering." The Court also found that the officers' manner of entry was also reasonable. Since the first announcement of their presence went unheard and it was only after the announcing officer stepped into the kitchen and announced himself again that the tumult subsided, that announcement was at least equivalent to a knock on the screen door. Furthermore, the Court concluded that once the announcement was made, the officers were free to enter. The Court noted that it would serve no purpose to make the officers stand dumbly at the door awaiting a response while those within fought on, oblivious to the officers' presence. The question of whether a search is "reasonable" under the Fourth Amendment is generally determined by a balancing test that weighs the degree to which the search intrudes on an individual's privacy against the degree to which it is needed for the promotion of legitimate governmental interests. In United States v. Knights , the Court upheld a warrantless search of a probationer based on reasonable suspicion and his probationary status. In doing so, the Court noted that probationers have a diminished expectation of privacy, given that probation is on the continuum of punishments ranging from solitary prison confinement to community service. Utilizing a balancing test, the Court found that probation searches were necessary to promote legitimate governmental interests of integrating probationers back into the community, combating recidivism, and protecting potential victims, thus outweighing the privacy interests of the probationer. However, the Court's decision in Knights did not address the reasonableness of a search solely predicated on the probation condition regardless of reasonable suspicion. In Samson v. California , the defendant was stopped by a police officer while walking down the street. The officer conducted a search solely on the basis of his status as a parolee, which the officer knew. The search subsequently uncovered a bag of methamphetamines, and the defendant was charged with possession. At trial, the defendant moved to suppress the evidence, arguing that the search violated the Fourth Amendment. The motion was denied. The California Court of Appeals affirmed, finding that suspicionless searches of parolees are permitted under California law and "reasonable" within the meaning of the Fourth Amendment. In a 6-3 decision, written by Justice Thomas, the Court in examining the totality of the circumstances found that the parolee did not have an expectation of privacy "that society would recognize as legitimate" because on the continuum of punishments, parole is closer to prison that probation. The Court noted that a parolee remains in the legal custody of the Department of Corrections through the remainder of his parole term. Moreover, the parolee signed an order submitting to the condition. Further, the Court found that the State's interest in reducing recidivism is substantial and warrants privacy intrusions not otherwise tolerated. The Court noted that requiring individualized suspicion would undermine the State's ability to effectively supervise parolees. Justice Stevens, joined by Justices Souter and Breyer, dissented, arguing that the Fourth Amendment provides at least some protection to parolees and, therefore, suspicionless searches by police with no special relationship to the parolee cannot be considered "reasonable." The dissenters argued that this is the first time the Court has ever found a search reasonable in the absence of either individualized suspicion or "special needs." Further, the dissenters contended that the majority's near-equating of parolees to prisoners was unsupported by precedent. In addition, the dissenters felt that a "special needs" search by parole officers, who have a close relationship to a parolee, might be acceptable, but a blanket authorization allowing a parolee to be searched by any police officer is not. Moreover, the dissenters were concerned that there are no procedural protections in California law to ensure that such searches were performed evenhandedly. Probable cause is required to justify certain governmental intrusions upon interests protected by the Fourth Amendment. Generally, probable cause is defined as "a fair probability that contraband or evidence of a crime will be found in a particular place." To satisfy the warrant requirement, an impartial judicial officer must assess whether the police have probable cause to make an arrest, to conduct a search, or to seize evidence, instrumentalities, fruits of a crime, or contraband. Generally, the magistrate must consider the facts and circumstances presented in the warrant application, including the supporting affidavit, in a practical, common-sense manner, and make an independent assessment regarding probable cause. Moreover, the Fourth Amendment requires that a warrant describe with "particularity ... the place to be searched and the persons or things to be seized." This limitation safeguards the individual's privacy interest against "the wide-ranging exploratory searches the Framers [of the Constitution] intended to prohibit." In United States v. Grubbs , the Court found that an anticipatory warrant satisfied the Fourth Amendment's probable cause requirement so long as there is a fair probability that the condition precedent to execution will occur and that, once it has, evidence of a crime will be found. In addition, the Court held that the particularity requirement in the Fourth Amendment does not require that the warrant itself state the condition precedent. The defendant purchased a videotape containing child pornography from a website operated by U.S. postal inspectors. The inspectors arranged a controlled delivery of the tape and obtained a search warrant for the defendant's home to be executed once the tape was "physically taken into the residence." The warrant itself did not contain the "triggering condition," though it was stated in an unincorporated affidavit. After the package was delivered, the inspectors executed the warrant and seized the evidence. Although they provided the defendant with a copy of the warrant, the inspectors did not give him a copy of the supporting affidavit. The U.S. Court of Appeals for the Ninth Circuit held that the fruits of the search had to be suppressed, concluding that the warrant was invalid because it failed to state the triggering condition. In an 8-0 decision, written by Justice Scalia, the Court held that the warrant was supported by probable clause and met the Fourth Amendment's requirement of particularity. Before addressing the merits of the appellate court's holding, the Court declared that anticipatory search warrants are constitutional. The Court reasoned that there is no difference between anticipatory warrants and ordinary warrants, as both require a magistrate to determine that it is now probable that contraband, evidence of a crime, or a fugitive will be on the described premises when the warrant is executed. When the anticipatory warrant places a condition (other than the mere passage of time) on its execution, the first of these determinations goes not merely to what will be found if the condition is met, but also to the likelihood that the condition will be met, and thus a proper object of seizure will be on the premises described. The Court reasoned that the occurrence of the triggering condition—successful delivery of the videotape—would plainly establish probable cause for the search. Moreover, the affidavit established probable cause to believe the triggering condition would be satisfied. The Court also found that the warrant at issue did not violate the Fourth Amendment's particularity requirement because the Fourth Amendment requires that the warrant particularly describe only two things: the place to be searched and the persons or things to be seized. As such, the Court concluded that Fourth Amendment does not require that the triggering condition for an anticipatory warrant be set forth in the warrant itself. Justice Souter, joined by Justices Stevens and Ginsburg, wrote a concurring opinion to qualify some points specifically to caution that omitting the triggering condition off the face of an anticipatory warrant could lead to "several untoward consequences with constitutional significance." For example, an officer who is unfamiliar with the warrant might unwittingly execute it before the triggering condition has occurred, which could result in spoiling the fruits of the search. Moreover, Justice Souter left open the possibility for reconsideration of this issue should the Court decide that the target of a warrant has a right to inspect it prior to its execution. | The Fourth Amendment to the United States Constitution provides that "[t]he right of the people to be secure in their person, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized." The Supreme Court has interpreted this language as imposing a presumptive warrant requirement on all searches and seizures predicated on governmental authority. However, the Court has carved out exceptions to the warrant requirement when obtaining such would be impractical or unnecessary. In crafting these exceptions, the Court has analyzed the "reasonableness" of the circumstances that gave rise to the warrantless search. During the October 2005 term, the Court addressed the "reasonableness" of such warrantless searches based on third-party consent, exigent circumstances, and parolee status. In Georgia v. Randolph (126 S.Ct. 1515 [2006]), the Court held that the warrantless search of a defendant's residence based on his wife's consent to the police was unreasonable and invalid as to the defendant, who was physically present and expressly refused to consent. The Court clarified the appropriate Fourth Amendment standard governing warrantless entry by law enforcement in an emergency situation in Brigham City Utah v. Stuart (126 S.Ct. 1943 [2006]), holding that the police officers may enter a home without a warrant when there exists an objectively reasonable basis for believing that an occupant is seriously injured or imminently threatened with such injury. Also, in Samson v. California (126 S.Ct. 2193 [2006]), the Court ruled that the a parolee's reduced expectation of privacy fails to outweigh the State's interests in protecting the community. In addition, the Court resolved two fundamental issues concerning the lawfulness of searches pursuant to anticipatory search warrants. In United States v. Grubbs (126 S.Ct. 1494 [2006]), the Court found that such warrants do not categorically violate the Fourth Amendment. Also, the Court held that an anticipatory search warrant authorizing the search of the defendant's residence on the occurrence of a condition precedent stated in an affidavit but not in the warrant itself was proper and supported by probable cause. This report summarizes the Court's decisions addressing these issues and will not be updated. |
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